HR and Payroll Management Terms You Should Know

Between hundreds of obscure tax codes, employment laws, and required documents, it can be difficult to figure out what your HR team needs to know and what they don’t. Fortunately, we have compiled a glossary of essential HR and Payroll terms, which can help you understand exactly what is going on when it comes to pay and benefits! Read on to learn more! 

A Brief Glossary of Payroll and HR Terms

Below, you will find many important terms that are essential to running the day-to-day payroll and HR operations of your business. While our team couldn’t include everything, feel free to reach out to us today with any additional questions you may have! 

Employee Pay and Benefits Terms

Here are some important definitions pertaining to employee pay, benefits, and more. 

401(k)

A 401(k) is a type of employer-connected retirement account. An employee can elect to have a portion of their paycheck placed into their 401(k) in order to save for retirement. Then, their employer may elect to match their contribution and make a contribution of their own. Though this benefit is popular for many businesses to offer, it is not legally required. 

Allowances

Specific amounts allocated to employees for various purposes, such as travel, meals, or housing, often tax-deductible.

Applicant Tracking System (ATS)

Software used by companies to manage job applications and candidates efficiently.

Background Check

The process of looking up and compiling criminal records, commercial records, and financial records of an individual or an organization.

Base Pay

Base pay is the hourly rate or salaried wage that an employee earns before any other payments (tips, overtime, etc.) are added.

Benefits

Various forms of non-wage compensation provided to employees in addition to their salaries (e.g., health insurance, retirement plans).

Compensation

The total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed.

Diversity and Inclusion (D&I)

Policies and practices aimed at creating a workplace that embraces and promotes differences among employees, including race, gender, age, sexuality, and religion.

Employee Classification

The categorization of employees by type, such as full-time, part-time, or contractor, affecting their eligibility for benefits and compliance requirements.

Exempt and Non-Exempt Employees

The categories of exempt vs. non-exempt employees refer to an employee’s eligibility for overtime pay. Typically, those who are exempt are employees who earn salaries and non-salaried employees in certain job designations. Typically, non-exempt employees are manual laborers and blue-collar workers.

Garnishment

A legal process requiring an employer to withhold a portion of an employee's earnings for the repayment of debt.

Gross Pay

Gross pay accounts for all payments an employee earns, including tips, overtime, and benefits, while net pay refers to the total amount after deductions are made. 

HR Audit

A comprehensive method to review current human resources policies, procedures, documentation, and systems to identify needs for improvement and enhancement of the HR function.

Incentive Pay

Additional compensation used to motivate and reward employees for exceeding performance or productivity goals.

Independent Contractor

An independent contractor is someone who performs work for a company on the basis of a limited contract rather than agreeing to continue work as a full employee. They have more control over how a job is performed and at what hours, and they have a distinct tax status from traditional employees. 

Leave of Absence (LOA)

A period of time that one must be away from their primary job, while maintaining the status of employee.

Minimum Wage

The lowest legal hourly pay for workers, determined by federal, state, or local laws.

Onboarding

The process of integrating a new employee into an organization and its culture.

Overtime Pay

Additional pay required by law for employees who work more than a certain number of hours in a workweek.

Pay Period

A pay period is the period of time of work performed that a paycheck accounts for; in other words, it is the amount of time between paychecks. For instance, if you get paid at the end of every month, the entire month of January might be one pay period.  

Payroll

The process of compensating employees for their work, including the calculation of wages and deductions.

Salary

Salary is a type of payment in which employees receive a fixed income at regular intervals. Salaries often come in contrast to hourly wages, which are paid on the basis of the amount of work performed – typically, salaries don’t change based on specific hours worked. 

Severance Pay

Severance pay is payment (other than a final paycheck) made to employees after their termination. This is often given as a courtesy to valued or long-time employees.  

Supplemental Wages

Supplemental wages are wages made outside of the base wage that an employee is paid. Some common types of supplemental wages are tips, bonuses, commissions, and overtime pay.  

Time and Attendance Systems

Systems used to track and monitor when employees start and stop work.

Turnover

The rate at which employees leave a company and are replaced by new employees.

Qualifying Event

An event that triggers a special enrollment period for health insurance outside of the regular open enrollment period.

Wage Garnishment

Garnishment is when an employer is compelled by a court order to withhold part of an employee's paycheck for payment to the federal government. This typically occurs when an employee has been taken to court for owing a significant debt, as in unpaid child support or in the case of some incarcerated individuals on work release. 

