Payroll dictionary

APA list of terms

A terms

Name Definition
Account A record of assets, expenses, liabilities, equity and revenues in the general ledger, to which debit and credit entries are posted to record changes in the value of the account.
Accountable plan An employer's business expense reimbursement plan that satisfies all IRS requirements regarding substantiation, business connection, and return of excess amounts in a reasonable period of time.
Accounting period The period covered by an income statement (e.g., month, year); also known as a business cycle
Accrual The recognition of assets, expenses, liabilities, or revenues in the accounting period that the transaction has occurred.
Automated clearing house (ACH) Automated Clearing House. A Federal Reserve Bank or private financial institution acting on behalf of an association operating a facility that serves as a clearinghouse for direct deposit or other payment transactions; entries are received and transmitted by the ACH under the rules of the association.
ACH credit entry A transaction in which a taxpayer instructs its financial institution to originate a federal tax deposit through the ACH system to the appropriate Treasury account. Also known as EFTPS-Through a Financial Institution.
ACH debit entry A transaction in which an employer's Financial Agent, after receiving instructions from the employer, instructs the employer's financial institution to withdraw funds from the employer's account for a federal tax deposit and to route the deposit to the appropriate Treasury account through the ACH system. Also known as EFTPS-Direct.
Actual deferral percentage The percentage of wages deferred by employees participating in a salary reduction plan (e.g., 401(k) plan). The IRS uses the ADP to determine whether the plan meets the agency's nondiscrimination requirements.
ADA Americans with Disabilities Act of 1990
ADD (AD and D) Accidental death and dismemberment insurance
ADEA Age Discrimination in Employment Act of 1967
Adoption assistance A benefit provided by an employer to an employee to assist the child adoption process. The benefit is excluded from federal income tax withholding, but is subject to social security and Medicare taxes.
ADP Actual deferral percentage calculation, part of a 401(k) plan's discrimination testing
After-tax deduction A deduction from an employee's pay that does not reduce the employee's taxable wages. It is taken out only after all applicable taxes and other deductions have been withheld (e.g., union dues, garnishments, charitable contributions).
Age Discrimination in Employment Act (ADEA) Federal law that prohibits employment discrimination on the basis of an individual's age (40 or older).
Aggregate method Method of withholding federal income tax from supplemental wages in which the supplemental wage payment is combined with the regular wages paid during the most recent or current payroll period; after calculating withholding on the total amount using the wage-bracket or percentage method, the amount already withheld from the last wage payment is subtracted to reach the amount that must be withheld from the supplemental wage payment.
Alien A citizen of a country other than the U.S. or one of its territories or possessions.
Allowances The number of withholding allowances that the employee claims on Form W-4. The number of allowances multiplied by a value set by the IRS determines the value of the employee's allowances when calculating federal income tax.
American Payroll Association The premier professional society for Payroll Professionals in the United States providing education, support and recognition for practitioners in the payroll industry.
Americans with Disabilities Act Federal law that broadly prohibits discrimination against individuals with disabilities who can perform the essential functions of a job with or without reasonable accommodation.
Annual Wage Reporting (AWR) The Social Security Administration's system of recording wages reported annually by employers on Forms W-2.
APA American Payroll Association
ASP Application Service Provider
Assets Resources acquired by a business that are consumed by the business
Assignment See "wage assignment"
Attachment See "wage assignment"
Audit A review of a business's records and procedures to determine their accuracy and completeness.
Audit trails Tracks that identify how data was entered into the company's records.
Authorization agreement In general, an agreement that may be written or electronic (entered into voluntarily) authorizing an employer to withhold and distribute a portion of an employee's wages to a party designated by the employee (e.g., direct deposit, union dues).
Awards An item of value provided to an employee for exceptional services. The value is generally included in the employee's income.
AWR The Social Security Administration's Annual Wage Reporting program.

B terms

Name Definition
Back-pay award A cash award made to an employee that generally results from legal action to remedy a violation of federal or state wage-hour or employment discrimination laws.
Backup withholding Income tax withholding required from nonemployee compensation when the payee fails to furnish the payer with a Taxpayer Identification Number (TIN) or the payer is notified by the IRS that the payee's TIN is incorrect.
Balance The value of an account as determined by calculating the difference between the debits and credits in the account.
Balance sheet A financial statement that presents a business's financial position in terms of its assets, liabilities, and owner's equity as of a certain date (generally the end of the company's accounting periods).
Batch Sample or limited amount of all of the data being processed.
Batch control Control that is designed to ensure that a batch of data has been entered successfully.
Batch processing Processing data as a group, either to increase controls or processing efficiency.
Behavioral control The right of a business to direct and control the details and means by which a worker performs the work to be done.
Biweekly Once every two weeks. The most common payroll frequency.
BLS Bureau of Labor Statistics.
Bona fide Refers to actions taken in good faith, without pretense or fraud.
Bonus A cash payment to an employee for excellent services.
BPO Business Process Outsourcing. A form of outsourcing the payroll processes where the service provider provides comprehensive payroll services to the organization.
BSO Business Services Online, the Social Security Administration's employer portal for filing Forms W-2 and the use of the Social Security Number Verification System.
Business expense Amounts spent by an employee for travel, lodging, meals, etc., while on the employer's business. Reimbursements for such expenses are excluded from income when paid under an accountable plan. Reimbursements for such expenses are included in income when paid under a nonaccountable plan.

