

What is Payroll?

What terms do you need to know?

Are you a small business owner just starting out? Have you owned your business for some time and want to expand by hiring employees?  No matter what stage of development you are in with your business, payroll is a common topic of conversation.


Payroll is defined as the employer's list of those persons entitled to pay and the amounts due to each.  This pay includes wages, salaries, bonuses, deductions, and net pay.  Although paying employees for their time, skills and work is a very important part of payroll, there is a lot more to it.  Payroll also includes setting up new employees and reporting the same to the state, collecting and verifying timecards, processing payroll, which includes gross wages, benefits, Social Security and Medicare, and tax withholdings, and issuing paychecks to each employee entitled to the same.


Employees can be paid a salary or paid at an hourly rate.  A new employee is hired on to complete specific job tasks at a specific pay rate or salary.  The amount that the employee is paid, whether salary or hourly, is their gross pay.  Then the employer must calculate and deduct Social Security, Medicare, Federal and State taxes from the gross pay to get to the employee's "take home pay" or net pay.The employer must set these deducted amounts aside to pay to the proper entity on a monthly, quarterly, and yearly basis.


Below are five (5) payroll terms that every business owner should know.


1.  Compensation


     Everything that an employer gives an employee in exchange for their work.  This includes wages, salaries, commission and bonuses.


2.  Deduction


     The amounts that the employer withholds from the employees wages.  The law requires that all employers deduct wages for taxes.  There are also voluntary deductions including health insurance, life insurance and retirement plans.


3.  Gross Wages


     The amount of the total wages before subtracting out any deductions.


4.  Net Wages


     The amount of money that the employee takes home after any deductions have been taken out.


5.  Payroll Taxes


     The amount of taxes withheld by the employer from the employee's paycheck based on their gross wages.  These taxes include income taxes, unemployment taxes, and social security and medicare taxes.



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