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Payroll Terms You Should Know

Gross Pay, Net Pay, Withholding, Deductions, and More

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Before you begin working with payroll and payroll taxes, there are some basic payroll terms you should know.  Here they are:

1. Payroll

The term "payroll" has several meanings. It can be the amount of money paid to all employees in a payday, the financial records of a company relating to the payment of wages and salaries to employees, or the total record of earnings of all employees for a year.

2. Gross Pay

Gross pay is the total paid to an employee each pay period. For hourly employees, gross pay is pay rate times hours worked.

3. Net Pay

Net pay is the amount of pay an employee receives after all withholding and deductions from gross pay.  In other words, net pay is the amount of the employee's paycheck. 

4. Withholding

Withholding refers to amounts taken from an employee's paycheck for federal and state income taxes.  Withholding is determined for federal income tax by a Form W-4 completed by the employee at hire, and for state income tax by a state W-4 or other tax form. 

5. Overtime

Overtime is the additional amounts paid to hourly employees who work over 40 hours in a week, who work on weekends, or other additional amounts.  The federal minimum overtime requirement is that overtime must be paid at 1 1/2 times pay rate for employees who work more than 40 hours in a work week.  Of course, you can pay overtime at higher rates. 

6. Work Week

A work week is considered as 168 consecutive hours of work in a seven-day period.  This term is used is calculating overtime. 

7. Pay Period

A pay period is a recurring length of time over which employee pay is recorded and paid.  Some common pay periods are monthly, weekly, bi-weekly (every other week) and semi-monthly (twice a month).  A bi-weekly pay period results in 26 pay periods in a year, while semi-monthly pay results in 24 pay periods in a year.  The difference is important in computing total pay for employees for a year.

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