Ca-Co terms

Name Definition
Cafeteria plan A plan that offers flexible benefits under IRC Section 125. Employees choose their benefits from a "menu" of cash and benefits, some of which can be paid for with pretax deductions from wages.
Cash or deferred arrangement A plan that offers flexible benefits under IRC Section 125. Employees choose their benefits from a "menu" of cash and benefits, some of which can be paid for with pretax deductions from wages.
Catch-up contributions Allowed elective deferrals by an employee to a defined contribution retirement plan above the statutory or plan mandated limit made by employees 50 years and older.
Cumulative bulletin (CB) The annual publication of the IRS' Internal Revenue Bulletin.
Consumer Credit Protection Act (CCPA) Federal law that restricts the amount of an employee's earnings that can be garnished to pay creditor debts, including child support.
Central information file (CIF) A file maintained by an Automated Clearing House (ACH) that contains depository financial institution names, routing numbers, addresses of contact persons, settlement and delivery information, and output medium requested.
Centralized support collection The welfare reform law enacted in 1996 requires all states to implement procedures requiring employers to send child support payments withheld from workers' pay to a centralized location within their state, also known as state disbursement units.
Chart of accounts Lists each account by a name and an identification number; the numbering scheme is designed to identify the type of account.
Child support withholding The process of withholding amounts from an employee's compensation to satisfy a child support order from a court or a state child welfare administrative agency. The employer is responsible for withholding the amounts and paying them over to the party named in the withholding order.
Circular E IRS Publication 15, Employer's Tax Guide. This publication contains the basic rules, guidelines, and instructions for withholding, depositing, reporting, and paying federal employment taxes.
Client/Server A method of computing where one computer is tied to another and each share a portion of the workload, with the main data storage being on the server.
COBRA Consolidated Omnibus Budget Reconciliation Act of 1985 that provides the ability to continue participating in an employer's health insurance plan after employment ends.
CODA Cash or deferred arrangement. An arrangement under a retirement plan that allows employees to either receive cash or have their employer contribute an equivalent amount to a qualified retirement plan.
Cost-of-living adjustment (COLA) An adjustment of wages or benefit payments to account for changes in the cost of living, generally based on changes in the Consumer Price Index (CPI).
Commission Percentage of sales, collections, etc., paid to an employee.
Common law employee A worker who is an employee under the IRS' common law test.
Common law test A test that measures the right to control and direction that an employer has the authority to exercise over a worker. Where the employer has the right to direct the worker as to how, where, and when the work will be completed, in addition to controlling the result of the work, the worker is a common law employee.
Common paymaster An organization with employees who work concurrently for one or more related corporations that are treated as a single employer for social security, Medicare, and FUTA taxes.
Communications protocols Software parameters and standards that control the transfer of information from one computer to another.
Company vehicle fringe benefits The value of the use of the company vehicle by the employee. When the employee documents the business use of the vehicle, the value is excluded from income. When the employee fails to document the business use of the vehicle, the value is included in income.
Compensation All cash and noncash remuneration provided to an employee for services performed for the employer.
Compensatory time Paid time off granted to an employee for working extra hours. The Federal Wage-Hour Law places severe restrictions on the use of compensatory time to avoid paying overtime, although special exemptions are allowed for public-sector employees.
Concurrent employment Working for more than one related corporation under a common paymaster arrangement.
Consolidated omnibus budget Federal law requiring employers with group health-care coverage to offer continued coverage to separated employees and other qualifying beneficiaries and requiring Medicare-only taxation of certain state and local governmental employees.
Constructive payment An IRS rule that considers wages to have been paid to an employee when the employee has access to the wages without substantial limitations or restrictions.
Constructive receipt An IRS rule that considers wages to be received by an employee when the employee has access to the wages without substantial limitation or restriction.
Consumer Price Index (CPI) A measure of the change in prices of certain basic goods and services (e.g., food, transportation, housing) developed and published monthly by the Bureau of Labor Statistics (BLS).
Control group A group of key or highly compensated employees in a company whose proportion of benefits is limited under the qualification requirements of certain benefit plans (e.g., Section 125 or 401(k) plans). Also, employers may not use the commuting valuation method for such employees when determining the value of their personal use of a company-provided vehicle.

Co-D terms

Name Definition
Cost-of-living index See "Consumer price index"
Covered employees For each law affecting payroll and human resources, this term defines those workers who are subject to the law.
CPA Certified Public Accountant
CPI Consumer Price Index
CPP Certified Payroll Professional
Credit An accounting entry that increases liabilities and revenues and decreases assets and expenses.
Credit reduction A reduction in the credit an employer receives against FUTA tax owed for state unemployment taxes paid, where the state has not repaid a federal loan under the joint federal/state unemployment compensation program.
Critical path Management strategy that maps out deadlines that must be met to finish a project within the time allowed.
Customer service In a payroll environment, customer service consists of reliability, responsiveness, assurance, empathy, and tangibles
Dependent care assistance program (DCAP) The value of employer-provided child care assistance allowing the employee to work.
Debit An accounting entry that increases assets and expenses and decreases liabilities and revenues.
Deduction An amount subtracted from an employee's gross pay to reach net pay, or an amount allowed to taxpayers as an offset against income.
Deemed substantiation Safe-harbor rules under which IRS requirements regarding the substantiation of amounts spent on employee business expenses are considered to have been met (e.g., per diem allowances).
Deferred compensation In general, the postponement of a wage payment to a future date. Usually describes a portion of wages set aside by an employer for an employee and put into a retirement plan on a pretax basis.
Defined benefit plan A retirement plan that uses a formula (generally based on an employee's salary and length of service) to calculate an employee's retirement benefits and is generally not funded by employee contributions to the plan.
Defined contribution plan A retirement plan with benefits determined by the amount in an employee's account at the time of retirement. The account may be funded by contributions from both the employer and the employee.
De minimus Anything that is too insignificant to merit legal scrutiny, such as a fringe benefit that is provided occasionally and is too small to justify accounting for or recording it. This does not apply to cash or cash equivalents except in very specific instances such as supper money.
De minimus fringe benefit A tax-free item provided infrequently by an employer to an employee that is of small value. De minimis fringe benefits are never cash or cash equivalents.
Dependent care assistance program (DCAP) An employer plan providing dependent care services or reimbursement for such services
Dependent group-term life insurance Term life insurance that gives an employee death benefits should the employee's spouse or other dependents die.
Direct deposit The electronic transfer of an employee's net pay directly into financial institution accounts designated by the employee, thus avoiding the need for a paycheck.
Disability Payments made to an employee for their extended absence from work due to a non-job-related accident or illness.
Disaster recovery A plan for keeping the payroll function operational after a shutdown of the business, typically caused by a natural or manmade disaster.
Discretionary bonus Bonus paid for services performed. In order to be considered discretionary, the bonus cannot be paid because of a promise made in advance, a contract, or another agreement.
Discrimination In the context of employee benefits, favorable treatment of highly compensated employees under an employer's plan.
Dismissal pay Amounts paid to employees who are terminated from employment, also known as payments in lieu of notice, termination pay, or severance pay.
Disposable earnings That part of an employee's earnings remaining after deductions required by law (e.g., taxes). It is used to determine the amount of an employee's pay that is subject to a garnishment, attachment, or child support withholding order.
Disqualifying disposition When an employee sells stock from an incentive or statutory stock option before the expiration of the qualified holding period.
Double-entry accounting The recording of equal debits and credits for every financial transaction.

