CPP

Segregation of duties

A basic principle of internal control that prevents individuals from having responsibility for all phases of a job process, thus guarding against misuse or misappropriation of company assets.

Qualified plan

A benefit plan that meets IRS qualification requirements for tax-favored treatment (e.g., nondiscrimination) under IRC 401(a).

Back-pay award

A cash award made to an employee that generally results from legal action to remedy a violation of federal or state wage-hour or employment discrimination laws.

401(k) plan

A cash or deferred arrangement (CODA) that allows employees to authorize their employer to place pretax dollars in a retirement plan that invests the money. The contributions (including those matched by the employer) and any earnings on them are not subject to federal income tax (most state income taxes also) until they are withdrawn.

Bonus

A cash payment to an employee for excellent services.

Foreign country

A country or territory not under the jurisdiction of the U.S. government.

Pretax deduction

A deduction taken from gross pay that reduces taxable wages.

Medicare

A federal hospital insurance program for individuals age 65 or older and some disabled persons. It is funded through the hospital insurance (HI) component of FICA tax.

Equal Pay Act (EPA)

A federal law requiring equal pay for men and women performing work requiring equal skill, effort, and responsibility under similar working conditions. It was made part of the FLSA in 1963.

Central information file (CIF)

A file maintained by an Automated Clearing House (ACH) that contains depository financial institution names, routing numbers, addresses of contact persons, settlement and delivery information, and output medium requested.

Relational database (RDB)

A file management system that organizes data into a series of tables, each containing a series of related data in columns and rows.

Originating Depository Financial Institution (ODFI)

A financial institution that is qualified to initiate deposit entries submitted by an employer as part of the direct deposit process.

Receiving Depository Financial Institution (RDFI)

A financial institution that receives direct deposit entries from an automated clearinghouse.

Income statement

A financial statement showing a company's results of operations for an accounting period or fiscal year.

Balance sheet

A financial statement that presents a business's financial position in terms of its assets, liabilities, and owner's equity as of a certain date (generally the end of the company's accounting periods).

Per diem

A flat daily rate of reimbursement for business expenses (e.g., meals, lodging, and incidentals) incurred by employees while traveling overnight on business.

Related corporations

A group of corporations meeting certain common ownership and concurrent employment requirements that may be treated as one employer for social security, Medicare, and FUTA taxes.

Control group

A group of key or highly compensated employees in a company whose proportion of benefits is limited under the qualification requirements of certain benefit plans (e.g., Section 125 or 401(k) plans). Also, employers may not use the commuting valuation method for such employees when determining the value of their personal use of a company-provided vehicle.

Temporary assignment

A job assignment that is realistically expected to and in fact does last less than 12 months.

Long-term assignment

A job assignment that is realistically expected to last more than 12 months.

General ledger

A ledger containing all the transactions in the debit and credit accounts of a business.

Garnishment

A legal proceeding authorizing an involuntary transfer of an employee's wages to a creditor to satisfy a debt.

Consumer Price Index (CPI)

A measure of the change in prices of certain basic goods and services (e.g., food, transportation, housing) developed and published by the Bureau of Labor Statistics (BLS).

Client/server

A method of computing where one computer is tied to another and each share a portion of the workload, with the main data storage being on the server.

EFTPS—Through a Financial Institution

A method where an electronic tax deposit is initiated by contacting an authorized financial institution. The financial institution and the treasury financial agent (TFA) process the transaction.

Local area network (LAN)

A network in which all computers are physically attached to each other and data is transmitted at high speeds over short distances.

Wide area network (WAN)

A network in which information is transmitted over long distances at relatively slower speeds using telephone lines.

Independent contractor

A nonemployee contracted by a business to perform services. Although the business specifies the result of the work to be performed, it has no right to control the details of when, how, or who will ultimately perform the work.

Roth 401(k)/403(b)

A part of an employer's 401(k)/403(b) plan that defers taxation on the plans earnings. The contributions to a Roth 401(k)/403(b) are taxable wages for federal income, social security, and Medicare taxes.

Severance pay

A payment offered by some employers to terminated employees (usually those who are terminated through no fault of their own) that is designed to tide them over until new employment is secured.

Statute of limitations

A period of time established by law during which parties can take legal action to enforce their rights.

Obligee

A person to whom a debt is owed.

Obligor

A person who owes a debt.

Disaster recovery

A plan for keeping the payroll function operational after a shutdown of the business, typically caused by a natural or manmade disaster.

Guaranteed annual wage (GAW)

A plan guaranteeing employees their annual income (regardless of the work available) or that they will be kept on the payroll (although possibly at a lower wage).

Educational assistance program

A plan in which amounts are paid to assist an employee with their education. Up to $5,250 can be provided and the amount is excluded from income or, if the courses taken are job-related, the entire amount is excluded from income under IRC Section 127. IRC Section 127 is scheduled to expire on December 31, 2012.

Tax protection plan

A plan offered by an employer to an employee working abroad that would guarantee the employee a foreign tax obligation no larger than he or she would have in the U.S.

Tax equalization plan

A plan offered by an employer to an employee working abroad that would provide the employee with the same take-home pay he or she would have in the U.S.

Cafeteria plan

A plan that offers flexible benefits under IRC Section 125. Employees choose their benefits from a "menu" of cash and benefits, some of which can be paid for with pretax deductions from wages.

Private delivery service (PDS)

A private-sector company that delivers packages. If their services are "designated" by the IRS, materials delivered to them by a taxpayer for delivery to the IRS are considered postmarked on the date the delivery to the PDS is recorded on their database or marked on the package.

Wage-bracket withholding method

A procedure for calculating the amount of federal income tax to be withheld from an employee's wages based on wage-bracket tables classified by the employee's marital status and payroll period.

Journal

A record of financial transactions that debit or credit an account.

Opportunity wage

A reduced minimum wage ($4.25 per hour) that can be paid to teenagers during their first 90 days at work.

Credit reduction

A reduction in the credit an employer receives against FUTA tax owed for state unemployment taxes paid, where the state has not repaid a federal loan under the joint federal/state unemployment compensation program.

