All professional fields have their very own jargon. This jargon is meant to make matters easier to understand. This is the case with payrolls and payroll terminology comes with its own jargon. It is possible that even people who have worked in payroll departments for many years can still have trouble understanding some payroll terminology. The inability to hold proper communication between colleagues and employees or even understand instructions from the boss can be quite embarrassing.
The following is a quick look payroll terminology which is an essential part of the industry. It enables those in the industry understand the terminology commonly used in this sector.
Accelerated Deposit Rule: this is also referred to as the one-day rule. This rule requires employers who have an accumulated tax debt of about $100,000 during a certain deposit period to proceed and go ahead and forward these taxes at the next banking day just after the date when the liability was incurred.
Accounting period: this is the period that an income statement refers to or is covered by.
Allowances: This refers to cash that is aside from the basic pay. This money is meant to compensate employees in regards to costs incurred such as clothing, rent and even meals and travel. This term also refers to any other form of compensation offered to employed individuals for their skills and proficiency in certain areas of expertise.
Cafeteria Plan: this is a plan designed to benefit employees so they may use their untaxed wages and salary to design and customize a package of benefits.
CODA: CODA refers to cash or deferred arrangement and it is a retirement plan that is arranged such that employees get to receive cash benefits or the employer gets to pay some money into an equal amount plan.
Catch UP Contributions: this payroll terminology refers to an elective deferment plan. Such a plan will be made by an employee and will be directed towards a retirement plan. It could also be directed to an IRA or individual retirement account.
Deferred Compensation: this is a term used in reference to some arrangement where compensation for employees is deferred to a future date for whatever reason.
Disposable earnings: this is the component of an employee’s salary or pay that is left after all deductions have been made.
Deferred benefit plan: This terminology can be defined as a retirement plan funded by the employer and uses computations basically based on the employees time in service, their age as well as salary.
Defined Contribution Plan: This is payroll terminology where a final benefit in relation to retirement is made variable while the regular contributions are constant and the amount clearly defined. The amounts to be contributed on a regular basis are determined using various computations. The determining factor will be the plan being implemented.
Elective Deferral: An elective deferral is a contribution made by an employer in cash or other forms and is made towards a retirement plan after an employee approves such a system for their own plan rather than receive the cash.
EFTPS: this also refers to the Electronic Federal Tax Payment System. This system of tax payment is offered by the tax authorities, specifically the US Department of Treasury. This form of payment will enable electronic tax payments to the IRS free of any charges.
ERISA: It refers to Employment Retirement Income Security Act of 1974. This is a law as well as payroll terminology and sets standards for voluntary establishments of retirement plans by private sector players for employed people.
ESPP: Employee Stock Purchase Plan: This is also payroll terminology and is a kind of employee benefit where they are able to purchase company stock at affordable rates lower than normal rates.
Employment Tax E-File System: This is actually an IRS product and allows employees to electronically submit their tax returns in order to report their taxable wages.
FICA: Refers to the Federal Insurance Contribution Act and it mandates contributions towards social security by payroll deductions to the US government.
Garnishment: this is a payroll terminology that emanates from a legal notice. It usually requires an employer to deduct money from an employee’s income to be directed towards debt payments, child support, and other obligations of a financial nature.
Gross UP: this is basically a calculation used by employers to make a determination in reference to gross wages that are to be paid to employees.
HAS: This is a payroll terminology that refers to Health Savings Account. It is health plan with high deductibles and comes with a personal savings account used for purposes of saving money that may be required for medical expenses.
HCE: Also known as a highly Compensated Employee. This is basically an employee of a firm who receives pay that is in the top 20 percentile in reference to all other employees. It could also refer to a 5 per cent owner of the business. It is usually much higher than the income of others and is contained within certain payment plans.
ISO or incentive stock option: This is as tock option backed by law and allows employees of a firm to purchase stock from the firm at rates lower than the current market price.
Independent contractor: This is a worker who is recruited to perform certain specific duties. Such a worker will control their own work details until they complete their work and deliver results.
NET PAY: This is payroll terminology that refers to the amount an employed person receives after deduction such as taxes have been made.
On Call time: This is time that an employee has to be around the premises so they may be available rather than attend to their own personal matters.
Overtime: This is time that is outside of an employee’s regular time of work. It is also defined as time outside the regular 40 hours of work per week.
Paycard: A paycard is a debit card that is financed by an employer and contains some stored value. These cards can be used to withdraw cash or purchase stuff and is a method through which employees can access their pay.
Per Diem: This is a daily expense meted out to meet costs such as transport, food and even accommodation.
Percentage method of withholding taxes: This is a method used in the calculation of taxes due to the IRS from an employed person’s salary or wages. These calculations are normally automated.
Preliminary and Post-liminary Activities: This is a payroll terminology that refers to the time employees spend getting ready to start work or getting ready to leave work. Such activities are basically not considered paid time unless the activities are essential to the employer.
PEO: this refers to professional employer organizations and refers to external organizations that are hired to manage some activities on behalf of the employer such as administration of HR activities.
SIMPLE PLANS: It is payroll terminology that refers to savings incentive match plans for employees of small employers. This involves a contribution plan for employees with fewer than 100 employees. This can usually be set up on a 401K plan.
Shift Differential: this is an additional wage paid to employees who get to work on an undesirable shift.
SUB: An SUB is a payroll terminology referring to supplemental unemployment benefits. These are payments made to employees after the termination from a fund financed by the employer. These funds are taxable.
Split Shift: A Split Shift is a shift at a workplace where the shift is divided into two periods of time with a couple of hours in between.
Wage Assignment: Meeting scheduled payments such as insurance premiums and union dues by using a portion of an employee’s future earnings.