As a small business owner, you know all about your products or services. You’re the expert. However, when it comes to payroll, you may be an amateur with a limited understanding about compensation and taxes. Nevertheless, you may be trying to handle your company’s payroll on your own. Or, maybe you’ve realized you just don’t have the know-how to tackle your company’s payroll, so you’ve hired an employee or a payroll services like The Payroll Department to handle your company’s payroll for you.
Regardless who is managing your business’s payroll processing, it’s a good idea to have a basic understanding of payroll terminology. That way you’ll be able to communicate with your employees – and your payroll services provider – knowledgeably.
Therefore, here are some common terms you should know:
- Base pay rate – The initial, agreed upon rate of compensation an employee receives in exchange for the services he/she performs while on the job. This rate can be paid hourly, weekly, monthly, annually, or by the piece. The base pay rate excludes additional, lump sum compensation such as bonuses, overtime pay, raises, or benefits.
- Deductions – Amounts withheld from an employee’s These may include voluntary deductions that the employee authorizes, such as health insurance premiums, retirement plan contributions, and union or association dues. Or, deductions may be involuntary, such as federal and state income taxes, child support payments or garnishments. Depending on the actual deduction, these items may be taken out pre-tax or post-tax.
- Gross pay – Total amount an employee is paid before taxes, deductions and other withholding are removed. Gross pay includes an employee’s base pay plus any additional earnings, such as commissions, bonuses, overtime pay, and tips.
- Net pay – The amount an employee receives in his/her paycheck. Net pay is an employee’s gross pay minus taxes, deductions and withholding.
- Taxable wage base – The maximum amount of compensation upon which an employee must pay Social Security, Federal Unemployment Tax Act (FUTA), and state unemployment insurance taxes. Generally, the taxable wage base equals an employee’s gross wages.
- Withholding – Amounts taken from an employee’s paycheck for federal and state income taxes, Social Security tax, garnishments or levies, and other deductions. These amounts are paid to the federal, state and local tax agencies or other parties to whom they’re owed.
These are just a few of the many payroll terms you should know. By understanding these terms, every employer can help reduce errors while processing their company’s payroll.
Another way to reduce payroll mistakes is to hire a payroll services provider like The Payroll Department to process your company’s payroll as well as collect and submit withholding and employer taxes on your behalf. After all, The Payroll Department are payroll experts. We’ve been successfully handling several central Indiana and surrounding states companies’ payroll for many years. Contact Teresa Ray to learn how our experienced staff can help you navigate the complexities of payroll efficiently.
-Ariane of The Payroll Department blog team