15 Payroll Terms Every Employer Should Know About

15 Payroll Terms Every Employer Should Know About

Payroll terms are general terms that are used during any payroll activity.

A payroll is a list of employees who are going to be paid by their company, and payroll terms are used during this activity to describe various situations.

15 Payroll Terms Every Employer Should Know About 1
15 Payroll Terms Every Employer Should Know About 4

If you are an employer who is new to payroll activities, then these terms might sound confusing to you.

But do not worry, we are here to help.

Following is a list of various payroll terms that are most commonly used when referring to paystub generation. If you understand these terms, then you will be good to go.

1. Payroll Deduction

Payroll deduction is a general term that is used when an employee receives less money than the original payment. The reduced money is used for some employment service benefits.

The company can use that deduction to pay taxes for the employee, provide child support, or provide them with premium insurance services.

2. Employer Identification Number (EIN)

An employer identification number, or EIN for short, is a 9-digit number used to understand the payroll status of an employee.

For example, in the previous point, we mentioned that companies can help pay for employee taxes or insurance.

But how much money is being paid for taxes or for the insurance is recorded digitally through these EIN numbers on the online database of the company.

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3. Gross Pay

Gross pay is a term used to describe the original amount of money an employee earns.

This is the total amount of money excluding any payroll deduction.

4. Net Pay

As for the net pay definition, it is a term used to describe the amount of money an employee receives after removing the payroll deductions from the gross pay.

5. Pay Period

The pay period is the agreed work time duration. The employee needs to work for a set amount of duration before getting paid.

Some companies have a daily pay period, meaning employees need to work for a set amount of hours each day to get paid at the end of their working hours.

Most companies have a monthly pay period, meaning the employees need to work for a set amount of time per month to get paid at the end of each month.

6. Minimum Wage

Minimum wage is a term that is used to address the lowest amount of money employers are legally allowed to pay employees.

In the United States, currently, the minimum wage for employees is about $7.25 per hour.

This number can vary from state to state but for interns, there may not be any minimum wage or salary.

7. Tipped Employees

Tipped employees is a term that is used to address employees who make about $30 per month just from getting tips.

Roles can be restaurant waiters, delivery people, or taxi drivers working for a taxi company.

The difference between a normal employee and a tipped employee is in the minimum wage. A tipped employee has a minimum wage of $2.13 for every hour they work.

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8. Overtime Pay

Overtime pay is a term that describes the amount of money an employee will be paid for overtime hours work.

For example, if a company has a normal working amount of 35 hours a week, and an employee works 40 or 45 hours, then the employee will be paid extra for those extra hours.

This extra payment is known as overtime pay.

9. Shift Differential

Shift differential is a term used to describe the amount of money paid to an employee that works outside their working shifts.

For example, in various companies, there are employees who work in day shifts and there are employees who work in night shifts.

If someone who works on day shifts also starts giving extra hours on night shifts, then that person is paid extra.

This extra payment is known as a shift differential.

10. Commissions

Commissions is also a term used for an extra payment. Commissions are set out for each employee.

For example, the sales industry will offer a commission for an employee that makes at least $40,000 worth of sales.

If the employee can meet the terms of the commission, then he will be paid extra along with his regular payment.

11. Paid Time Off

Paid time off is the amount of money an employee will receive even when they are on leave.

The leave may be due to injury, a holiday, or serious illness. There is no strict guideline about paid time off.

As an employer, it is completely up to you whether you want to give an employee a paid leave or not.

12. Pay Stubs

Paystubs is a term used to identify a document that records all the payment activity of an employee.

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The pay stub will contain information about the gross payment, the payroll deduction, the net payment, the money spent on each service, etc.

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13. Contractor Payment

Contractors are people who are not regular employees but work for an individual project or a program. Because they are not directly linked to your organization, they are not paid the same way.

The payment for a contractor is made after discussing with the contractor and it is recorded in the terms of the agreement.

14. Fringe Benefits

Fringe benefits are not monetary benefits, but benefits in other ways.

For example, a company paying for your gym membership or your 401(k) retirement plan are examples of fringe benefits.

15. Per Diem

Per diem is a term used to describe a set amount of money an employee will receive for their travel expenses.

They are paid per diem each day based on where they live and how much it takes to travel from their home to the workplace.

Some companies also provide meal expenses through per diem.

Final Thoughts

Payroll is a very important part of a company. Knowing the terms will help you make decisions easily.

Once you get used to the terms it will be very easy to conduct payroll and for your employees to understand all the ins and outs of the payment systems.

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