E terms

Name Definition
Early retirement age Earliest age social security retirement benefits can be received, currently age 62. Individual company retirement plans may provide benefits at an earlier retirement age.
Earned Income Credit (EIC) Tax credit that is available to low-income employees. It may be taken when the employee files his or her individual tax return.
Economic Growth and Tax Relief Act of 2001 (EGTRRA) Act containing comprehensive tax rate and pension plan changes.
EDT Electronic data transfer
Educational assistance program Plan paid to assist an employee with their education. Up to $5,250 can be provided and the amount is excluded from income or, if courses taken are job-related, the entire amount is excluded from income under IRC Section 127
EEOC Equal Employment Opportunity Commission. This federal agency is responsible for enforcing the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the Equal Pay Act of 1963.
EFT Electronic Funds Transfer. The transfer of money electronically from an account in one financial institution to another. See direct deposit and payroll cards.
EFTPS-Direct ACH debit method where an electronic tax deposit is initiated by contacting the IRS to initiate the transaction.
EFTPS-Through a Financial Institution ACH credit method where an electronic tax deposit is initiated by contacting an authorized financial institution. The financial institution and the treasury financial agent (TFA) process the transaction.
EIC Earned Income Credit
EIN Employer Identification Number. An employer's nine digit account number (XX-XXXXXXX) with the Internal Revenue Service.
Elective deferral Amount of pretax dollars an employee chooses to have an employer contribute to a qualified deferred compensation plan (e.g. a 401(k) plan) on their behalf, also known as pretax contributions or employer contributions.
Electronic Federal Tax Payment System (EFTPS) System that allows employers to make federal tax deposits electronically through the ACH network.
Electronic filing Process of filing tax and information returns directly from one computer to another
Electronic filing specifications Set of specifications for filing tax forms electronically, e.g., SSA Publication 42-007 Specification for Filing Forms W-2 Electronically (EFW2)
Electronic Tax Application (ETA) Term for the same-day settlement procedures for electronic tax deposits made through the Electronic Federal Tax Payment System
Employee Individual who performs services for another individual or organization in return for compensation. See also "Common law employee" and "Covered employees."
Employee business expenses Amounts spent by an employee for travel, lodging, meals, etc., while on an employer's business. Reimbursements for expenses may be excluded from income when properly accounted for
Employee discounts Discounts for the purchase of goods or services employees receive when buying them from their employer. Purchase of services discounted by 20% or less are not taxable. Discounts aren't taxable if the purchase of goods discounted by the gross profit percentage or less
Employee Retirement Income Security Act of 1974 (ERISA) Federal law regulating the operation of private-sector pension and benefit plans
Employee's Withholding Allowance Certificate Federal Form W-4 or equivalent state or local form where an employee states marital status and the number of withholdings claimed. The form is used by an employer to determine the amount of federal income tax to withhold
Employer Individual or organization that hires individuals to perform services in return for compensation. They have authority to control and direct work as part of the employer-employee relationship
Employer's Supplemental Tax Guide IRS Publication 15-A. This publication provides more detailed information for employers than Circular E (Publication 15), especially in the areas of employee status determinations and fringe benefit taxation and reporting
Employment verification Process of determining if a newly hired employee is authorized to work in the U.S. under the Immigration Reform and Control Act
Enterprise coverage Test for determining if an employer's entire operation is covered by Fair Labor Standards Act. Based on employees' involvement in interstate commerce and employer's annual volume of revenue
Enterprise-wide solution When a single vendor supplies a company's software
EPA Equal Pay Act
Equity Owner's investment in a company, i.e. the company's net worth
ERISA Employee Retirement Income Security Act of 1974
Escheat Turning over unclaimed wages to the state after a period of time determined by state law
Excess deferral Amount of employee's deferred compensation that exceeds the IRS' annual contribution limit
Excise tax Tax imposed on specific transactions
Exempt 1) Employee claiming exempt on Form W-4 instructs an employer not to withhold federal income tax from their wages.
2)Employee not subject to FLSA by meeting white-collar exemption requirements.
Expatriate U.S. citizen or resident alien who lives and works outside the U.S.
Expense account Costs for goods and services consumed by the company during an accounting period
External audit Audit of an organization's financial statements by a disinterested 3rd-party (e.g. an accounting firm)

