Payroll Service Terms: Employee Leasing & PEO services

Payroll Terms and Definitions

Automated Clearing House (ACH)
Banking clearing house that processes direct deposits transfers.

Benefit Ratio Method
Proportion of unemployment benefits paid to the company's former employees during the measured period, divided by the total payroll during the same period. This calculation is used to determine the unemployment contribution rate to charge employers.

Benefit Wage Ration Method
Proportion of the total of the taxable wage for laid off employees during a measured period divided by total payroll during same period. This is used to determine the unemployment contribution rate to charge employers.

Cafeteria Plan
Flexible benefits plan authorized by the Internal Revenue Code that allows employees to pay for a selection of benefits with pay deductions, some of which may be pretax.

Compensation
Any form of payment rendered to an employee in exchange for work or services performed.

Contract Work Hours and Safety Standards Act
An act of the federal government requiring federal contractors to pay overtime for time worked exceeding 40 hours per week.

Contribution Rate
The percentage tax charged by a state to an employer to cover their share of the state unemployment insurance fund.

Current Tax Payment Act of 1943
A federal act requiring employers to withhold income taxes from employee pay.

Davis-Bacon Act of 1931
Federal act that offers wage protection to non-government workers by requiring companies engaged in federal construction projects to pay their employees’ prevailing wages and fringe benefits.

Defined Benefit Plan
A pension plan that pays out a predetermined amount to beneficiaries. It is based on a set of rules that normally combine years of employment and wages based over the time period.

Defined Contribution Plan
A qualified retirement plan under which the employer is liable for a payment into the plan of a specific size, but not for the size of the resulting payments from the plan to participants.

Direct Deposit
Bypassing a paycheck, the earnings are deposited directly from the company bank account into that of the employee.

Electronic Federal Tax Payment Systems (EFTPS)
An electronics funds transfer used by businesses to remit taxes to the government.

Employee
A person who renders services to another entity in exchange for compensation.

Employee Retirement Income Security Act of 1974 (ERISA)
A federal act that sets minimum operational and funding standards for employee benefit plans.

Employee Stock Ownership Plan (ESOP)
A fund containing company stock and owned by employees, paid for by ongoing contributions by the employer.

Employer
A person or entity that directs and oversees services rendered by an individual in exchange for compensation.

Fair Labor Standard Act of 1938
A federal act creating standards of overtime pay, minimum wages and payroll record keeping.

Family and Medical Leave Act
A federal act that contains the rules governing health insurance to employees on leave.

Federal Employer Identification Number
A unique identification number issued by the federal government, used for payroll purposes to identify the company when dealing with the IRS.

Federal Insurance Contributions Act of 1935 (FICA)
A federal act authorizing the government to collect social security and Medicare payroll taxes.

Federal Unemployment Tax Act (FUTA)
A federal act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a pool of funds to be used for unemployment benefits.

FICA
The acronym for the Federal Insurance Contributions Act. Also used to describe the combined amount of social security and Medicare deductions from an employee's pay.

Flexible Spending Account
A form of cafeteria plan, allowing employees to pay for some medical or dependent care expenses with pretax pay deductions.

Form 1099
A form for businesses to report to the government payments made to certain types of suppliers.

Form 4070
A form for employees to report to an employer the amount of their tip income.

Form 668-W
The standard form used for notifying a company to garnish an employee's wages for unpaid taxes.

Form 8027
The form used by employers to report their employees' tip incomes to the government.

Form 940
A form to report federal unemployment tax remittances and liabilities.

Form 940-EZ
A shortened version of the form 940.

Form 941
A form to identify to the government the amount of all quarterly wages on which taxes are withheld, the amount of taxes withheld and any adjustments to withhold taxes from previous reporting periods.

Form I-9
Employment Eligibility Verification form, which must be filled out for all new employees, in which they establish their identity and eligibility to work.

Garnishment
A court-ordered authorization to shift employee wages to a creditor.

Green Card
The I-551 Permanent Resident Card issued to a resident alien.

Gross Pay
The amount of earnings due to an employee prior to tax and other deductions.

Health Insurance Portability and Accountability Act of 1996 (HIPAA)
A federal act expanding on many of the insurance reforms offered by COBRA. Notably, ensuring that small businesses have access to health insurance, despite the special health status of any employees.

Hourly Rate Plan
A method of calculating wages for hourly employees that involves the multiplication of the wage rate per hour times the number of hours worked during the workweek.

Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA)
A fact act protecting employers from liability as long as they make a good-faith effort to verify a new employee's identity and employment eligibility.