Tip credit

A reduction in the minimum wage allowed for tipped employees (e.g., $5.12; effective 7/24/09).

Multiple Worksite Report (MWR)

A report developed by the Bureau of Labor Statistics to help it collect statistical information on U.S. businesses with multiple work sites.

Payroll register

A report listing and summarizing the compensation paid and deductions taken from each employee's wages for the payroll period.

Defined benefit plan

A retirement plan that uses a formula (generally based on an employee's salary and length of service) to calculate an employee's retirement benefits and is not funded by employee contributions to the plan.

Defined contribution plan

A retirement plan with benefits determined by the amount in an employee's account at the time of retirement. The account may be funded by contributions from both the employer and the employee.

Information return

A return sent to the IRS (e.g., 1099 series) or the SSA (e.g., Form W-2, Copy A, along with Form W-3) that indicates information relevant to tax liability.

Private Letter Ruling (PLR)

A ruling provided by the IRS when requested by a taxpayer who wants to know how the tax laws apply to a particular factual situation. The ruling applies only to the taxpayer requesting it and cannot be relied on by other taxpayers.

High-low substantiation method

A safe-harbor method (deemed substantiation) for reimbursing lodging, meal, and incidental expenses incurred by an employee who is traveling overnight on the employer's business.

Special accounting rule

A safe-harbor rule that allows employers to treat certain noncash fringe benefits provided to employees in November or December as received in the following year. If an employer uses the special accounting rule, the employee must also report the benefit for the same period.

Generally Accepted Accounting Principles (GAAP)

A set of rules and procedures set forth by the Financial Accounting Standards Board that outlines accepted accounting practices broadly and in detail.

Taxpayer Identification Number (TIN)

A social security number, employer identification number, or individual taxpayer identification number which serves as the taxpayer's account number with the IRS.

Reasonable basis test

A standard used to determine whether a worker can be treated as an independent contractor regardless of whether the common law test is met, based on prior court and administrative rulings, IRS audits, or long-standing practice in the industry.

Information statement

A statement sent to a payee (e.g., 1099 series) or an employee (e.g., Form W-2) that indicates payments made and taxes withheld by the party issuing the statement.

Nonstatutory stock option

A stock option plan that gives an employee the opportunity to buy the employer corporation stock at a fixed price for a certain period of time. The employee is taxed on the gain between the price paid and fair market value (FMV) of the stock on the date of purchase.

Incentive stock options

A stock option that gives an employee the opportunity to buy the employer corporation's stock at a fixed price for a certain period of time, and that offers favorable tax treatment if certain conditions are met.

Earned Income Credit (EIC)

A tax credit that is available to low-income employees. It may be taken when the employee files his or her individual tax return.

Individual Taxpayer Identification Number (ITIN)

A tax reporting identification number issued to aliens in the U.S. who cannot get a social security number but are required to file a tax or information return with the IRS.

No-additional-cost fringe benefits

A tax-free fringe benefit for employees consisting of free services offered by an employer at no substantial additional cost to the employer.

Enterprise coverage

A test for determining whether an employer's entire operation is covered by the Fair Labor Standards Act. It is based on the employees' involvement in interstate commerce and the employer's annual volume of revenue.

Common law test

A test that measures the right to control and direction that an employer has the authority to exercise over a worker. Where the employer has the right to direct the worker as to how, where, and when the work will be completed, in addition to controlling the result of the work, the worker is a common law employee.

Individual Retirement Arrangement (IRA)

A trust created or organized for the exclusive benefit of an individual or his or her beneficiaries.

Wage assignment

A voluntary agreement by an employee to transfer portions of future wage payments (e.g., insurance premium deductions, credit union deductions).

Split shifts

A workday that is divided into two parts separated by a spread of hours longer than the conventional rest or meal period.

Common law employee

A worker who is an employee under the common law test.

Voluntary contribution

Advance payments of unemployment tax that can reduce an employer's state unemployment tax rate

Totalization agreements

Agreements between the U.S. and foreign countries that prevent double social security and Medicare taxation of U.S. employees working temporarily abroad and aliens working temporarily in the U.S.

Compensation

All cash and noncash remuneration provided to an employee for services performed for the employer.

Catch-up Contributions

Allowed elective deferrals by an employee to a defined contribution retirement plan above the statutory or plan mandated limit made by employees 50 years and older.

Net worth

Amount by which a company's assets exceed liabilities.

Overtime premium rate

Amount equal to one-half of an employee's regular rate of pay.

Normal credit

Amount of an employer's timely-paid contributions into a state unemployment insurance fund, taken as a credit against the employer's federal unemployment tax.

Retained earnings

Amount that a company's revenue exceeds its expenses, reduced by any amount returned to the owners.

Dismissal pay

Amounts paid to employees who are terminated from employment, also known as payments in lieu of notice, termination pay, or severance pay.

Moving expenses

Amounts paid to move an employee from an old home's location to a new home. If the move and the expenses meet certain requirements, the expenses are qualified moving expenses and not taxable. If the move or the expenses do not meet certain requirements, the expenses are nonqualified moving expenses and taxable.

Business expense

Amounts spent by an employee for travel, lodging, meals, etc., while on the employer's business. Reimbursements for such expenses are excluded from income when paid under an accountable plan. Reimbursements for such expenses are included in income when paid under a nonaccountable plan.

Employee business expenses

Amounts spent by an employee for travel, lodging, meals, etc., while on the employer's business. Reimbursements for such expenses may be excluded from income if they are properly accounted for.

Constructive receipt

An IRS rule that considers wages to be received by an employee when the employee has access to the wages without substantial limitation or restriction.

Constructive payment

An IRS rule that considers wages to have been paid to an employee when the employee has access to the wages without substantial limitations or restrictions.

Safe harbor

An IRS-approved alternative method (usually a short cut) for complying with IRS rules, regulations, and procedures (e.g., per diem allowances and high-low substantiation).

Gross-up

An IRS-approved formula that employers can use to determine the taxable gross payment when the employer wishes to pay the employee's share of tax.

Zero balance account (ZBA)

An account where funds are transferred as needed from another account to meet the demands of items, such as paychecks, that are submitted for payment. In a ZBA account, the beginning balance and the ending balance for a period will always be zero.