F terms

Name Definition
Fair Labor Standards Act (FLSA) See "Federal Wage-Hour Law."
Fair market value (FMV) Used to determine the value of noncash, employer-provided benefits for payroll tax purposes, or the value of facilities provided to employees in lieu of wages.
Family and Medical Leave Act of 1993 (FMLA) Law guaranteeing 12 weeks of unpaid leave to most employees to care for newborn or newly adopted children or to deal with a serious illness or injury suffered by the employee or an ailing child, spouse, or parent of the employee.
FAVR Fixed and variable rate mileage allowance
FIT Federal Income Tax
Federal income tax withholding (FITW) FIT withheld from employees' wages or paid by the employer.
Federal Insurance Contributions Act (FICA) The law that created the social security program and requires social security and Medicare tax withholding.
Federal Unemployment Tax Act (FUTA) Requires employers to pay a certain percentage of their employees' wages (up to a maximum wage limit) as a payroll tax to help fund unemployment compensation benefits for separated employees.
Federal wage-hour law The Fair Labor Standards Act of 1938 (FLSA), as amended, regulates such areas as minimum wage, overtime pay, equal pay, and child labor for employers and employees covered by the law.
Fedwire The Electronic funds transfer system owned and operated by the Federal Reserve Banks serving as a same-day settlement procedure for electronic federal tax depositors.
Federal Insurance Contributions Act (FICA) It describes the combined taxes levied for social security and Medicare.
Filing status Marital status of an employee for withholding purposes.
Financial Accounting Standards Board (FASB) Group that sets the standards for accounting practices.
Financial control The right of a business to direct and control the economic aspects of a worker's job.
Financial statements Reports that summarize a business's financial position and operating results (made up of a balance sheet, an income statement, and a statement of cash flow).
FIRE The IRS Filing Information Returns Electronically (FIRE) system.
Federal income tax withholding FIT) FIT withheld from employees' wages when they are paid.
Flat rate withholding See "Supplemental wages."
Flexible benefits The option to choose from a menu of benefits offered by an employer. See "Cafeteria plan."
Flexible Spending Arrangement (FSA) An arrangement that allows an employee to have pretax dollars deducted from wages and put into an account to pay for health insurance deductibles and copayments and dependent care assistance (separate accounts for medical and dependent care FSAs).
Fair Labor Standards Act (FLSA) Fair Labor Standards Act (see "Federal Wage-Hour Law").
Fluctuating workweek An arrangement between an employer and a nonexempt employee to pay the employee a fixed weekly salary even though the employee's hours may vary from week to week.
Foreign country A country or territory not under the jurisdiction of the U.S. government.
Foreign earned income exclusion The ability for a U.S. citizen or resident alien working abroad to exclude up to a certain amount of foreign earned income from the taxpayer's gross income.
Foreign housing cost exclusion An exclusion from taxable income for reasonable foreign housing expenses exceeding a base housing amount available to U.S. employees working abroad whose tax home is not in the U.S.
Form 1099-MISC Reports amounts paid to nonemployees paid during a calendar year.
FPC Fundamentals of Payroll Certification
FTD Federal tax deposit

G terms

Name Definition
Gain The difference between the fair market value of stock and the option price.
GAO General Accounting Office
Garnishee In a payroll context, an employer that receives an order requiring withholding from an employee's wages to satisfy a debt. A garnishee can also be a debtor against whom a creditor has brought a process of garnishment.
Garnishment A legal proceeding authorizing an involuntary transfer of an employee's wages to a creditor to satisfy a debt.
General ledger A ledger containing all the transactions in the debit and credit accounts of a business.
Generally Accepted Accounting Principles (GAAP) A set of rules and procedures set forth by the Financial Accounting Standards Board that outlines accepted accounting practices broadly and in detail.
Gifts Items of value provide by an employer to their employees. The fair-market value of the item is included in the employees' income.
Golden Parachute Payments made to business executives in excess of their usual compensation (e.g., stock options, bonuses) in the event the business is sold and the executives are terminated from employment.
Governmental Accounting Standards Board (GASB) Group that sets the standards for governmental accounting practices.
Gross income The compensation for services, including fees, commissions, fringe benefits, and similar items.
Gross pay The total amount received from the employer before any deductions are made.
Gross-up An IRS-approved formula that employers can use to determine the taxable gross payment when the employer wishes to pay the employee's share of tax.
Group legal services plan An employer plan providing for the advance provision or prepayment of personal legal services for employees and their dependents.
Group-term life insurance (GTL) Term life insurance that is provided to employees, with the cost being borne by the employer, the employee, or both.
GSA General Services Administration

H-I terms

Name Definition
Health Insurance Portability and Accountability Act (HIPAA) A law passed in 1996 restricting the right of group health plans to limit participation by newly hired employees and their dependents because of preexisting medical conditions and protecting the privacy of health care information.
Health Savings Accounts (HSA) Health Savings Accounts (HSAs) are tax-exempt trusts or custodial accounts created exclusively to pay for the qualified medical expenses of the account holder and his or her spouse and dependents, subject to certain qualifications and rules.
HI Hospital Insurance (the Medicare component of FICA)
High-low substantiation method A safe-harbor method (deemed substantiation) for reimbursing lodging, meal, and incidental expenses incurred by an employee who is traveling overnight on the employer's business.
Highly compensated employee (HCE) In the context of certain fringe benefit plans, an employee who is an owner or officer of a business or whose salary exceeds a certain amount (indexed each year for inflation). Many benefits offered by employers do not qualify for favorable tax treatment if they discriminate in favor of highly compensated employees. Employers may also be restricted in their use of safe-harbor valuations of benefits provided to such employees.
Housing allowance Payment made to a U.S. citizen or resident alien working abroad to make up the added cost of obtaining reasonable living quarters in a foreign country.
HRIS Human Resource Information System
Immigration Reform and Control Act of 1986 (IRCA) Law enacted in 1986 that prohibits employers from hiring persons who are not authorized to work in the U.S. and from discriminating against those who are authorized to work based on their national origin or citizenship.
Impute The addition of the value of cash/noncash compensation to an employee's taxable wages in order to properly withhold income and employment taxes from the wages.
Incentive stock options (ISO) A stock option that gives an employee the opportunity to buy the employer corporation's stock at a fixed price for a certain period of time, and that offers favorable tax treatment if certain conditions are met.
Income statement A financial statement showing a company's results of operations for an accounting period or fiscal year.
Income tax treaties Treaties between the U.S. and foreign countries that may have provisions governing the tax treatment of U.S. employees working in those countries as well as that of aliens from those countries working in the U.S.
Indefinite assignment See "Long-term assignment"
Independent contractor A nonemployee contracted by a business to perform services. Although the business specifies the result of the work to be performed, it has no right to control the details of when, how, or who will ultimately perform the work.
Individual Retirement Account (IRA) A trust created or organized for the exclusive benefit of an individual or his or her beneficiaries.
Individual Taxpayer Identification Number (ITIN) A tax reporting identification number issued to aliens in the U.S. who cannot get a social security number but are required to file a tax or information return with the IRS.
Information return A return sent to the IRS (e.g., 1099 series) or the SSA (e.g., Form W-2, Copy A, along with Form W-3) that indicates information relevant to tax liability.
Information statement A statement sent to a payee (e.g., 1099 series) or an employee (e.g., Form W-2) that indicates payments made and taxes withheld by the party issuing the statement.
Integrated Computer systems providing differing processes that share common data
Interface The place where two systems meet. The software that enables different computer systems (e.g. accounting, payroll and HR) to communicate with each other.
Internal audit An audit of a business's policies, procedures, operations, and records carried out by employees of the business as opposed to outside parties.
Internal control Measures used by a company to safeguard company assets by preventing errors, waste, embezzlement, and fraud.
Internal Revenue Bulletin (IRB) Issued weekly by the IRS. Contains recently issued regulations, revenue procedures, and other agency announcements.
Internal Revenue Code (IRC) Federal tax laws. Generally referred to as the Internal Revenue Code of 1986, which was the year of its latest major overhaul. The IRC also comprises Title 26 of the United States Code.
Internal Revenue Service (IRS) The U.S. government agency that administers the Internal Revenue Code and U.S. tax laws and regulations.
Interstate commerce The exchange of goods and/or services across state lines. It provides a basis for congressional and federal government agency regulation of wages and hours of work and other employment-related matters.
Involuntary deductions Deductions over which employers and employees have no control

