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Glossary of Payroll Terms



A

Additional Check

Refers to a check that is generated for an employee in addition to the employee's regular check, such as a commission check.

Administrative Wage Garnishments

An amount collected from an employee's payroll, by any federal agency, to satisfy a federal debt.

Application

A collection of databases and programs, which share a common purpose or goal.

Audit Trail

Recorded flow of a transaction from initiation (e.g., source document) to finalization (e.g., financial statement), or vice versa. The auditor, assuring that data are processed correctly, appraises the material, forming the audit trail. An audit trail may be either visible or invisible (e.g., magnetic storage). Components of an audit trail include: HR and payroll records; list of transactions processed; and transaction identifiers so that reference can be made to the source of a transaction. An audit trail allows the tracing of transactions to control totals to supporting transactions. A good audit trail makes the tracing process easy.

Auto void

Used to automatically reverse checks within the payroll system.

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B

Batch Processing

Term for processing mode in which the work is accomplished sequentially. Input such as transaction records is processed through the system in a predetermined order. Batch processing systems are fairly inexpensive and represent the most common system in use today.

Benefit Ratio Formula

An employer's unemployment insurance contribution rate is the same as the ratio of benefits to payrolls over the last three years. The rate may be adjusted based upon the overall balance in the state unemployment insurance fund.

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C

Cafeteria Plan

Cafeteria plans, or flexible benefit plans, are employee benefit plans, authorized by Internal Revenue Code Section 125, under which employees may choose from among two or more benefits (consisting of cash and qualified benefits) offered by an employer. Employee payroll deductions to fund the benefits are exempt from federal income tax, FICA, and, in some states, state income tax, withholding. Benefits that may be offered under a cafeteria plan include accident and health insurance, dependent care assistance, group legal services, group term life insurance (although life insurance in excess of $50,000 is includible in gross income), and additional vacation days.

Child Support

Under state family laws, the court or administrative agency has the power to order deduction of a child support obligation from a parent's income, through payroll.

Choice List

A drop-down list of valid items relevant to a specific data entry field used to ensure data consistency and uniformity. Most choice lists are dynamic (i.e. a new option can be stored at any time).

Circular E

Circular E, Employer's Tax Guide, also known and Publication 15, is published annually by the IRS and includes definitions of frequently used payroll terms and concepts, rules and regulations for the filing of federal employment taxes, and percentage method and wage bracket federal income tax withholding tables. Circular E may be obtained by visiting the IRS website at www.irs.gov.

Client/Server Environment

A network environment designed to exchange data between a server, which stores the data, and a client, a workstation used to display and modify the data.

Contractor

Any worker who receives compensation for services is either an independent contractor or an employee. Any worker who performs services for another subject to the latter's control regarding the result to be accomplished and the means by which that goal will be achieved is an employee. The actual direction or control of the activities of the one performing the services is not necessary; the important factor is that the employer has the legal right to control those activities, whether or not the right is exercised. Classification of workers as independent contractors or as employees is not always a simple matter; federal and state regulations make use of four separate sets of rules and methodologies for making this determination.

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D

Database

A collection of data related to a particular topic or purpose.

Database Layer

This layer contains the SQL database, including company- and employee-level data, XML screen and column definitions, and the tables that govern application and database security.

Database Role

This database security component determines whether a user or user group has read-only access or read and write access to data in employee records.

Database Security

Refers to the security that is enforced at the database level. It defines which employee payroll records users are allowed to see and whether they have read-only or read/write access to data.

Data Privacy

This term refers to the use (or abuse) of authorized information access. For example, employees authorize their employers to hold certain personal information. Data privacy works to ensure that only authorized personnel have access to it.

Data Security

This term refers to controlling and preventing unauthorized information access. For example, the IT department builds and monitors firewalls to prevent people outside of the company from accessing private information.

Deferred Compensation Plan

Deferred compensation plans are employee benefit plans, authorized by various Internal Revenue Code Sections, under which employees may contribute a percentage of wages to tax deferred savings plans rather than receive the amounts as current compensation. The most commonly used deferred compensation plan is the 401(k) plan (so named for its IRC section).

Deferred compensation plans have strict requirements as to eligibility, participation, vesting, non-discrimination, withdrawal of funds, and annual reporting and legal advice should be sought in their institution.

