Posted on March 21, 2013

Remembering vast amounts of payroll terminology can be difficult, but it's worth your while to get a handle on some of the more common terms encountered in the world of payroll. Make a point of familiarizing yourself with the following important terms and acronyms:

Reasonable Basis
When hiring independent contractors, employers must be able to provide proof, or reasonable basis, that the contractor label is actually justified.

Resident Alien
Any non-US citizen living permanently in the United States is referred to as a resident alien. Resident aliens are taxed at the same rate as U.S. citizens.

Retroactive Pay
If an employee has not received compensation for hours worked in a previous pay period, the employer may be required to provide retroactive pay, or payment outside of the originally schedule pay period. Retroactive pay can apply to both hourly wages and overtime earnings.

Simplified employee pensions or SEPs are similar to IRAs but differ in that they allow employees to make contributions above and beyond the usual IRA limits. The SEP is the most popular IRA plan among self-employed workers.

Severance Pay
When employees are terminated through no fault of their own, they may be eligible for a special payment known as severance pay. This is designed to tide recently terminated employees over until they are able to obtain employment again.

In most circumstances, resident aliens can only be employed by organizations or companies that have sponsored their admission into the United States. Upon the resident alien's admission, the sponsor is required to sign an affidavit agreeing to support the admitted individual.

Supplemental Wages
Supplemental wages include any earnings employees incur outside of the agreed-upon pay rate. These wages may include tips, commissions and bonuses. They are taxed differently than regular wages.

The acronym SSA can refer to either the Social Security Act or the Social Security Administration. The Social Security Act was enacted by President Roosevelt in 1935 as part of the New Deal plan. Its aim was to set up a social insurance system in order to reduce destitution among senior citizens and the disabled. The Social Security Administration is the government body set up by the Social Security Act. Its job is to administer both Social Security and the Supplemental Security Income (SSI) program.

SSN stands for Social Security Number, or the code assigned by the Social Security Administration to every American's social security account. Applicants cannot gain employment without providing this number.

The Worker Adjustment and Retraining Notification (WARN) Act was signed in 1988 in hopes of protecting employees and their families from the economic fallout surrounding unannounced mass layoffs. Under this law, employers are required to notify employees at least 60 days before a plant closing or other type of mass layoff takes place.

In payroll processing, withholding involves deducting money from an employee's salary in order to fulfill government requirements. Withholding may also take place in order to siphon a portion of an employee's paycheck to alternative causes (such as union dues), but these must be approved by the employee in question.

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 out Common Payroll Terms and Acronyms Part 1 and Part 2.