J-M terms

Name Definition
Journal A record of financial transactions that debit or credit an account
Key employee In the context of certain fringe benefit plans, an officer or owner (of all or a significant part) of a business whose annual pay exceeds a certain amount. Many benefits offered by employers do not qualify for favorable tax treatment if they discriminate in favor of key employees
Leased employee Employees of a leasing agency who are hired and trained for the client firm through the agency. Withholding, depositing, and reporting responsibilities remain with the leasing agency
Levy An attachment to satisfy a tax debt or a court judgment
Liabilities Debts of a business that have yet to be paid
Local Area Network (LAN) A network in which all computers are physically attached to each other and data is transmitted at high speeds over short distances.
Local national An employee who works in the country where his or her home base is located, even though the employee may actually be a citizen of another country.
Long-term assignment A job assignment that is realistically expected to last more than 12 months
Long-term care insurance An insurance contract providing for coverage of qualified long-term care services, including diagnostic, preventive, treating, mitigating, and rehabilitative services, which is treated as an accident and health insurance contract for payroll tax purposes
Lookback period The 12-month period running from July 1 of the second preceding calendar year through June 30 of the preceding calendar year. The employer's payroll tax liability during this period determines its depositor status for the current year. The period may be different for some employers.
Mainframe Large, powerful computer that is generally used for company-wide computing since it can handle multiple users and tasks at the same time.
Master file The collection of data describing the employees of a company
Matching principle Matching revenue earned during an accounting period with the expenses incurred in generating the revenue
Medical/dental/health plans Employer-provided plans covering the employee's health insurance. In most cases, the value of medical/dental/health plans are not included in the employee's income.
Medical support withholding The process of withholding amounts from an employee's compensation to satisfy a medical support order from a court or a state child welfare administrative agency. The employer is responsible for withholding the amounts and paying them over to the party named in the medical support withholding order.
Medicare A federal hospital insurance program for individuals age 65 or older and some disabled persons. It is funded through the hospital insurance (HI) component of FICA tax.
Minicomputer Smaller than a mainframe computer but still able to handle multiple users and tasks on a more limited basis; often used to handle departmental computing needs in large organizations.
Minimum wage The lowest amount that an employer can pay its employees per hour under federal or state law. The federal minimum wage is $7.25 per hour (effective July 24, 2009).
Monthly Once per month
Moving expenses Amounts paid to move an employee from an old home's location to a new home. Employer reimbursements for moving expenses are taxable. There is an exception for military personnel relocating on orders; some of their expenses may not be taxable under a qualified move.
Medicare Qualified Government Employee (MQGE) A government employee who has only the Medicare component of FICA, not social security, withheld from wages
Multiple Worksite Report (MWR) A report developed by the Bureau of Labor Statistics to help it collect statistical information on U.S. businesses with multiple work sites.

N-O terms

Name Definition
NACHA National Automated Clearing House Association – the Electronic Payments Association
Net pay That part of an employee's wages that remains after all deductions have been subtracted (e.g., taxes, health insurance premiums, union dues, etc.).
Network The system connecting computers and applications consisting of the physical connection (topology) and the software.
Net worth The amount by which a company's assets exceed liabilities.
New-hire reporting (NHR) The reporting of newly hired and rehired employees to state agencies to facilitate the collection of child support and/or to uncover abuse in the state's unemployment compensation, workers' compensation, or public assistance programs.
NLRB National Labor Relations Board
No-additional-cost fringe benefits A tax-free fringe benefit for employees consisting of free services offered by an employer at no substantial additional cost to the employer.
Non-accountable plan An employer's business expense reimbursement plan that does not meet the IRC requirements regarding business connection, substantiation, and returning excess amounts. Payments made under the plan are included in employees' income.
Non-bash fringe benefits Benefits provided to employees in some form other than cash (e.g., company car, health and life insurance, parking facility, etc.), which may be taxable or nontaxable.
Non-discretionary bonus Contractual or agreed-upon bonus or incentive related to production, efficiency, attendance, quality, or some other measure of performance; included in the regular rate of pay.
Non-discrimination testing Tests that determine whether benefit plans provided by an employer discriminate in favor of highly compensated or key employees. If such discrimination is found, the employer will lose its favorable tax treatment for the benefit. Benefits provided under the plan may be taxable to employees receiving them.
Non-exempt employees Employees who are covered by the minimum wage and overtime provisions of the Fair Labor Standards Act. They may be paid on an hourly or salary basis.
Non-qualified plan In the context of employee benefits, an employer plan that does not meet IRS qualification requirements.
Non-resident alien An individual from a foreign country working in the U.S. who does not pass either the "green card" or "substantial presence" tests, and is subject to federal income tax on U.S. source income.
Non-statutory stock option A stock option plan that gives an employee the opportunity to buy the employer corporation stock at a fixed price for a certain period of time without the conditions that apply to an incentive stock option. The employee is taxed on the gain between the price paid and fair market value (FMV) of the stock on the date of purchase.
Normal credit The amount of an employer's timely-paid contributions into a state unemployment insurance fund taken as a credit against the employer's federal unemployment tax. The normal credit is limited to 90% of the FUTA tax.
Normal retirement age The age at which retirees may receive unreduced social security benefits. Individual company retirement plans may use a different age.
OASDI Old Age, Survivors, and Disability Insurance, also known as social security
Obligee A person to whom a debt is owed
Obligor A person who owes a debt
Office of Child Support Enforcement (OCSE) The normal credit is limited to 90% of the FUTA tax
OMB Office of Management and Budget
On-call time Non-work time during which employees are required to be available to handle job-related emergencies
Online processing Processing performed under direct control of the computer (can be batch or real time)
Operating system (OS) The computer program that controls the basic operations of a computer (e.g., MS-DOS, UNIX, Windows, Linux)
Opportunity wage A reduced minimum wage ($4.25 per hour) that can be paid to teenagers during their first 90 days at work
Originating Depository Financial Institution (ODFI) A financial institution that is qualified to initiate deposit entries submitted by an employer as part of the direct deposit process
Other compensation Compensation other than wages and tips an employer must report on an employee's Form W-2 (Box 1) and other payments which may be included in the regular rate of pay.
Outplacement services Services provided by employers to help employees find a new job after a layoff or reduction in force.
Overtime The Fair Labor Standards Act (FLSA) requires that all nonexempt employees be paid a premium of 50% of their regular rate of pay for hours worked in excess of 40 hours per week.
Overtime premium pay The premium required to be paid under the FLSA to employees who work more than 40 hours in a workweek.
Overtime premium rate The amount equal to one-half of an employee's regular rate of pay.
Owner's equity The assets of a company minus its liabilities

