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:
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.
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 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.
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).
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).
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.
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.
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.
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!