Debit

An accounting entry that increases assets and expenses and decreases liabilities and revenues.

Credit

An accounting entry that increases liabilities and revenues and decreases assets and expenses.

Cost-of-Living Adjustment (COLA)

An adjustment of wages or benefit payments to account for changes in the cost of living, generally based on changes in the Consumer Price Index (CPI).

218 agreement

An agreement between a state or local government employer and the state social security agency under which the employees are subject to social security and Medicare coverage.

Work-sharing plan

An agreement to reduce some employees' hours to avoid laying off other employees. Those employees whose hours were reduced receive partial unemployment benefits.

Deduction

An amount subtracted from an employee's gross pay to reach net pay, or an amount allowed to taxpayers as an offset against income.

403(b) annuity

An annuity or mutual fund that provides retirement income for employees of public schools and certain tax-exempt organizations.

457(b) plan

An annuity or mutual fund that provides retirement income for employees of public-sector employers (e.g., state and local governments).

Fluctuating workweek

An arrangement between an employer and a nonexempt employee to pay the employee a fixed weekly salary even though the employee's hours may vary from week to week.

Flexible Spending Arrangement (FSA)

An arrangement that allows an employee to have pretax dollars deducted from wages and put into an account to pay for health insurance deductibles and copayments and dependent care assistance (separate accounts for medical and dependent care FSAs).

Cash or deferred arrangement (CODA)

An arrangement under a retirement plan that allows employees to either receive cash or have the employer contribute an equivalent amount to the plan.

Levy

An attachment to satisfy a tax debt or a court judgment.

Internal audit

An audit of a business's policies, procedures, operations, and records carried out by employees of the business as opposed to outside parties.

External audit

An audit of an organization's financial statements by a disinterested third party (e.g., an outside accountant or accounting firm).

Payroll card

An electronic payment method that allows employees without bank accounts to receive pay through EFT.

Local national

An employee who works in the country where his or her home base is located, even though the employee may actually be a citizen of another country.

Dependent care assistance program (DCAP)

An employer plan providing dependent care services or reimbursement for such services.

Group legal services plan

An employer plan providing for the advance provision or prepayment of personal legal services for employees and their dependents.

Public-sector employer

An employer that is a state or local governmental unit (e.g., county, town, village) or a political subdivision of such a unit (e.g., school district, sewer district).

Nonaccountable plan

An employer's business expense reimbursement plan that does not meet the requirements regarding business connection, substantiation, and returning excess amounts. Payments made under the plan are included in employees' income.

Foreign Housing Cost Exclusion

An exclusion from income for reasonable foreign housing expenses exceeding a base housing amount that is available to U.S. employees working abroad whose tax home is not in the U.S.

Regular rate of pay

An hourly pay rate determined by dividing the total regular pay actually earned for the workweek by the total number of hours worked.

Nonresident alien

An individual from a foreign country working in the U.S. who does not pass either the "green card" or "substantial presence" tests and is subject to federal income tax on U.S. source income.

Employer

An individual or organization that hires individuals to perform services in return for compensation and that has the authority to control and direct the work of those individuals as part of the employer-employee relationship.

Simplified employee pension (SEP)

An individual retirement arrangement (IRA) with special participation requirements that is available for small employers.

Employee

An individual who performs services for another individual or an organization in return for compensation. See also "Common law employee" and "Covered employees."

Social security number (SSN)

An individual's Taxpayer Identification Number; consists of nine digits (000-00-0000).

Long-term care insurance

An insurance contract providing for coverage of qualified long-term care services, including diagnostic, preventive, treating, mitigating, and rehabilitative services, which is treated as an accident and health insurance contract for payroll tax purposes.

Wage attachment

An involuntary transfer of an employee's wage payment to satisfy a debt.

Prizes

An item of value provided to an employee. The fair-market value is included in the employee's income.

De minimis fringe benefit

An item provided infrequently by an employer to an employee that is of small value. De minimis fringe benefits are never cash or cash equivalents.

Social Security Number Verification Service (SSNVS)

An online service offered by the Social Security Administration allowing employers to verify the accuracy of their employees' social security numbers.

Equity

An owner's investment in a company, i.e., the company's net worth.

Reimbursement financing

An unemployment insurance financing system that allows employers to pay back to the state unemployment trust fund any benefits paid to their former employees rather than paying a tax based on their experience rating. This form of financing is most often used by nonprofit groups and public-sector employers.

Payroll tax

Any tax levied by a government agency on employees' wages, tips, and other compensation.

De minimis

Anything that is too insignificant to merit legal scrutiny, such as a fringe benefit that is provided occasionally and is too small to justify accounting for or recording it. This does not apply to cash or cash equivalents except in very specific instances such as supper money.

Working condition fringe benefit

Benefits provided to an employee that are required for the employee's job. These benefits are not taxable.

Noncash fringe benefits

Benefits provided to employees in some form other than cash (e.g., company car, health and life insurance, parking facility, etc.), which may be taxable or nontaxable.

Discretionary bonus

Bonus paid for services performed. In order to be considered discretionary, the bonus cannot be paid because of a promise made in advance, a contract, or another agreement.

Cumulative Bulletin (CB)

Bound volumes published annually by the IRS that contain information printed in that year's weekly Internal Revenue Bulletin.

BLS

Bureau of Labor Statistics.

BPO

Business Process Outsourcing

BSO

Business Services Online, the Social Security Administration's employer portal for filing Forms W-2 and the use of the Social Security Number Verification System.

CODA

Cash or deferred arrangement. An arrangement under a retirement plan that allows employees to either receive cash or have their employer contribute an equivalent amount to a qualified retirement plan.

Qualified transportation fringe

Certain employer-provided transportation benefits that can be excluded from employees' income up to certain annually adjusted limits (i.e., transit passes, van pools, parking, bicycle).

CPP

Certified Payroll Professional.

CPA

Certified Public Accountant.

Other compensation

Compensation other than wages and tips that an employer must report on an employee's Form W-2 and other payments which may be included in the regular rate of pay.

