A Guide to Payroll Terms: And Payroll Best and Worst Practices

Before going through the Payroll Terms, it is important to know the definition of payroll. Payroll is a catch-all term for several things. It is the monthly salary paid to employees as well as the additional deductions which the employer must make. Payroll is the method by which employees after determining their owed amount. Payroll processing involves the names, hours, wages, worked, benefits, deductions, and taxes of the employees.

The Following are Some of the Basics Payroll Terms

1. Gross Pay

Gross pay, in Payroll Terminology, is the total salary earned by an employee before payroll deductions. For salaried workers, this is derived by dividing the employee’s total annual or yearly pay by the number of pay periods, such as 12, and for hourly employees, by multiplying hourly wages by the number of hours worked, including overtime. Gross pay or gross wages is the sum that is displayed on an employment offer to the applicant.

2. Net Pay

One of the Basic Terms in Payroll is Net pay which refers to the amount of salary that an employee receives after deducting taxes and payroll deductions. This is the final paycheck that is deposited into the employee’s bank account. Net pay is also referred to as ‘take-home pay’.

3. Pay Period

The pay period, in Payroll Terminology, refers to the period during which the employer has to pay the employees. It refers to how regularly a company processes payroll. Pay periods that are commonly used include monthly, weekly, bi-weekly, and semi-monthly. The number of pay periods in a year is important in calculating total annual pay for employees.

4. Overtime

This is a payroll term that is widely used but rarely acknowledged. When a worker is employed for more hours than usual, the employer is required to pay a bonus to reimburse for these extra hours. The overtime payment is greater than the employee’s gross pay.

5. Compensation

Compensation is a broad term that refers to all of the different types of payments that an employee receives. Every employer provides some sort of additional benefit to their employees, which could include fringe benefits, bonuses, stock options, and so on.

6. Exempt Employees

Organizations usually define their exempt and non-exempt employees. Exempt means “not required to work overtime.” Exempt employees are not compensated for overtime. This is due to the fact that their jobs necessitate some overtime.

 

Before going through the Payroll Terms, it is important to know the definition of payroll. Payroll is a catch-all term for several things. It is the monthly salary paid to employees as well as the additional deductions which the employer must make. Payroll is the method by which employees after determining their owed amount. Payroll processing involves the names, hours, wages, worked, benefits, deductions, and taxes of the employees.

 

If you have been getting confused with all these Payroll Terms, then Bookkeeping Pro services are here to help you out.

 

Managing payroll for one's own business can be challenging due to the unique vocabulary involved. These are some of the essential payroll terms and acronyms that employers may encounter as they navigate the payroll process. If you find yourself confused with these terms, Meru Accounting is here to provide assistance

Best Payroll Processing Practices

Accurate Record-Keeping

Maintaining accurate records of all payroll-related information, including employee details, hours worked, wages, and deductions, is essential. This ensures compliance with tax laws, labor regulations, and internal policies. The payroll term relevant here is "record-keeping," which involves maintaining organized and updated records of all payroll transactions.

Compliance with Laws and Regulations

Staying updated with federal, state, and local laws and regulations related to payroll is crucial to avoid penalties and legal issues. This includes proper classification of employees, calculation of taxes, and adherence to minimum wage and overtime laws. The payroll term "compliance" encompasses following legal requirements and regulations in all payroll processes.

Payroll Automation

Utilizing automated payroll systems can streamline the payroll process, reduce errors, and save time. Automated systems can handle calculations, deductions, and tax withholdings accurately and efficiently. The payroll term "automation" refers to the use of technology and software to automate various aspects of payroll processing.

Timely Payments

To maintain employee satisfaction and avoid legal disputes, it is crucial to ensure that the company pays employees accurately and on time. Timely payments include paying employees according to the designated payment schedule, depositing payroll taxes on time, and making timely payments to third-party vendors. The payroll term relevant here is "timely payments," which involves prompt and accurate processing of payroll payments.

Worst Payroll Processing Practices

Lack of Documentation: Failing to maintain proper documentation of payroll-related information can lead to inaccuracies, discrepancies, and compliance issues. This includes inadequate record-keeping of employee details, hours worked, and wage rates, which can result in payroll errors and legal penalties.

Manual Calculations

Relying on manual calculations for payroll processing increases the risk of errors, such as miscalculations of wages, taxes, and deductions. Manual calculations are time-consuming and prone to mistakes, resulting in inaccurate payroll payments and potential legal liabilities.

 

Inadequate Compliance: Ignorance or disregard of federal, state, and local laws and regulations related to payroll can result in compliance issues and penalties. This includes misclassification of employees, incorrect tax withholdings, and failure to comply with minimum wage and overtime laws, which can lead to costly legal disputes.

Late Payments

Delayed or late payments to employees or third-party vendors can result in dissatisfaction among employees and vendors, and can also lead to legal disputes. Late payments can result in financial and reputational repercussions for the organization.

Solution

Implement a robust record-keeping system to ensure accurate documentation of all payroll-related information.

 

Invest in payroll automation software or systems to streamline the payroll process, reduce errors, and save time.

 

Stay updated with federal, state, and local laws and regulations related to payroll, and ensure compliance in all payroll processes.

Conduct regular audits of payroll processes to identify and rectify any discrepancies or errors.

 

Provide training and education to the payroll team on best practices and relevant payroll terminologies to ensure accurate and compliant payroll processing. Handling one’s own payroll for one’s business can be difficult because the payroll process requires a completely new vocabulary. These are the most important Payroll Terms and Acronyms employers will come across as they begin to work on paychecks, which marks the beginning of the payroll process.

 

If you have been getting confused with all these Payroll Terms, then Bookkeeping Pro Services is here to help you out.

Useful Resources

Worker’s Classification Independent Contractor vs Employee

Bookkeeping for Independent Contractors Tips to Keep in Mind                                                                               

How Small Businesses Owners Can Pay Themselves