Common Payroll Terms and Acronyms Part 2
Posted on March 14, 2013
The payroll processing world is full of confusing acronyms and phrases. If you're at a loss as to how to decipher the typical payroll terminology, check out the basic definitions listed below:
EFTPS
The Electronic Federal Tax Payment System (EFTPS) was created in hopes
of automating the otherwise clumsy process of handling physically mailed
tax payments. With EFTPS, employers and taxpayers can pay their taxes by
phone or internet free of charge. This program has greatly reduced costs
for employers while making it easier for individual taxpayers to get
their taxes in on time.
EIN
The employee identification number is a tax code for employers and is
somewhat similar to the social security number given to individuals.
This identification number is used by both the IRS and by individual
state tax systems.
Form 1099
Form 1099 refers to a set of tax forms used to display income outside of
the traditional employee wages. This form is most often used by
freelancers and independent contractors.
Form W-2
The W-2 form is a lot like a 1099, but it is used to report wages earned
for traditional employees. The W-2 also contains information pertaining
to taxes withheld (such as Social Security) and compensation outside of
wages (such as moving allowances).
Garnishment
When an employee's wages are garnished, he or she is forced to forfeit a
given portion of the paycheck to a debtor. Garnishments are most common
for employees who have failed to pay their debts (such as student
loans).
HSA
Health savings account (HSA) funds can be used for qualified medical
expenses and are wholly owned by the employee. Those funds are not
subject to certain taxes at the time of deposit, much like an individual
retirement account (IRA). Paired with a high-deductible health plan,
employees contributing to an HSA are given a certain level of personal
control over their spending on health care costs.
IRA
The individual retirement account (IRA) offers employees greater control
over their retirement savings. With this retirement plan, employees are
able to deposit funds and enjoy access to tax advantages.
New Hire Report
The Personal Responsibility and Work Opportunity Act of 1996 mandates
that employers report any new hires and rehires to the state agency and
any other required agencies within a certain time frame following the
date on which the new employee was first hired.
Partial Pay
Under normal circumstances, payroll processing takes place at the
predetermined end of a pay period. However, if an employee is hired,
promoted or terminated the payroll may begin or end in the middle of the
usual pay period. In this situation, the partial pay system is utilized.
For salaried employees, the partial pay rate can be calculated by
dividing the annual salary by the number of work days in one year.
Pay Period
The term "pay period" refers to the frequency with which an employer
chooses to pay employees and contractors. Common pay periods include
weekly, bi-weekly and monthly. The chosen pay period is defined by its
beginning and ending dates.
While these are useful terms to know, the ins and outs of payroll processing definitely require a more thorough knowledge. Trust your payroll to the experts at Paycor. To learn more, contact us.
Check back next week for more helpful payroll terms and acronyms, or take a look at Common Payroll Terms and Acronyms Part 1!