10 Payroll Terms To Learn Before Doing Payroll

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

 Want to do your own payroll for your business? It's tricky and the payroll/payroll tax process involves a whole new vocabulary. Everything about payroll and payroll taxes is specific and bound by IRS regulations. 

So, before you begin working through the payroll process, here are some terms you will need to know. I have tried to simplify and explain these terms as much as possible, to help you with the process. 

1
Payroll

Payroll Terms You Should Know
Payroll Terms You Should Know. teekid/Getty Images

The term "payroll" is a general term, and it 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. More

2
Gross Pay

Gross pay is the total paid to an employee each pay period.  Gross pay is determined as an annual amount for salaried employees. The annual gross pay is divided by the number of pay periods in the year to get the salaried employee's gross pay for the pay calculations. 

For hourly employees, gross pay is the worker's hourly rate times the number of hours worked in that pay period; overtime is included in gross pay too. More

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.  More

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.  More

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.  More

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.  More

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. More

8
Overtime

 Overtime is a calculated amount that is paid to employees who work more than a specific number of hours in a work week. Overtime may be determined by the employer, but it can never be less than 1 1/2 times the employee's hourly rate, for work over 40 hours in a work week. 

Overtime may also be required for some exempt employees too. An explanation of overtime pay for exempt employees is included in this article.  More

9
Salaried vs. Hourly Employees

 The terms "salaried employee" and "hourly employee" relate specifically to how these employees are paid. 

Salaried employees are paid an annual salary. Hourly employees are paid an hourly rate times hours worked. 

Other distinctions between salaried and hourly employees might need to be noted.  More

10
Exempt vs. Non-exempt Employees

Exempt means "exempt from overtime." Exempt and non-exempt employees are categorized typically by the work they do.

Exempt employees (sometimes called a "white collar exemption") work in professional, managerial, and executive positions. Other workers are non-exempt.  More