Immigration Reform and Control Act of 1986
A federal act that requires all employers, employing at least four workers, to verify the identity and employment eligibility of all regular, temporary, casual and student employees.

Internal Revenue Code
Refers to all federal tax laws as a group.

McNamara-O'Hara Service Contract Act of 1965
A federal act the requires federal contractors to pay their employees working on a federal contract at minimum the same wage and benefits as they would receive working locally.

Minimum Wage
The hourly wage rate set by the federal government below which employers cannot fall. This rate is usually increased by the government based on general cost of living increases.

Net Pay
A federal act that requires federal contractors to pay their employees working on a federal contract at minimum the same wage and benefits as they would receive working locally.

Non-Qualified Retirement Plan
A pension plan that does not follow IRSA and IRS guidelines, typically allowing a company to pay key personnel more than other participants.

Outsourcing
The process of hiring an outside contractor to perform and be responsible for a function that normally would be performed by internal staff.

Overtime
A pay premium of 50% of the regular rate of pay that is earned by employees on all hours beyond the regular 40 hours per week.

Pay Card
A credit card into which a company directly deposits an employee's net pay.

Payroll Cycle
The period of service for which a company compensates its employees.

Payroll Registerbr /> A report on which is summarized the wage and deduction information for employees for a specific payroll.

Per Diem
A fixed rate paid to employees traveling on behalf of business, which substitutes for reimbursement of exact expenses incurred.

Personal Responsibility and Work Opportunity Reconciliation Act
A federal act requiring the reporting of new hires into a national database.

Piece Rate Plan
A wage calculation method based on the number of units of production completed by an employee.

Profit Sharing Plan
A retirement plan generally funded by a percentage of company profits, but into which contributions can be made in the absence of profits.

Qualified Retirement Plan
A retirement plan designed to observe all of the requirements of the Employee Retirement Income Security Act (ERISA), which allows an employer to immediately deduct allowable contributions to the plan on behalf of plan participants.

Reserve Ratio
A calculation to determine the unemployment contribution rate to charge employers by a state. The continuing balance of a firm's unclaimed contributions from previous years is reduced by unemployment claims for the past year and then divided by the average annual payroll, resulting in a "reserve ratio".

Savings Incentive Match Plan for Employees (SIMPLE)
An IRA set up by an employer with no other retirement plan and employing fewer than 100 employees which can contribute up to $9,000 per year.

Section 83(b) Election
Decision made by an employee to recognize taxable income on the purchase price of an incentive stock option within 30 days following the date when an option is exercised and to withhold taxes at the normal tax rate at the time.

Self-Employment Contributions Act (SECA)
A federal act requiring self-employed business owners to pay the same total tax rates for social security and Medicare taxes that are split between employees and employers under the Federal Insurance Contributions Act (FICA).

Sick Pay
A fixed amount of pay benefit available to employees who cannot work due to sickness. Company policy fixes the amount of this benefit that can be carried forward into future periods.

Social Security Act of 1935
A federal act establishing Old Age and Survivor's Insurance that was funded by compulsory savings by wage earners.

State Disability Tax
A tax charged by selected states to maintain a disability insurance fund, from which payments are made to employees who are unable to work as a result of injury or illness.

Target Benefit Plan
A defined benefit plan under which the employer makes annual contributions into the plan based on the actuarial assumption at that time regarding the amount of funding needed to achieve a targeted benefit level.

Termination Pay
Additional pay due to an employee whose employment is being terminated. This is usually done in harmony with a termination pay schedule according to the employee manual.

Unclaimed Pay
Net pay not collected by an employee, which typically is transferred to the local state government after a mandated interval has passed from the date of payment.

Uniform Interstate Family Support Act
A federal act outlining which jurisdiction shall issue family support-related garnishment orders.

Uniformed Services Employment and Reemployment Rights Act of 1994
A federal act that minimizes the impact on people serving in the armed forces when they return to civilian employment by avoiding discrimination and increasing their employment opportunities.

W-2 Form
A form used to report gross pay and tax deductions for each employee to the IRS for a calendar year.

W-4 Form
A form on which an employee declares the amount of federal tax deductions to be deducted from his/her salary.

W-9 Form
A form issued to a company's contractors and suppliers requesting they specify their own form of legal organization and tax identification number.

Walsh-Healey Public Contracts Act of 1936
A federal act that obligates government contractors to comply with the government's minimum wage and hour limits.

Workweek
A fixed and recurring period of 168 hours.

Workers' Compensation Benefits
Employer-paid insurance that provides employees with wage compensation if they are injured on the job.