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Payroll Glossary

Below is a sample of payroll terms that come up when discussing payroll.  Please call us if you have any questions about these or any other payroll terms.

Advice:  A report to employees with direct deposit showing gross and net pay including any deductions.

After-Tax Deduction: A payroll deduction that does not reduce the employees taxable wages. It is taken out only after all applicable taxes and other deductions have been withheld.  An example of this is garnishments or union dues.

Automated Clearing House (ACH): A Federal Reserve Bank or other financial institution acting as a clearinghouse for direct deposit transactions.

Child Support Withholding: The process of withholding amounts from an employee’s compensation for child support mandated by a court. The employer is responsible for withholding the amounts and paying them to the party named in the withholding order.

Deduction: An amount subtracted from an employees gross pay to reach net pay.

Direct Deposit: The electronic transfer of an employees net pay directly into the employee’s personal bank account.

Electronic Federal Tax Payment System (EFTPS):  System that allows employers to make federal tax deposits electronically through the ACH network.

Employees Withholding Allowance Certificate:  The federal Form W-4 on which the employee states their marital status and the number of withholding allowances he or she claims. The form is used by the employer to determine the amount of federal, state, and local income taxes to withhold from the employee's compensation.

Federal Insurance Contributions Act (FICA): Combined tax levies for Social Security and Medicare.

Federal Unemployment Tax Act (FUTA): It requires employers to pay a certain percentage of their employees' wages up to a limit as a payroll tax to help fund unemployment compensation benefits for separated employees.

Garnishment: An involuntary transfer of an employees wages by court order.

Manual Check: A manually calculated and prepared payroll check.

Minimum Wage: The lowest hourly amount an employer can pay employees under federal or state law.

New Hire Reporting: The reporting of newly hired employees to state agencies to assist in collecting child support and to check abuse of the state unemployment, workers comp or public assistance programs.

Nonresident Alien: An individual from a foreign country working in the US who does not have a green card, but is subject to federal income tax on US source income.

Payroll Period: The time period for which an employer pays wages to its employees.

Resident Alien:  An individual who has a green card. They are generally subject to federal income tax withholding and Social Security and Medicare taxes in the same way as US citizens.

State Unemployment Insurance (SUI): A quarterly tax paid to a state unemployment agency.