Deposit Rules (Federal Payroll)

Quarterly Deposit Rule

If, at the end of a quarter, your total FICA and FIT tax liability is less than $500, you may pay the taxes with your Form 941 quarterly return.

Monthly Deposit Rule

If you expect total FICA and FIT tax liability during the look back period (twelve month period ended June 30, 2005) was less than $50,000, and your tax liability for any given month is more than $1000 but less than $200,000, you must deposit those taxes by the 15th of the following month.

Semi Weekly Rule

If your total FICA and FIT tax liability during the look back period (twelve month period ended June 30, 2005) was more than $50,000, and your tax liability for any given payroll period is less than $100,000, you; must deposit those taxes by the end of Wednesday (for a payday on the previous Wednesday, Thursday, or Friday) or by the end of Friday (for a payday on the previous Saturday, Sunday, Monday, or Tuesday).

One-Day Rule

If your total FICA and FIT tax liability accumulates to $100,000 prior to an otherwise regular deposit date, you must deposit those taxes by the end of the next banking day. (See also Accelerated Deposit Rule.) If you are a monthly depositor and become subject to the accelerated deposit rule, you become a semi-weekly depositor on that day and remain so for the remainder of the current calendar year and for the following calendar year.

Direct Deposit

Direct Deposit refers to a en electronic transfer of funds directly from one bank account to another, without being withdrawn or a check issued. The most common use of direct deposit is salary deposits of an employee's payroll check. With direct deposit, an employer electronically transfers an employee's net payroll check into the employee's bank account.

Download

Transmitting a payroll file or program from a central computer to the client's computer. The client can retrieve payroll information to be used in an application package such as spreadsheet, file information from a subsidiary, or file data from an on-line database.

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E

Employer Identification Number (EIN)

The employer's identification number (EIN) is used to identify corporations, partnerships, nonprofit associations, trusts, and similar non-individual entities and must be shown on tax returns and depository forms used by the employer.

EDI

Electronic data interchange is the transfer of structured data, between companies and computer systems, according to set standards.

Electronic Funds Transfer (EFT)

Commonly called direct deposit, EFT enables the transfer of all or part of an employee's payroll check directly to their checking or savings account.

Encryption

Refers to securing data before it is sent over the Web.

Equal Pay Act of 1963

The Equal Pay Act of 1963 prohibits wage discrimination between male and female employees for equal work performed under similar working conditions and requiring equal skill, effort, and responsibility.

Exemption from withholding

No withholding from an employee's payroll is required if the employee anticipates that he will incur no federal income tax liability for the current taxable year and he incurred no such liability during the preceding taxable year's payroll. The exemption must be claimed on line 7 of Form W-4 (Employee's Withholding Allowance Certificate) and must be renewed annually. Student status does not automatically exempt an employee from federal income tax withholding.

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F

Family and Medical Leave Act of 1993

The Family and Medical Leave Act of 1993 entitles employees to take reasonable leave for medical reasons, for the birth or adoption of a child, and for the care of a child, spouse, or parent who has a serious health condition.

An employee taking family or medical leave is entitled to reinstatement to the position of employment held when the leave began or to an equivalent position with equivalent employment benefits, pay, and other terms and conditions of employment.

Covered employers are those with fifty or more employees each workday during each of twenty or more calendar workweeks in the current or preceding calendar year. Eligible employees are those who have been employed by a covered employer for at least twelve months. Reasonable leave is defined as twelve work weeks in a twelve-month period. Leave need not be paid but medical coverage under any group health plan must be maintained during the leave.

Federal Insurance Contributions Act (FICA)

The taxes imposed under this law fund social security and Medicare. The employer is required to match the 6.2% social security tax rate imposed on the employee's first $97,500 of taxable wages as well as the 1.45% Medicare tax rate imposed on all of the employee's taxable wages. No credits or withholding exemptions are permitted for the calculation of FICA taxes. When there is more than one employer, each must withhold FICA tax from the employee up to the taxable wage base.

Federal Unemployment Tax Act (FUTA)

The Federal Unemployment Tax Act, together with state unemployment systems, provides benefits to workers during brief periods of unemployment. No employee contributions are required. Employers pay 6.2% of the employee's first $7,000 of taxable wages. Employers are, however, entitled to a credit against their FUTA liability for contributions to state funds.

Field

The smallest unit of information in a table, also called columns, which is intended to store one specific piece of information for the record in which it is contained.