Fringe benefits

Compensation other than wages provided to an employee, such as health and life insurance, vacations, employer-provided vehicles, public transportation subsidies, etc., that may be taxable or nontaxable.

Supplemental wages

Compensation received by employees other than their regular pay, such as bonuses, commissions, and severance pay. Income tax may be withheld from such payments at a flat rate under certain circumstances.

Integrated

Computer systems providing differing processes that share common data.

Personal computer (PC)

Computers that are designed for personal use by having all the computer functionality, operating systems, and applications self-contained.

COBRA

Consolidated Omnibus Budget Reconciliation Act of 1985 that provides the ability to continue participating in an employer's health insurance plan after employment ends.

CCPA

Consumer Credit Protection Act.

CPI

Consumer Price Index.

409A

Contains requirements that a nonqualified deferred compensation plan must meet to have employer contributions and employee deferrals excluded from income.

Nondiscretionary bonus

Contractual or agreed-upon bonus or incentive related to production, efficiency, attendance, quality, or some other measure of performance; included in the regular rate of pay.

Batch control

Control that is designed to ensure that a batch of data has been entered successfully.

COLA

Cost-of-Living Adjustment.

CB

Cumulative Bulletin. The annual publication of the IRS' Internal Revenue Bulletin.

Liabilities

Debts of a business that have yet to be paid.

Involuntary deductions

Deductions over which employers and employees have no control.

DCAP

Dependent care assistance program

T-account

Diagram used for recording entries into an account.

Employee discounts

Discounts for the purchase of goods or services that an employee receives when buying goods or services from their employer. When the purchase of services is discounted 20% or less, the discount is not taxable. When the purchase of goods is discounted by the gross profit percentage or less, the discount is not taxable.

EIC

Earned Income Credit.

EGTRRA

Economic Growth and Tax Relief Reconciliation Act of 2001

EDT

Electronic Data Transfer

EFTPS

Electronic Federal Tax Payment System. Allows employers to make federal tax deposits electronically through the ACH network.

EFTPS—Direct

Electronic Federal Tax Payment System—Direct. A method where an electronic tax deposit is initiated by contacting the IRS to initiate the transaction.

EFT

Electronic Funds Transfer. The transfer of money electronically from an account in one financial institution to an account in another financial institution. (See direct deposit and payroll cards.)

ETA

Electronic Tax Application.

Fedwire

Electronic funds transfer system owned and operated by the Federal Reserve Banks. It serves as a same-day settlement procedure for electronic federal tax depositors.

ERISA

Employee Retirement Income Security Act of 1974.

Leased employees

Employees of a leasing agency who are hired and trained for the client firm through the agency. Withholding, depositing, and reporting responsibilities remain with the leasing agency.

Nonexempt employees

Employees who are covered by the minimum wage and overtime provisions of the Fair Labor Standards Act. They may be paid on an hourly or salary basis.

Common paymaster

Employees who work concurrently for one or more related corporations that are treated as a single employer for social security, Medicare, and FUTA taxes.

EIN

Employer Identification Number.

Supplemental unemployment benefits (SUB)

Employer plans that provide supplements to state unemployment compensation benefits.

Medical/dental/health plans

Employer-provided plans covering the employee's health insurance. In most cases the value of medical/dental/health plans are not included in the employee's income.

EEOC

Equal Employment Opportunity Commission. This federal agency is responsible for administering and enforcing the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the Equal Pay Act of 1963.

EPA

Equal Pay Act.

Payroll expense

Expense that may be recorded in the payroll expense journal by function or by type of pay.

Shift differential

Extra pay received by employees for working a less-than-desirable shift (e.g., evenings or late nights).

Federal income tax withholding (FITW)

FIT withheld from employees' wages or paid by the employer.

FLSA

Fair Labor Standards Act (see "Federal Wage-Hour Law").

FMV

Fair market value. Used to determine the value of noncash, employer-provided benefits for payroll tax purposes or the value of facilities provided to employees in lieu of wages.

FMLA

Family and Medical Leave Act of 1993.

FICA

Federal Insurance Contributions Act. It also describes the combined taxes levied for social security and Medicare.

FUTA

Federal Unemployment Tax Act. It requires employers to pay a certain percentage of their employees' wages (up to a maximum wage limit) as a payroll tax to help fund unemployment compensation benefits for separated employees.

FITW

Federal income tax withholding. FIT withheld from an employee's wages when they are paid.

FIT

Federal income tax.

Uniformed Services Employment and Reemployment Rights Act (USERRA) of 1994

Federal law guaranteeing, among other things, the right of U.S. veterans to make additional elective deferrals under their employer's 401(k) plan for the time they spent in military service.

Employee Retirement Income Security Act of 1974 (ERISA)

Federal law regulating the operation of private-sector pension and benefit plans.

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

Federal law that requires employers with group health-care coverage to offer continued coverage to separated employees and other qualifying beneficiaries and Medicare-only taxation of certain state and local governmental employees.

Consumer Credit Protection Act (CCPA)

Federal law that restricts the amount of an employee's earnings that can be garnished to pay creditor debts, including child support.

FTD

Federal tax deposit.

Internal Revenue Code (IRC)

Federal tax laws. Generally referred to as the Internal Revenue Code of 1986, which was the year of its latest major overhaul. The IRC also comprises Title 26 of the United States Code.

FASB

Financial Accounting Standards Board.

Statement of cash flow

Financial statement that shows the sources and uses of cash during the accounting period.

FAVR

Fixed and variable rate mileage allowance.

FSA

Flexible Spending Arrangement.

Expatriate

For U.S. payroll purposes, a U.S. citizen or resident alien who lives and works outside the U.S.

Covered employees

For each law affecting payroll and human resources, this term defines those workers who are subject to the law.

FPC

Fundamentals of Payroll Certification

GAO

General Accounting Office.

GSA

General Services Administration

GAAP

Generally Accepted Accounting Principles.

GASB

Governmental Accounting Standards Board.

Financial Accounting Standards Board (FASB)

Group that sets the standards for accounting practices.

Governmental Accounting Standards Board (GASB)

Group that sets the standards for governmental accounting practices.

GTL

Group-term life insurance.

GAW

Guaranteed annual wage.

