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Key Payroll Terms

As a small business owner, you’ll encounter a range of terms related to payroll. This section will serve as a valuable reference as you learn about everything you need to know about payroll in this guide.

Contractors: A contractor, also known as an independent contractor or freelancer, is an individual or entity hired by a company to perform specific services or tasks. Unlike regular employees, contractors are not considered part of the company’s staff. Instead, they are typically engaged on a project-by-project basis or for a predetermined period.

Compensation: All monetary and non-monetary payments, including the value of benefits, received by an employee.

Deductions: Wages withheld from an employee’s earnings for the purpose of paying taxes, benefits and other mandatory items or voluntary contributions.

Employee Handbook: A document that outlines company policies, including those related to payroll, benefits, and compensation, which is provided to employees as a reference.

Fair Labor Standards Act (FLSA): A federal law that establishes minimum wage, overtime pay, and child labor standards for employees in the United States.

Exemption Status: A classification indicating whether an employee is exempt or non-exempt from overtime pay requirements under FLSA regulations.

Gross pay: Total pay before taxes and deductions.

Net pay: Take-home pay after taxes and deductions are subtracted from earnings.

Pay stub: A summary document that demonstrates the factors used to calculate an employee’s pay for a designated period of time.

Payroll Period: The timeframe for which employee wages are calculated and paid, often aligned with the pay frequency.

Overtime: Hours worked by an employee in excess of the standard workweek or workday, typically subject to higher pay rates.

Year-to-Date (YTD): The total amount of earnings or deductions for an employee from the beginning of the calendar year to the present date.

Taxable Wages: The portion of an employee’s gross pay that is subject to income taxes.

Taxable Benefits: Non-cash benefits provided to employees, such as company cars or housing, that are subject to income taxes.

Worker’s Compensation: Insurance that provides medical and wage replacement benefits to employees who are injured on the job.

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