FIPS Code

Federal Information Process Standard Code identifies the county and/or locality of child support order. It is used for transmitting payments through EFT or EDI. This alphanumeric, 5 or 7-position field is normally included on the child support withholding notice that is issued to begin the payroll withholding procedure.

Form

A page within an application, which uses a defined pattern layout, with fields used to collect information relating to a particular subject.

Form SS-4

Form SS-4 is an Application for Employer Identification Number. The purpose of Form SS-4 is for an employer to apply for an employer identification number (EIN). An EIN is a nine-digit number assigned to sole proprietors, corporations, partnerships, estates, trusts, and other entities for tax filing and reporting purposes. You must file Form SS-4 if you have not obtained an EIN before and you have a payroll of one or more employees. Additional conditions may apply to the requirements for an EIN.

Form W-2

Employers must file Form W-2 for each employee from whom income, social security, or Medicare taxes have been withheld from the employee's payroll.

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G

Garnishments

Garnishments are involuntary collection of money from a debtor, through payroll deduction. Garnishments are governed by federal and some state guidelines.

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H

Home Page

The entry point for a Web site or Web-based application.

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I

Immigration Reform and Control Act of 1986 (IRCA)

The Immigration Reform and Control Act of 1986 (IRCA) prohibits employers from knowingly hiring illegal aliens by requiring the verification of an applicant's identity and eligibility for employment prior to hiring. Documents that will satisfy both the employment authorization and identity requirements of the law include a US passport, a certificate of US citizenship, a certificate of naturalization, or a resident alien card or other alien registration card that contains a photograph. A record of each employment eligibility verification must be maintained on Form I-9 (Employment Eligibility Verification).

Individual Retirement Account (IRA)

The simplest of all retirement plans is the individual retirement account (IRA). An IRA is a tax-favored savings plan that allows eligible participants to make pre-tax contributions through payroll deduction and defer taxation on earnings until retirement. An employer can make IRA contributions for all or select employees. In such instances, the recipient's reported annual taxable salary will include the IRA contribution, although this amount would then be deducted (conditions permitting) by the employee on his or her year-end tax filing.

Interface

In computer terminology, means of interaction between two devices or systems that handle data (e.g., formats or codes) differently. Basically, an interface is a device that converts signals from one device into signals that the other device needs. The medium may be downloaded files, magnetic tape files, or printed reports.

Internet

An external network of computers often referred to as the World Wide Web.

Intranet

Collection of related web pages that are proprietary and not available for public access users. These pages reside on a specific server for all employees for a specific company.

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J

No entries

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K

No entries

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L

Link

Also referred to as a hyperlink, is a line of text used to navigate to a specific point in a document, Web site or Web-based application.

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M

Manual Check

Used to adjust current and to-date amounts of an employee's hours, earnings, voluntary deductions, and taxable wages (including net pay), and to communicate the employee's wage and tax adjustments for tax purposes.

Menu

A list of options available to the user of a Web site or application.

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N

NACHA

NACHA is the acronym for the Electronic Payments Association, formerly the National Automated Clearing House Association. This organization develops electronic solutions to improve the ACH payment system in the United States. NACHA develops operating rules and business practices for the Automated Clearing House (ACH) Network and for electronic payments in the areas of Internet commerce, electronic bill and invoice presentment and payment (EBPP, EIPP), e-checks, financial electronic data interchange (EDI), international payments, and electronic benefit transfer (EBT).

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O

Official Bank Check (OBC)

Checks that are guaranteed to be funded by the issuing bank.

Onsite Checks

Sometimes referred to as "Xpresschecks" in legacy systems, Onsite checks are similar to manual checks in that they are recorded and posted within the respective payroll run but also allow the appropriate payroll user to produce the actual check(s) directly from the application by printing to a local printer, using Dayforce compatible check stock.

This is helpful for clients who need to generate and provide payments to employees on demand for various reasons.

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P

Payroll Cycle

A series of steps that are completed to generate payments and payroll output (like reports and files) for a specific payroll period.

Payroll System

The system uses to generate employee checks and other payroll information. Information is submitted to the Payroll System from HR/Payroll.

Paid Day Off (PDO)

Refers to a pool of time an employee earns which he or she can use for vacation or sick leave. Generally tracked and paid through payroll cycles.

Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA)

Enacted in 1997, this act requires employers to report very specific information about every new hire within 7 days. The law is designed to reduce overpayments of unemployment and workers' compensation and food stamps, as well as to aid in the recovery of child support payments from non-custodial parents through payroll reporting and wage attachments.

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Q

Query

A statement written to extract specific data from the database.

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R

Read-only

An access control property, which grants a user permission to view a given set of information, but not allowing it to be updated.

Recertification Credit Hours (RCH)

Units of continuing education used to maintain or renew certification, a designation earned by a person to certify that he is qualified to perform a job. A payroll services provider may provide training that qualifies for recertification credit hours for professional certifications with the American Payroll Association (APA) and/or Human Resource Certification Institute (HRCI).

Record

A collection of related items of information treated as a unit by a computer, for example, in a database.

Relational Database

A database that links data stored in many different places.

Request for Proposal/Request for Information (RFP/RFI)

A document from a potential payroll services customer outlining specifications and requirements for a payroll system they want to purchase. Used to prepare a sales proposal.

Route

In workflow, this is the path that a document follows on its way to completion/approval. All new hire documents follow the same route.

Row-Level Security

Security component that controls which employee records a user can access. Row-level security is applied at the database level and only Hosted Services can set it up.

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S

SaaS

Software as a Service (SaaS) is an application delivery model where a human resource and payroll services vendor develops a web-native software application and hosts and operates (either independently or through a third-party) the application for use by its customers over the Internet. Customers do not pay for owning the software itself but rather for using it. They use it through an API accessible over the Web and often written using Web Services or REST. The term SaaS has become the industry preferred term, generally replacing the earlier terms Application Service Provider (ASP) and On-Demand.

Security Role

Security component, which is a collection of screens and report permissions that may be assigned to users or user groups.

Standard Industry Classification (SIC)

An IRS code used to classify establishments by their primary type of activity.

State Income Tax (SIT)

An employee payroll withholding tax based on amount, frequency of payment, number of exemptions, and filing status.

Social Security Act

Social Security provides retirement benefits for most persons employed or self-employed for a set period of time (currently 40 quarters; about 10 years). Benefits paid at retirement, traditionally age 65, are based on a person's earnings history. Payments may begin at age 62 at a reduced rate or, if delayed until age 70, at an increased rate. For a person with earnings equal to the U.S. average, the benefit will be about 40 percent of pay. For someone with maximum earnings, the benefit would be about 25 percent of the portion of pay subject to Social Security tax. The Social Security Act was passed in 1935.

Social Security Number (SSN)

In the United States, a Social Security number (SSN) is a 9-digit number issued to citizens, permanent residents, and temporary (working) residents. The number is issued to an individual by the Social Security Administration. Its primary purpose is to track individuals for payroll, banking and taxation purposes.

Statement of Work (SOW)

In conjunction with the terms of a payroll services agreement or contract, a statement of work explains the work that will be completed on a client's account, the timeframe and the deliverables that should be expected.

SSL

The SSL (Secure Socket Layer) security protocol provides data encryption, server authentication, message integrity, and optional client authentication for a TCP/IP connection. SSL comes in 40-bit strength and 128-bit strength. This refers to the length of the "session key" generated by every encrypted transaction. The longer the key, the more difficult it is to break the encryption code. Software with encryption features having key lengths over 40 bits is considered strong encryption by the United States government for export purposes. Most browsers support 40-bit SSL sessions, and the latest browsers enable users to encrypt transactions in 128-bit sessions. 128-bit sessions are several times harder to break than 40-bit messages.

Static Text

Text that remains constant for a particular form in contrast to fields in which you enter text or display information based on calculations.

STAWRS

The Simplified Tax and Wage Reporting System is a program started during the early 1900s as a partnership among government agencies and the business community in an effort to simplify the employment tax and payroll reporting process.

Submitter

The user who begins the workflow process by entering the initial new hire information.

SUI

State Unemployment Insurance State-administered programs that provide financial protection for workers during periods of joblessness. Employers wholly finance plans, except in Alaska, New Jersey, New York, Pennsylvania, Puerto Rico, and Rhode Island where employees must make small contributions.

SUTA

The acronym for the State Unemployment Tax Act. See SUI for more information.

Synchronization

In HR/Payroll, a process which makes any HR information required by Payroll System available to the appropriate payroll records.