HIPAA

Health Insurance Portability and Accountability Act.

HSA

Health Savings Account

Health Savings Account (HSA)

Health Savings Accounts (HSAs) are tax-exempt trusts or custodial accounts created exclusively to pay for the qualified medical expenses of the account holder and his or her spouse and dependents, subject to certain qualifications and rules.

HCE

Highly compensated employee.

HI

Hospital Insurance (the Medicare component of FICA).

HRIS

Human Resource Information System.

Circular E

IRS Publication 15, Employer's Tax Guide. This publication contains the basic rules, guidelines, and instructions for withholding, depositing, reporting, and paying federal employment taxes.

Employer's Supplemental Tax Guide

IRS Publication 15-A. This publication provides more detailed information for employers than Circular E (Publication 15), especially in the areas of employee status determinations and fringe benefit taxation and reporting.

Revenue account

Identifies amounts received for goods sold and services rendered during the accounting period.

Exempt

If an employee claims exempt on his or her Form W-4, the employer does not have to withhold federal income tax from the employee's wages.

IRCA

Immigration Reform and Control Act.

Garnishee

In a payroll context, an employer that receives an order requiring withholding from an employee's wages to satisfy a debt. A garnishee can also be a debtor against whom a creditor has brought a process of garnishment.

Premium pay

In a payroll context, the extra pay above an employee's regular rate of pay that is paid for working overtime hours or a special pay rate for work done on weekends, on holidays, during undesirable shifts, or for doing dangerous work.

Customer service

In a payroll environment, customer service consists of reliability, responsiveness, assurance, empathy, and tangibles.

Deferred compensation

In general, the postponement of a wage payment to a future date. Usually describes a portion of wages set aside by an employer for an employee and put into a retirement plan on a pretax basis.

Third-country national

In the context of U.S. payroll, someone who is a non-U.S. citizen working in a country other than the U.S.

Take-home pay

In the context of a federal tax levy, the amount of an employee's wages that remains after all normal deductions in effect at the time of the levy have been subtracted. (See Net pay)

Highly compensated employee (HCE)

In the context of certain fringe benefit plans, an employee who is an owner or officer of a business or whose salary exceeds a certain amount (indexed each year for inflation). Many benefits offered by employers do not qualify for favorable tax treatment if they discriminate in favor of highly compensated employees. Employers may also be restricted in their use of safe-harbor valuations of benefits provided to such employees.

Key employee

In the context of certain fringe benefit plans, an officer or owner (of all or a significant part) of a business whose annual pay exceeds a certain amount. Many benefits offered by employers do not qualify for favorable tax treatment if they discriminate in favor of key employees.

Workstation

In the context of computers, a powerful personal computer that is generally faster than a standard PC.

Nonqualified plan

In the context of employee benefits, an employer plan that does not meet IRS qualification requirements.

Discrimination

In the context of employee benefits, favorable treatment of highly compensated employees under an employer's plan.

Resident alien

In the context of payroll, an individual who meets the "green card" or "substantial presence" test for determining resident status in the U.S. Resident aliens are generally subject to federal income, social security, and Medicare taxes on the same basis as U.S. citizens.

Escheat

In the context of payroll, the turning over of unclaimed wages to the state after a period of time determined by state law.

Substantiation

In the context of reimbursed employee business expenses, the requirement that employees keep records of the time, place, and business purpose of reimbursable expenses they incur, including receipts (also used to track business use of company-provided vehicles).

White-collar employees

In the context of the Federal Wage-Hour Law, executive, administrative, professional (including computer-related professionals), or outside sales employees who are exempt from the law's minimum wage, overtime pay, and certain record-keeping requirements.

Unearned income

Income from a source other than employment income.

Revenue

Income received for goods and services provided by an organization.

Backup withholding

Income tax withholding required from nonemployee compensation when the payee fails to furnish the payer with a Taxpayer Identification Number (TIN) or the payer is notified by the IRS that the payee's TIN is incorrect.

IRA

Individual Retirement Arrangement.

ITIN

Individual Taxpayer Identification Number.

IRB

Internal Revenue Bulletin.

IRC

Internal Revenue Code.

IRS

Internal Revenue Service.

Internal Revenue Bulletin (IRB)

Issued weekly by the IRS. Contains recently issued regulations, revenue procedures, and other agency announcements.

Gifts

Items of value provide by an employer to their employees. The fair-market value of the item is included in the employees' income.

Mainframe

Large, powerful computer that is generally used for company-wide computing since it can handle multiple users and tasks at the same time.

Immigration Reform and Control Act of 1986 (IRCA)

Law enacted in 1986 that prohibits employers from hiring persons who are not authorized to work in the U.S. and from discriminating against those who are authorized to work based on their national origin or citizenship.

Family and Medical Leave Act of 1993 (FMLA)

Law guaranteeing 12 weeks' unpaid leave to most employees to care for newborn or newly adopted children or to deal with a serious illness or injury suffered by the employee or an ailing child, spouse, or parent of the employee.

Health Insurance Portability and Accountability Act (HIPAA)

Law passed in 1996 restricting the right of group health plans to limit participation by newly hired employees and their dependents because of preexisting medical conditions.

Chart of accounts

Lists each account by a name and an identification number; the numbering scheme is designed to identify the type of account.

LAN

Local area network.

Critical path

Management strategy that maps out deadlines that must be met to finish a project within the time allowed.

Filing status

Marital status of an employee for withholding purposes.

Matching principle

Matching revenue earned during an accounting period with the expenses incurred in generating the revenue.

Internal control

Measures used by a company to safeguard company assets by preventing errors, waste, embezzlement, and fraud.

MQGE

Medicare Qualified Government Employee. Government employee who has only the Medicare component of FICA, not social security, withheld from wages.

Uniform Interstate Family Support Act (UIFSA)

Model state child support enforcement law under which employers must put into effect a child support withholding order from another state's child support enforcement agency if the order appears "regular on its face."

MWR

Multiple Worksite Report.

NACHA

National Automated Clearing House Association.

NLRB

National Labor Relations Board.

