401(k) Plan: A cash or deferred arrangement that allows employees to authorize their employer to place pretax dollars in a retirement plan that invests the money. The contributions (including those matched by the employer) and any earnings on them are not subject to federal income tax (and most state income taxes) until they are withdrawn.
Annual Wage Reporting (AWR): The Social Security Administrations system of recording wages reported annually by employers on Forms W-2.
Automated Clearing House (ACH): A Federal Reserve Bank or private financial institution acting as a clearinghouse for direct deposit transactions. Entries are received and transmitted by the ACH under the rules of the association.
Background Checks: Background checks are often requested by employers on job candidates, especially on candidates seeking a position that requires high security or a position of trust, such as in a school, hospital, financial institution, airport, and government. These checks are traditionally administered by a government agency for a nominal fee, but can also be administered by private companies. Results of a background check typically include past employment verification, credit score, and criminal history.
Base Period: As it relates to unemployment compensation, it generally consists of 52 weeks or four of the last five quarters, immediately preceding the claimants benefit year.
Cafeteria Plan: A plan in which an employer offers employees a variety of different benefits. The employee is able to choose which benefits would fit their individual needs. Examples of benefits offered in the cafeteria include group-term life insurance, dental insurance, disability and accident insurance, and reimbursement of healthcare expenses. These can be deducted pre-tax saving the employees money. Also see section 125.
Child Support Withholding: The process of withholding amounts from an employees compensation to satisfy a child support order from a court or 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, Employers Tax Guide. This publication contains the basic rules, guidelines, and instructions for withholding, depositing, reporting, and paying federal employment taxes.
Commercial Auto Insurance: Insurance purchased for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise therefrom. The specific terms of vehicle insurance vary with legal regulations in each region.
Class Codes: Workers compensation codes are classifications used by work comp insurance companies to classify the degree of workplace risk exposure for different jobs. A clerical office worker, for example, has a lower risk of being injured on the job than a firefighter or a roofer. The classification system is published and maintained by the National Council on Compensation Insurance, Inc. (NCCI) in a book called the Scopes of Basic Manual Classifications, and contains detailed descriptions of each classification. It is updated annually, and can be purchased from their website.
Deduction: An amount subtracted from an employees gross pay to reach net pay, or an amount allowed to taxpayers as an offset against income.
Direct Deposit: The electronic transfer of an employees net pay directly into financial institution accounts designated by the employee, thus avoiding the need to receive a “live” paycheck.
Electronic Funds Transfer (EFT): The transfer of money electronically from an account in one financial institution to an account in another financial institution.
Electronic Federal Tax Payment System (EFTPS): System that allows employers to make federal tax deposits electronically through the ACH network.
Electronic Filing: The process of filing tax and information returns directly from one computer to another.
Employer Identification Number (EIN): The employers account number with the Internal Revenue Service, consisting of nine (9) digits (00-0000000).
Experience Rating: In the context of unemployment compensation, it is the employers past record of unemployment claims activity. This record is used to determine the employers unemployment tax rate (i.e., a high unemployment rate results in a higher tax rate).
Federal Income Tax (FIT): A withholding tax levied against employees. The amount of withholding varies with the amount of earnings, frequency of pay, number of claimed exemptions, and marital status.
Federal Employer Identification Number (FEIN): A number assigned to taxpayers and businesses by the federal government. This number is used for all tax transactions. Also referred to as EIN.
Fringe Benefit: Compensation other than wages provided to an employee such as health and life insurance, vacation, employer-provided vehicles, public transportation subsidies, etc., that may be taxable or non-taxable.
FUTA: The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. Only the employer pays FUTA tax; it is not deducted from the employee’s wages
Garnishee: In a payroll context, an employer that receives an order requiring withholding from an employees wages to satisfy a debt.
Garnishment: A legal proceeding authorizing an involuntary transfer of an employees wages to a creditor to satisfy a debt.
Lookback Period: A 12-month period beginning on July 1 and ending on June 30 of the previous calendar year. The amount of payroll taxes (Federal Withholding, Social Security, and Medicare without being reduced by any AEIC payments) in the lookback period determines the employer’s deposit schedule of the payroll taxes for the current calendar year. These payroll taxes are located on quarterly Forms 941 (line 11)
Medicare: A federal hospital insurance program for individuals 65 or older and some disabled persons. It is funded through the hospital insurance component of FICA. Employer and employee pay matching amounts; no annual wage limit.
Minimum Wage: The lowest hourly amount an employer can pay employees under federal or state law.
New Hire Reporting: The reporting of newly hired/rehired employees to state agencies to assist in collecting child support and/or uncover abuse of the states unemployment compensation, workers compensation or public assistance programs.
Net Pay: That part of an employees wages that remains after all deductions have been subtracted (taxes, health insurance, benefits, etc.)
Nonqualified Plan: In the context of employee benefits, an employer plan that does not meet IRS qualification requirements.
Payroll Period: The period of service for which an employer pays wages to its employees.
Payroll Tax: Any tax levied by a government agency on employees wages, tips and other compensation.
Pretax Deduction: A deduction taken from gross pay that reduces taxable wages.
Qualified Plan: A benefit plan that meets IRS qualification requirements for tax-favored treatment (i.e., nondiscrimination).
Risk Management: The use of insurance and other strategies to minimize an organizations exposure to liability in the event a loss or injury occurs.
Section 125: Also known as “Cafeteria Plan” or “Flex Plan”. Out-of-pocket costs an employee pays for certain benefit plans. If this is available to the employee, premium payments can be taken on a before-tax basis, reducing the employee’s federal, social security, Medicare and most state taxes.
State Unemployment Insurance (SUI): A quarterly tax paid to a state unemployment agency.
Taxable Wage Base: The maximum amount of employee compensation subject to Social Security, FUTA, and state unemployment insurance taxes.
Taxpayer Identification Number (TIN): A Social Security number of employer identification number that serves as the taxpayer’s account number with the IRS Taxpayer Identification Number (TIN): A Social Security number or employer identification number that serves as the taxpayer’s account number with IRS and Social Security.
Tip Credit: A reduction in the minimum wage allowed for tipped employees earning at least $30 per month in tips.
Tipped Employee: An employee who works in an occupation in which the employee regularly receives $30 or more a month in tips.