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T

Table

An arrangement of information or data into columns and rows in the database about a particular topic.

TPO

Total Payroll Outsourcing is a service where all functions of a company's payroll are handled by an outside vendor. This is similar to business process outsourcing (BPO) and total benefits outsourcing (TBO).

Tracing

Refers to the process of tracking the steps performed during processing, including parameters used and errors encountered. This information is traced to help diagnose problems and verify that the process is working smoothly.

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U

Unemployment Compensation

A joint federal state program to provide temporary and partial wage replacement to involuntarily unemployed workers who were recently employed. Unemployment compensation can also help stabilize the economy during recessions. The U.S. Department of Labor oversees the system, but each State administers its own program.

URL (Uniform Resource Locator)

The Internet/Intranet address for a document, file, or other resource. It describes the protocol required to access the resource, the host (server) where it can be found, and a path (file directory) to the resource on that host.

User Security

Refers to the security for individual users, which is determined by the User ID and password required to start an application.

User Security Groups A template assigning group rights to screens, reports, columns, as well as access to the database. User groups are typically used when several users need the same security access to a payroll application and its data.

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V

Views

In database management systems, a view (sometimes referred to as an "index") is a particular way of looking at a database. A single database can support numerous different views. Typically, a view arranges the records in a given order and makes only certain fields visible. Note that different views do not affect the physical organization of the database.

Void Check

Used to reverse payroll checks that were created in error in a payroll system, as well as the appropriate wage and tax accumulators.

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W

W-2

Employers required to file a Form 941 must inform employees on their payroll how much has been withheld from the employees' wages for federal and state income taxes and FICA taxes. This reporting is done by supplying each employee with a Form W-2, Wage and Tax Statement, by January 31 of the month following the reporting year. Employees who were terminated before the end of the year may request the Form W-2 earlier, and the form must be furnished within 30 days of the request. Copies of the Forms W-2 must be filed with the Social Security Administration by the end of February.

W-4

A newly hired employee must complete a Form W-4, notifying the employer how many withholding allowances to use when deducting federal income taxes from the employee's payroll check. The more withholding exemptions an employee claims, the less taxes an employer will have to withhold. Employees may claim fewer exemptions than they are entitled to in an effort to reduce later tax obligations. Employees may also ask employers to take additional money from their wages in anticipation of a larger tax bill. The IRS provides Publication 505, Tax Withholding and Estimated Tax, and Publication 919, How Do I Adjust My Withholding, to help employees complete the form.

Wage Attachments

The involuntary withholding of specific amounts from employee earnings for the satisfaction of a debt. This is subject to restrictions that are imposed under federal and state law. WCOMP

The acronym for Workers Compensation Insurance. A Legal requirement to provide medical care or cash payment to cover health services for workers injured on the job. This includes partial wage-replacement benefits and rehabilitation services to restore workers to their fullest economic capacity. These benefits are totally employer-financed.

Web Browser

A program designed to work in a client/server environment and that is primarily used for accessing information from the Internet or Intranet.

Withholding Tax

Deductions by an employer from employee earnings for the payment of federal and state income taxes. It is paid in a prescribed manner to the taxing authority. Withholding tax is remitted by the employer to the IRS or deposited into the designated bank on a periodic basis as prescribed by the IRS, or state tax authority.

Worker's Compensation

Program providing payments, without regard to a finding of negligence of either party, to workers involved in specific job-related injuries. These laws were enacted so that the employee would not have to go through a long and arduous lawsuit and possibly not recover due to the employer's advantageous financial standing. Payments are specifically exempt from taxation.

Workflow

The process of reviewing or approving data before it is committed to the database.

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X

XML (Extensible Markup Language)

The rules and guidelines that allow various types of file formats (such as worksheets and database files) to produce files that are easy to generate and read on various platforms, such as PC and Macintosh systems.

XSL (Extensible Stylesheet Language)

The rules and guidelines that control the manner in which web pages are displayed.

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Y

Year-End Adjustment

Process of adjusting payroll data to ensure it is correctly reported on year-end tax forms at the end of the calendar year in order to ensure they are correct for government filing purposes.

Year to Date

"Year to date," often shortened to the acronym YTD, is a term used to express the results of an activity in the time between today's date and the beginning of either the calendar or fiscal year.

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Z

Zip Code

A code used for general mail delivery within the United States. It can also be used as benefit eligibility criteria.

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