Transportation fringe benefits

Nontaxable benefits provided to the employee when van pooling to work, using public transportation, or when provided parking. Each benefit has a limit to the value of the benefit excluded from income.

On-call time

Nonwork time during which employees are required to be available to handle job-related emergencies.

Profit

Occurs when income exceeds costs and expenses.

OCSE

Office of Child Support Enforcement.

OMB

Office of Management and Budget.

Revenue Procedure (Rev. Proc.)

Official statements from the IRS on how to carry out tax compliance.

OASDI

Old Age, Survivors, and Disability Insurance, also known as social security.

Quarterly

Once every three months or four times per year.

Biweekly

Once every two weeks. The most common payroll frequency.

Monthly

Once per month.

Weekly

Once per week.

Percentage method of withholding

One allowable method for calculating federal income tax withholding from an employee's wages, most often used when the calculation is automated.

Qualifying event

One of several events that results in the loss of group health insurance coverage for employees or their dependents and entitles them to continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

ODFI

Originating Depository Financial Institution.

Compensatory time

Paid time off granted to an employee for working extra hours. The Federal Wage-Hour Law places severe restrictions on the use of compensatory time to avoid paying overtime, although special exemptions are allowed for public-sector employees.

PTO

Paid time off.

Retroactive pay

Pay for time worked in a previous workweek; retroactive pay must be applied to both regular and overtime hours.

Reimbursed expense

Payment for business-related expenses incurred by an employee on behalf of, or for the convenience of, the employer.

Remuneration

Payment for services, including benefits.

Housing allowance

Payment made to a U.S. citizen or resident alien working abroad to make up the added cost of obtaining reasonable living quarters in a foreign country.

Paid time off (PTO)

Payment received for time not worked due to holiday, illness, vacation, jury duty, bereavement, or the failure of the employer to provide sufficient work.

Third-party sick pay

Payments made by a third party, such as a state or private insurer, to employees because of non-job-related illness or injury.

Disability

Payments made to an employee for their extended absence from work due to a non-job-related accident or illness.

Golden parachute

Payments made to business executives in excess of their usual compensation (e.g., stock options, bonuses) in the event the business is sold and the executives are terminated from employment.

Special wage payments

Payments made to employees or former employees for services performed in an earlier year. These payments require special reporting by employers so that retirees' social security benefits are not reduced under the annual earnings test because of amounts earned in prior years.

Commission

Percentage of sales, collections, etc., paid to an employee.

PC

Personal computer.

PDS

Private delivery service.

Reconcile

Process of ensuring that amounts withheld, deposited, paid, and reported by employers agree with each other and, if they do not, determining the reasons and making the necessary corrections.

Batch processing

Processing data as a group, either to increase controls or processing efficiency.

Online processing

Processing performed under direct control of the computer (can be batch or real time).

Real-time

Processing that occurs immediately when the data is entered into the system.

PEO

Professional Employer Organization

Revenue Rulings (Rev. Rul.)

Published decisions issued by the IRS that apply the tax laws to a particular set of facts. They can be used by taxpayers to determine their tax liability in similar factual situations.

RRTA

Railroad Retirement Tax Act.

RDFI

Receiving Depository Financial Institution.

Posting

Recording a transaction in a journal entry, or recording a journal entry in the general ledger.

Withholding allowance

Reduces the amount of wages subject to federal income tax withholding based on exemptions and deductions claimed on federal income tax Form 1040.

Table I

Refers to IRS Uniform Premiums Table I, which is used to calculate the value of group-term life insurance over $50,000.

Bona fide

Refers to actions taken in good faith, without pretense or fraud.

RDB

Relational database.

Sick pay

Replacement wages paid to an employee who cannot work because of an illness or injury that is not work-related.

Subsidiary ledger

Replaces a journal; summarized entries are posted from subsidiary ledgers directly to the general ledger; arose with the computerization of most companies' accounting systems.

Form 1099-MISC

Reports amounts paid to nonemployees paid during a calendar year.

Financial statements

Reports that summarize a business's financial position and operating results (made up of a balance sheet, an income statement, and a statement of cash flow).

One-day deposit rule

Requires employers that accumulate a tax liability of $100,000 or more during a deposit period to deposit the withheld taxes within one banking day of the day the liability was incurred.

Tax levy

Requires employers to deduct an amount of money that the employee owes, plus any penalties and interest payments, from the employee's wages and remit it to the proper government agency.

Federal Unemployment Tax Act (FUTA)

Requires employers to pay a certain percentage of their employees' wages (up to a maximum wage limit) as a payroll tax to help fund unemployment compensation benefits for separated employees.

Self-Employment Contributions Act (SECA)

Requires self-employed individuals to pay both the employer and employee share of social security and Medicare taxes.

Savings incentive match plans for employees of small employers (SIMPLE Plans)

Retirement plans for employees of small employers (no more than 100 employees) that have simpler administrative and nondiscrimination requirements than other retirement plans.

Deemed substantiation

Safe-harbor rules under which IRS requirements regarding the substantiation of amounts spent on employee business expenses are considered to have been met (e.g., per diem allowances).

Batch

Sample or limited amount of all of the data being processed.

SIMPLE plans

Savings incentive match plans for employees of small employers, a type of qualified retirement plan.

Salary reduction arrangement

See "Cash or deferred arrangement."

Cost-of-Living Index

See "Consumer Price Index."

Fair Labor Standards Act (FLSA)

See "Federal Wage-Hour Law."

Wage-Hour Law

See "Federal Wage-Hour Law."

Reimbursement Fund

See "Flexible Spending Arrangement."

Indefinite assignment

See "Long-term assignment."

Flat rate withholding

See "Supplemental wages."

Uniform Premiums Table

See "Table I."

Short-term assignment

See Temporary assignment

SECA

Self-Employment Contributions Act.

Outplacement services

Services provided by employers to help employees find a new job after a layoff or reduction in force.

Electronic Filing Specifications

Set of specifications for filing Forms W-2 and W-2c with the Social Security Administration electronically.

Expense account

Shows costs for goods and services consumed by the company during the accounting period.

Validity edits

Shows whether or not data entered meets the requirements set forth by a company.

SEP

Simplified employee pension.