P-Q terms

Name Definition
Paid time off (PTO) Payment received for time not worked due to holiday, illness, vacation, jury duty, bereavement, or the failure of the employer to provide sufficient work.
Payroll card An electronic payment method that allows employees without bank accounts to receive pay through EFT.
Payroll expense An expense that may be recorded in the payroll expense journal by function or by type of pay
Payroll period The period of service for which an employer pays wages to its employees.
Payroll register A report listing and summarizing the compensation paid and deductions taken from each employee's wages for the payroll period.
Payroll tax Any tax levied by a government agency on employees' wages, tips, and other compensation
PEO Professional Employer Organization
Pecentage method of withholding One allowable method for calculating federal income tax withholding from an employee's wages most often used when the calculation is automated.
Per diem A flat daily rate of reimbursement for business expenses (e.g., meals, lodging, and incidentals) incurred by employees while traveling overnight on business.
Personal computer (PC) Computers that are designed for personal use by having all the computer functionality, operating systems, and applications self-contained.
Pieceworker Worker who is paid per unit or piece produced.
Posting Recording a transaction in a journal entry or recording a journal entry in the general ledger.
Premium pay In a payroll context, the extra pay above an employee's regular rate of pay that is paid for working overtime hours or a special pay rate for work done on weekends, on holidays, during undesirable shifts, or for doing dangerous work.
Pretax deduction A deduction taken from gross pay that reduces taxable wages.
Private delivery services (PDS) A private sector company that delivers packages. If its services are "designated" by the IRS, materials delivered by a taxpayer to the IRS are considered postmarked on the date the delivery to the PDS is recorded on its database or marked on the package.
Private Letter Ruling (PLR) A ruling provided by the IRS when requested by a taxpayer who wants to know how the tax laws apply to a particular factual situation. The ruling applies only to the taxpayer requesting it and cannot be relied on by other taxpayers.
Prizes An item of value provided to an employee by the employer. The fair-market value is included in the employee's income.
Profit Occurs when income exceeds costs and expenses.
Public-sector employee An employer that is a state or local governmental unit (e.g., county, town, village) or a political subdivision of such a unit (e.g., school district, sewer district).
Qualified plan A benefit plan meeting the IRS' qualification requirements for tax-favored treatment (e.g., nondiscrimination) under IRC 401(a).
Qualified transportation fringe Certain employer-provided transportation benefits that can be excluded from employees' income up to certain annually adjusted limits (i.e., transit passes, van pools, parking). The exclusion in 2018 is $260 per month.
Qualifying event One of several events that results in the loss of group health insurance coverage for employees or their dependents and entitles them to continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
Quarterly Once every three months or four times per year.

R terms

Name Definition
Real-time Processing that occurs immediately when the data is entered into the system.
Reasonable basis test The exception to the common law test used to determine if a worker can be treated as an independent contractor. The reasonable basis test is based on court decisions, IRS rules, long-standing practices, or guidance from an attorney or CPA.
Receiving Depository Financial Institution (RDFI) A financial institution that receives direct deposit entries from an automated clearinghouse and credits direct deposit to an employee's account..
Reconcile Process of ensuring that amounts withheld, deposited, paid, and reported by employers agree with each other and, if they do not, determining the reasons and making the necessary corrections.
Reconciliation The balancing process that ensures accuracy of the information.
Regular rate of pay An hourly rate used to calculate the overtime premium rate. The regular rate of pay is determined by dividing the total regular pay actually earned for the workweek by the total number of hours worked.
Regular wages The amount of pay that an employee receives for working.
Regulations The means by which government agencies provide guidance, administer, and enforce laws (e.g., rules issued by the IRS to provide guidance and enforce the tax laws).
Reimbursed expense Payment for business-related expenses incurred by an employee on behalf of, or for the convenience of, the employer.
Reimbursed financing An unemployment insurance financing system that allows employers to pay back to the state unemployment trust fund any benefits paid to their former employees rather than paying a tax based on their experience rating. This form of financing is most often used by nonprofit groups and public-sector employers.
Reimbursement fund See "Flexible Spending Arrangement."
Related corporations A group of corporations meeting certain common ownership and concurrent employment requirements that may be treated as one employer for social security, Medicare, and FUTA taxes.
Relational databse (RDB) A file management system that organizes data into a series of tables, each containing a series of related data in columns and rows.
Remunerartion Payment for services, including benefits
Resident alien In the context of payroll, an individual who meets the "green card" or "substantial presence" test for determining resident status in the U.S. Resident aliens are generally subject to federal income, social security, and Medicare taxes on the same basis as U.S. citizens.
Retained earnings Amount that a company's revenue exceeds its expenses, reduced by any amount returned to the owners.
Retroactive pay Pay for time worked in a previous workweek; retroactive pay must be applied to both regular and overtime hours.
Revenue Income received for goods and services provided by an organization.
Revenue account Identifies amounts received for goods sold and services rendered during the accounting period
Revenue procedure (Rev. Proc.) Official statements from the IRS on how to carry out tax compliance.
Revenue Rulings (Rev. Rul.) Published decisions issued by the IRS that apply the tax laws to a particular set of facts. They can be used by taxpayers to determine their tax liability in similar factual situations.
Roth 401(k)/403(b)/457(b) A part of an employer's 401(k)/403(b)/457(b) plan that defers taxation on the plans earnings. The contributions to a Roth 401(k)/403(b) are taxable wages for federal income, social security, and Medicare taxes.
RRTA Railroad Retirement Tax Act. Railroad employers are subject to a separate and distinct system of employment taxes from the Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA).