Terms for Taxes and Legality

Below are important terms for understanding taxes and legality within your business processes. 

Deduction

A tax or payroll deduction is an amount of money that an individual or entity can exclude from their overall taxable income. Doing so can lower the amount owed in taxes - some common tax deductions include IRA deductions, mortgage contribution deductions, or charitable contribution deductions.  

Federal Income Tax Withholding

Federal Income Tax Withholding is the amount that an employer automatically withholds from an employee’s paychecks in order to pay for their federal income tax.  

FLSA

The Fair Labor Standards Act (FLSA) is an important federal law that dictates the terms of a number of labor practices, including the payment of a minimum wage, time-and-a-half for overtime, and a number of child labor laws, among others. For more information on the Fair Labor Standards Act, check out the official site here. 

FICA

The Federal Insurance Contributions Act (FICA) is a tax applied to each employee's paycheck in order to fund federal programs including Medicare, Medicaid, and Social Security. Typically, this amount is automatically withheld from payroll taxes. 

FMLA

The Family and Medical Leave Act (FMLA) is an act designed to offer employees guaranteed unpaid leave for certain family and medical emergencies. This act also protects employees from termination, loss of pay or privileges, or any other punishment as a result of taking leave for certain family or medical reasons.  

Forms W-2, W-3, W-4, and 1099

Forms W-2, W-3, W-4, and 1099 are all different types of tax forms used for different purposes. Form W-2 is a form given by an employer to an employee that tells the employee the amount earned and withheld for that tax year. Form W-3 is filled out by the employer and serves as a statement of all payments made to employees by a business in a given tax year. Form W-4 is a form filled out by an employee at the beginning of their period of employment that tells an employer how much they ought to withhold from each paycheck. Form 1099 is a form filled out by freelance employees or independent contractors that reports the amount earned in non-employee payments that tax year. 

State and Federal Tax Credits

A tax credit is a dollar-for-dollar reduction in the amount of taxes owed; for instance, a $3,000 tax credit means that you pay $3,000 less in taxes. State and federal governments use tax credits to incentivize certain behaviors, including offering tax credits to individuals who care for dependents, tax credits for using clean energy, and tax credits for owning a home.  

Human Resources Terms

Below are some terms relevant to human resources, including employee onboarding, hiring reporting, and more. 

SSN and EIN

Social Security Numbers (SSN) and Employer Identification Numbers (EIN) are nine-digit numbers used by the IRS to identify an individual or an entity – typically for taxation purposes. An SSN is a number given to all U.S. citizens, and it is a unique number that only you can be identified by. By contrast, an EIN is a number used to identify a business.  

Reasonable Basis

Reasonable basis refers to a standard by which a recipient of payment may be designated as an employee or a contractor by an employer for tax purposes. An employer may have reasonable basis to class an individual as a contractor if they work for a number of employers, set their own hours, payment is done by job, etc.  

New Hire Report

The new hire report is a set of information an employer must report to the proper state or federal agencies regarding a new employee or a rehired employee. Typically, agencies will set a certain window of time within which an employer must provide the information.  

Resident Alien

A resident alien is an employee on an employer’s payroll who is not a U.S. citizen but qualifies for residency status. An individual may qualify as a resident if they have a “green card,” or if they pass what is called the “substantial presence test,” indicating that they have spent enough time in the U.S. to qualify as a taxable employee.  

Fringe Benefits

Fringe benefits are benefits given by an employer on top of an employee’s wages. These can include health, vision, and dental insurance, a company car, etc. However, fringe benefits are often not given out to hourly employees. 

Horizon is a Trusted Payroll Partner for Businesses

As experts in our field, Horizon is proud to offer businesses of all kinds top-rated services for payroll, HR, employee onboarding, and more. No matter what your company needs to grow and succeed, our team is here to help! Check out our full solutions page here or reach out today for more information. 

Top-Rated Solutions for Payroll, HR, and More

Are you looking for more support for your HR or payroll team? We can offer a number of HR and payroll solutions to help your company run more smoothly and stay compliant throughout the year. From benefits administration to new hire reporting, payroll processing, and more, we’ve got you covered! 

Contact Us Today for More Information

Interested in learning more? Contact our team at Horizon today for more information!