Minicomputer

Smaller than a mainframe computer but still able to handle multiple users and tasks on a more limited basis; often used to handle departmental computing needs in large organizations.

SSA

Social Security Administration.

SSNVS

Social Security Number Verification Service

SSN

Social security number.

Communications protocols

Software parameters and standards that control the transfer of information from one computer to another.

Statutory employees

Special groups of employees identified by law (e.g., full-time life insurance salespeople, certain homeworkers) whose wages are not subject to federal income tax withholding but are subject to social security, Medicare, and FUTA taxes.

Statutory nonemployees

Special groups of workers who may qualify as common law employees but are treated under the law as independent contractors (e.g., qualified real estate agents and direct sellers); their compensation is not subject to federal income tax withholding, social security, Medicare, or FUTA taxes.

Wage orders

State agency directives that set wage and hour standards, usually for specific industries.

SIT

State income tax.

SUI

State unemployment insurance.

Social Security Statement

Statement from the Social Security Administration that provides an employee with a year-by-year display of the employee's earnings reported to the SSA and an estimate of retirement, survivors', and disability benefits the employee (and family) may be eligible for, now and in the future.

Withholding

Subtracting amounts from an employee's wages for taxes, garnishments or levies, and other deductions (e.g., medical insurance premiums, union dues). These amounts are then paid over to the government agency or other party to whom they are owed.

SUB

Supplemental unemployment benefits.

Tax Reform Act of 1986

Sweeping tax reform legislation that lowered tax rates and sought to eliminate many of the loopholes in the tax laws.

Network

System connecting computers and applications that consists of the physical connection (topology) and the software.

Electronic Federal Tax Payment System

System that allows employers to make federal tax deposits electronically through the ACH network. (EFTPS)

TEFRA

Tax Equity and Fiscal Responsibility Act of 1982.

TRA '86

Tax Reform Act of 1986.

Substitute forms

Tax forms that are printed by private printers rather than the Internal Revenue Service. They must meet certain specifications to be acceptable for filing.

Excise tax

Tax imposed on a specific transaction.

TSA

Tax-sheltered annuity

TSCA

Tax-sheltered custodial account

TIN

Taxpayer Identification Number.

TAMRA '88

Technical and Miscellaneous Revenue Act of 1988.

Dependent group-term life insurance

Term life insurance that gives an employee death benefits should the employee's spouse or other dependents die.

Group-term life insurance (GTL)

Term life insurance that is provided to employees, with the cost being borne by the employer, the employee, or both.

Nondiscrimination testing

Tests that determine whether benefit plans provided by an employer discriminate in favor of highly compensated or key employees. If such discrimination is found, the employer will lose its favorable tax treatment for the benefit. Benefits provided under the plan may be taxable to employees receiving them.

Disposable earnings

That part of an employee's earnings remaining after deductions required by law (e.g., taxes). It is used to determine the amount of an employee's pay that is subject to a garnishment, attachment, or child support withholding order.

Net pay

That part of an employee's wages that remains after all deductions have been subtracted (e.g., taxes, health insurance premiums, union dues, etc.).

Lookback period

The 12-month period running from July 1 of the second preceding calendar year through June 30 of the preceding calendar year. The employer's payroll tax liability during this period determines its depositor status for the current year. The period may be different for some employers.

Overtime

The Fair Labor Standards Act (FLSA) requires that all nonexempt employees be paid a premium of 50% of their regular rate of pay for hours worked in excess of 40 hours per week.

Federal Wage-Hour Law

The Fair Labor Standards Act of 1938 (FLSA), as amended. It regulates such areas as minimum wage, overtime pay, and child labor for employers and employees covered by the law.

FIRE

The IRS Filing Information Returns Electronically (FIRE) system.

Social security

The Old Age, Survivors, and Disability Insurance (OASDI) component of FICA.

Sarbanes-Oxley Act of 2002 (SOX)

The Sarbanes-Oxley Act is a federal law that focuses on accounting reforms for financial reporting and disclosure for public companies. This act requires chief executive to take personal responsibility for the accuracy and completeness of corporate financial statements, plus other important issues.

Internal Revenue Service (IRS)

The U.S. government agency that administers the Internal Revenue Code and U.S. tax laws and regulations.

Foreign Earned Income Exclusion

The ability for a U.S. citizen or resident alien working abroad to exclude up to a certain amount of foreign earned income from the taxpayer's gross income.

Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)

The act containing comprehensive tax rate and pension plan changes.

Impute

The addition of the value of cash/noncash compensation to an employee's taxable wages in order to properly withhold income and employment taxes from the wages.

Normal retirement age

The age at which retirees may receive unreduced social security benefits. Individual company retirement plans may use a different age.

U.S. Citizenship and Immigration Services

The agency which regulates Form I-9.

Tips

The amount an employee in the hospitality industry receives from their customers. Employees are required to report the amount received to their employer, who must include the amount in the employee's income and withhold taxes from the amount.

Excess deferral

The amount of an employee's deferred compensation that exceeds the IRS's annual contribution limit.

Regular wages

The amount of pay that an employee receives for working.

Elective deferral

The amount of pretax dollars that an employee chooses to have the employer contribute to a qualified deferred compensation plan (e.g., a 401(k) plan) on the employee's behalf, also known as pretax contributions or employer contributions.

Taxable wages

The amount that is included in an employee's income for income, social security, and Medicare tax purposes.

Trust fund taxes

The amounts withheld by employers from employees' pay for federal income, social security, and Medicare taxes. They are referred to as trust fund taxes because the money is held in a special trust fund for the U.S. government. Amounts withheld for state and local income taxes are held in trust for the state or local government.

Owner's equity

The assets of a company minus its liabilities.

Reconciliation

The balancing process that ensures accuracy of the information.

Workweek

The basis for determining an employee's regular rate of pay and overtime pay due under the Fair Labor Standards Act. It can be any consecutive seven-day (168-hour) period chosen by the employer (e.g., Saturday through Friday, Wednesday through Tuesday).

Master file

The collection of data describing the employees of a company.

Gross income

The compensation for services, including fees, commissions, fringe benefits, and similar items.