S terms

Name Definition
Safe harbor IRS-approved alternative method for complying with IRS' rules, regulations, and procedures (e.g. per diem allowances)
Salary reduction arrangement See "Cash or deferred arrangement"
Sarbanes-Oxley Act of 2002 (SOX) Federal law focused on accounting reforms for financial reporting and disclosure for public companies. Requires chief executives take personal responsibility for accuracy and completeness of financial statements, plus other important issues.
Savings incentive match plans for employees of small employers (SIMPLE Plans) Retirement plans for employees of small employers (100 or less) that have simpler administrative and nondiscrimination requirements than other retirement plans
Segregation of duties Basic principle of internal control that prevents individuals from having responsibility for all phases of a job process, guarding against misuse of company assets
Self-Employment Contributions Act (SECA) Requires self-employed individuals to pay both the employer and employee share of social security and Medicare taxes
Semiannual Twice per year or once every six months
Semimonthly Twice per month
Severance pay Payment offered by some employers to terminated employees (usually no fault of their own) that is designed to tide them over until new employment is secured
Shift differential Extra pay received by employees for working a less-than-desirable shift (e.g. late nights)
Short-term assignment See Temporary assignment
Sick pay Replacement wages paid to an employee who can't work because of illness/injury that isn't work-related
Simplified employee pension (SEP) Individual retirement arrangement (IRA) with special participation requirements that is available for small employers
SIT State income tax
Social Security Old Age, Survivors, and Disability Insurance (OASDI) component of FICA (Federal Insurance Contirbution Act)
Social Security Administration Federal government agency that administers social security
Social Security Number (SSN) Individual's Taxpayer Identification Number; consists of nine digits (000-00-0000)
Social Security Number Verification Service (SSNVS) Online service offered by the Social Security Administration allowing employers to verify accuracy of an employees' social security numbers and name
Social Security Statement Statement from the Social Security Administration that provides an employee with a year-by-year display of their earnings reported to the SSA and an estimate of retirement, survivors', and disability benefits the employee may be eligible for now and in the future.
Special accounting rule Safe-harbor rule allowing employers to treat certain noncash fringe benefits provided to employees in November or December as received in the next year. If an employer uses this, the employee must also report the benefit for the same period.
Special wage payments Payments made to employees for services performed in an earlier year. These payments require reporting by employers so that retirees' social security benefits aren't reduced under annual earnings test because of amounts earned in prior years.
Split shifts Workday divided into two parts separated by time longer than the conventional rest or meal period
Statement of cash flow Financial statement that shows the sources and uses of cash during the accounting period
Statute of limitations Period of time established by law during which parties can take legal action to enforce their rights
Statutory employees Employees identified by law (e.g. full-time life insurance salespeople) whose wages aren't subject to federal income tax withholding but are subject to social security, Medicare, and FUTA taxes.
Statutory non-employees Workers who may qualify as common law employees but are treated as independent contractors (e.g. qualified real estate agents); compensation is not subject to federal income tax withholding, social security, Medicare, or FUTA taxes
Straight time Number of work hours during a workweek an employee's regular hourly rate of pay will be paid
Subsidiary ledger Replaces a journal; summarized entries are posted from subsidiary ledgers directly to the general ledger; arose with the computerization of most companies' accounting systems
Substantiation Requirement that employees keep records of time, place, and business purpose of reimbursable expenses, including receipts (also used to track use of company-provided vehicles)
Substitute forms Tax forms that are printed by private printers rather than the Internal Revenue Service. They must meet certain specifications to be acceptable for filing.
SUI State unemployment insurance
Supper money Irregular and occasional payment of amounts to employees who work late, covering the cost of meals during extra working time. Generally excluded from taxable income.
Supplemental unemployment benefits (SUB) Employer plans that provide supplements to state unemployment compensation benefits.
Supplemental wages Compensation received by employees other than regular pay, such as bonuses, commissions, and severance pay. Subject to income tax using percentages or an aggragrate method other than those used for regular wages.
System edit Warning or alert built into software. A system edit checks for errors and corrects them or notifies an operator that something may be wrong. They generally check for values outside accepted ranges (e.g. negative net pay)

T terms

Name Definition
Table I Refers to IRS Uniform Premiums Table I, which is used to calculate the value of group-term life insurance over $50,000.
T-Account A diagram used for recording entries into an account with debits on the left-hand side and credits on the right-hand side of the "T".
Take-home pay In the context of a federal tax levy, the amount of an employee's wages that remains after all normal deductions in effect at the time of the levy is received have been subtracted from the employee's gross pay. (See Net pay)
TAMRA '88 Technical and Miscellaneous Revenue Act of 1988
Tangible A type of asset that includes land and improvements, buildings, computers and software, furniture, and automobiles.
Taxable wage base The maximum amount of employee compensation subject to social security, FUTA, and state unemployment insurance taxes.
Taxable wages The amount included in an employee's income subject to income, social security, and Medicare taxes
Tax equalization plan A plan offered by an employer to an employee working abroad providing the employee with the same take-home pay the employee would have received in the U.S
Tax levy A tax levy requires employers to take deductions from the wages of employees who have failed to pay their taxes timely. The deductions may include penalties and interest. The employer must remit the deduction to the proper government agency.
Taxpayer Identification Number (TIN) A social security number, employer identification number, or individual taxpayer identification number which serves as the taxpayer's account number with the IRS.
Tax protection plan A plan offered by an employer to an employee working abroad ensuring the employee a foreign tax obligation no larger than the employee would have received in the U.S.
Tax Reform Act of 1986 Sweeping tax reform legislation that lowered tax rates and sought to eliminate many of the loopholes in the tax laws.
TCJA Tax Cuts and Jobs Act
TEFRA Tax Equity and Fiscal Responsibility Act of 1982.
Temporary assignment A job assignment that is realistically expected to and in fact does last less than 12 months
Temporary help agency employees Workers hired through temporary help agencies who are screened and trained by the agency to provide services for client firms. They are employees of the agency rather than the client firm.
Third-country national In the context of U.S. payroll, an individual who is a non-U.S. citizen working in a country other than the U.S.
Third-party sick pay Payments made by a third party, such as a state or private insurer, to employees because of a non-job-related illness or injury.
TIN Taxpayer Identification Number
TIP Credit The difference between the federal minimum wage and the reduced cash minimum wage for tipped employees ($2.13) that must be paid by customer tips or the difference paid by the employer (e.g., $5.12; effective 7/24/09).
Tips The amount an employee in the hospitality industry receives from their customers. Employees are required to report the amount received to their employer, who must include the amount in the employee's income and withhold taxes from the amount.
Title VII The employment discrimination portion of the Civil Rights Act of 1964, which prohibits job bias based on race, sex, color, religion, or national origin.
Totalization agreements Agreements between the U.S. and foreign countries that prevent double social security and Medicare taxation of U.S. employees working temporarily abroad and aliens working temporarily in the U.S.
TRA '86 Tax Reform Act of 1986
Transportation fringe benefits Nontaxable benefits provided to employees when van pooling to work, using public transportation, or when provided parking. Each benefit has a limit to the value of the benefit excluded from income.
Trust fund taxes The amounts withheld by employers from employees' pay for federal income, social security, and Medicare taxes. They are referred to as trust fund taxes because the money is held in a special trust fund for the U.S. government. Amounts withheld for state and local income taxes are held in trust for the state or local government.
TSA Tax-sheltered annuity
TSCA Tax-sheltered custodial account

U-Z terms

Name Definition
UC Unemployment compensation
UI Unemployment insurance
UIFSA Uniform Interstate Family Support Act
Unearned income Income from a source other than employment income
Uninformed Services Employment and Reemployment Rights Act (USERRA) of 1994 (USERRA) of 1994 Federal law guaranteeing, among other things, the right of U.S. veterans to make additional elective deferrals under their employer's 401(k) plan for the time they spent in military service
Uniform Interstate Family Support Act (UIFSA) Model state child support enforcement law under which employers must put into effect a child support withholding order from another state's child support enforcement agency if the order appears "regular on its face."
Uniform Premiums Table See "Table I"
USC United States Code, where federal laws are compiled
USCIS U.S. Citizenship and Immigration Services
U.S. Citizenship and Immigration Services (USCIS) The agency which regulates Form I-9
Validity edits Show whether or not data entered meets the requirements set forth by a company.
Voluntary contribution Advance payments of unemployment tax that can reduce an employer's state unemployment tax rate
Wage assignment A voluntary agreement by an employee to transfer portions of future wage payments (e.g., insurance premium deductions, credit union deductions)
Wage attachment An involuntary transfer of an employee's wage payment to satisfy a debt
Wage base Wage limit beyond which an employee's wages are not taxed
Wage-bracket withholding method A procedure for calculating the amount of federal income tax to be withheld from an employee's wages based on wage-bracket tables classified by the employee's marital status and payroll period. The tables are found in Publication 15, (Circular E), Employer's Tax Guide
Wage-hour law See "Federal Wage-Hour Law"
Wage orders State agency directives that set wage and hour standards, usually for specific industries
WC Workers' compensation
Weekly Once per week
White-collar employees In the context of the Federal Wage and Hour Law (FLSA), executive, administrative, professional (including computer-related professionals), or outside sales employees who are exempt from FLSA's minimum wage, overtime pay, and certain record-keeping requirements.
Wide area network (WAN) A network in which information is transmitted over long distances at relatively slower speeds using telephone lines.
Withholding Subtracting amounts from an employee's wages for taxes, garnishments or levies, and other deductions (e.g., medical insurance premiums, union dues). These amounts are then paid over to the government agency or other party to whom they are owed.
Withholding allowance Reduces the amount of wages subject to federal income tax withholding based on exemptions and deductions claimed on federal income tax Form 1040
Worker classification The process of determining whether an individual performing services for a business is either an employee or an independent contractor
Working condition fringe benefit Benefits provided to an employee that are required for the employee's job. These benefits are not taxable
Work-sharing plan An agreement to reduce some employees' hours to avoid laying off other employees. Those employees whose hours were reduced receive partial unemployment benefits.
Workstation In the context of computers, a powerful personal computer that is generally faster than a standard PC.
Workweek The basis for determining an employee's regular rate of pay and overtime pay due under the Fair Labor Standards Act. It can be any consecutive seven-day (168-hour) period chosen by the employer (e.g., Saturday through Friday, Wednesday through Tuesday).
Zero balance account (ZBA) An account where funds are transferred as needed from another account to meet the demands of items, such as paychecks, that are submitted for payment. In a ZBA account, the beginning balance and the ending balance for a period will always be zero.


Frequently Asked Questions

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Payroll dictionary