Operating system

The computer program that controls the basic operations of a computer (e.g., MS-DOS, UNIX, Windows, Linux).

Gain

The difference between the fair market value of stock and the option price.

Early retirement age

The earliest age at which social security retirement benefits can be received currently age 62. Individual company retirement plans may provide for benefits at an earlier retirement age.

Direct deposit

The electronic transfer of an employee's net pay directly into financial institution accounts designated by the employee, thus avoiding the need for a paycheck.

Employer Identification Number (EIN)

The employer's account number with the Internal Revenue Service. It consists of nine digits (00-0000000).

Title VII

The employment discrimination portion of the Civil Rights Act of 1964, which prohibits job bias based on race, sex, color, religion, or national origin.

Interstate commerce

The exchange of goods and/or services across state lines. It provides a basis for congressional and federal government agency regulation of wages and hours of work and other employment-related matters.

Employee's Withholding Allowance Certificate

The federal Form W-4 or an equivalent state or local form on which the employee states the number of withholding allowances he or she claims. The form is used by the employer to determine the amount of federal income tax to withhold from the employee's compensation.

Social Security Administration (SSA)

The federal government agency that administers social security.

Supper money

The irregular and occasional payment of amounts to employees who work late to cover the cost of meals eaten during that extra working time.

Federal Insurance Contributions Act (FICA)

The law that created the social security program and requires social security and Medicare tax withholding.

Minimum wage

The lowest amount that an employer can pay its employees per hour under federal or state law. The federal minimum wage is $7.25 per hour (effective 7/23/09).

Taxable wage base

The maximum amount of employee compensation subject to social security, FUTA, and state unemployment insurance taxes.

Regulations

The means by which government agencies administer and enforce laws (e.g., rules issued by the IRS to enforce the tax laws).

Straight time

The number of work hours during a workweek for which an employee's regular hourly rate of pay will be paid.

Flexible benefits

The option to choose from a menu of benefits offered by an employer. See "Cafeteria plan."

Payroll period

The period of service for which an employer pays wages to its employees.

Interface

The place where two systems meet. Suggestion: The software that enables different computer systems (e.g. accounting, payroll and HR) to communicate with each other.

Overtime premium pay

The premium required to be paid under the FLSA to employees who work more than 40 hours in a workweek.

Employment verification

The process of determining whether a newly hired employee is authorized to work in the United States under the Immigration Reform and Control Act.

Worker classification

The process of determining whether an individual performing services for a business is either an employee or an independent contractor.

Electronic filing

The process of filing tax and information returns directly from one computer to another.

Child support withholding

The process of withholding amounts from an employee's compensation to satisfy a child support order from a court or a state child welfare administrative agency. The employer is responsible for withholding the amounts and paying them over to the party named in the withholding order.

Medical support withholding

The process of withholding amounts from an employee's compensation to satisfy a medical support order from a court or a state child welfare administrative agency. The employer is responsible for withholding the amounts and paying them over to the party named in the medical support withholding order.

Double-entry accounting

The recording of equal debits and credits for every financial transaction.

New-hire reporting

The reporting of newly hired and rehired employees to state agencies to facilitate the collection of child support and/or to uncover abuse in the state's unemployment compensation, workers' compensation, or public assistance programs.

Behavioral control

The right of a business to direct and control the details and means by which a worker performs the work to be done.

Financial control

The right of a business to direct and control the economic aspects of a worker's job.

Electronic Tax Application (ETA)

The term for the same-day settlement procedures for electronic tax deposits made through the Electronic Federal Tax Payment System.

Gross pay

The total amount received from the employer before any deductions are made.

Electronic Funds Transfer (EFT)

The transfer of money electronically from an account in one financial institution to an account in another financial institution (see "Direct deposit" and "Payroll Cards") or the transfer of funds to deposit taxes (see EFTPS).

Balance

The value of an account as determined by calculating the difference between the debits and credits in the account.

Dependent care assistance

The value of employer-provided child care assistance allowing the employee to work.

Company vehicle fringe benefit

The value of the use of the company vehicle by the employee. When the employee documents the business use of the vehicle, the value is excluded from income. When the employee fails to document the business use of the vehicle, the value is included in income.

Centralized Support Collection

The welfare reform law passed in 1996 requires all states to implement procedures allowing employers to send many of the child support payments they withhold from workers' pay to a centralized location within their state, also known as state disbursement units.

Income tax treaties

Treaties between the U.S. and foreign countries that may have provisions governing the tax treatment of U.S. employees working in those countries as well as that of aliens from those countries working in the U.S.

Semimonthly

Twice per month.

Semiannual

Twice per year or once every six months.

Tangible

Type of asset that includes land and improvements, buildings, computers and software, furniture, and automobiles.

USCIS

U.S. Citizenship and Immigration Services

UC

Unemployment compensation.

UI

Unemployment insurance.

UIFSA

Uniform Interstate Family Support Act.

USERRA

Uniformed Services Employment and Reemployment Rights Act of 1994.

USC

United States Code, where federal laws are compiled.

Fair market value

Used to determine the value of noncash, employer-provided benefits for payroll tax purposes, or the value of facilities provided to employees in lieu of wages.

Wage base

Wage limit beyond which an employee's wages are not taxed.

System edit

Warning or alert built into computer software; a system edit checks for errors and either corrects them or notifies the operator that something may be wrong; system edits generally check for values outside accepted ranges (e.g., negative net pay).

Disqualifying disposition

When an employee sells stock from an incentive or statutory stock option before the expiration of the qualified holding period.

Enterprise-wide solution

When one vendor supplies all of a company's software.

Exempt employees

While this term can refer to anyone not covered as an employee under a certain law, it generally means those employees who are exempt from the minimum wage and overtime pay and certain record-keeping requirements of the Federal Wage-Hour Law.

WAN

Wide area network.

Pieceworker

Worker who is paid per unit, or piece, produced.

Temporary help agency employees

Workers hired through temporary help agencies who are screened and trained by the agency to provide services for client firms. They are employees of the agency rather than the client firm.

WC

Workers' compensation.

Concurrent employment

Working for more than one related corporation under a common paymaster arrangement.

ZBA

Zero balance account