- FLSA
- Fair Labor Standards Act — the federal law setting minimum wage, overtime, recordkeeping, and child-labor standards.
- Exempt employee
- An employee not entitled to FLSA overtime — must meet the salary-basis, salary-level, and duties tests.
- Non-exempt employee
- An employee owed at least minimum wage and overtime (1.5× the regular rate) over 40 hours in a workweek.
- Salary-level test
- To be exempt, an employee must earn at least the standard salary level — currently $684/week ($35,568/year).
- Duties test
- The job-duties requirement (executive, administrative, or professional) an employee must meet to be exempt, beyond salary.
- Highly compensated employee
- An employee earning at least $107,432/year who faces only a minimal duties test for exemption.
- Workweek
- A fixed, recurring 168-hour period (seven consecutive 24-hour days); overtime is figured by the workweek, not the pay period.
- Regular rate of pay
- All compensation for the workweek (including nondiscretionary bonuses) divided by total hours worked; the base for overtime.
- Constructive receipt doctrine
- Income is taxable when credited or made available to the employee, even if not physically received.
- Common-law employee
- A worker whose employer controls what is done and how — gets a W-2 and has taxes withheld.
- Independent contractor
- A self-employed worker who controls how the work is done, gets a Form 1099-NEC, and pays self-employment tax.
- IRS common-law test
- Three categories of evidence — behavioral control, financial control, and relationship of the parties — used to classify workers.
- Statutory employee
- A worker treated as an employee for FICA (and sometimes FUTA) by statute, such as certain drivers and home workers.
- FICA
- Federal Insurance Contributions Act — Social Security (6.2%) and Medicare (1.45%) taxes, shared equally by employee and employer.
- Social Security (OASDI) tax
- 6.2% on wages up to the annual wage base, paid by both employee and employer.
- Social Security wage base (2026)
- $184,500 — the maximum 2026 earnings subject to the 6.2% Social Security tax (up from $176,100 in 2025).
- Medicare tax
- 1.45% on all wages with no wage cap, paid by both employee and employer.
- Additional Medicare Tax
- An extra 0.9% the employer withholds on an employee's wages over $200,000; employee only, no employer match.
- FUTA
- Federal Unemployment Tax Act — a 6.0% employer-only tax on the first $7,000 of wages, net 0.6% after the state credit.
- SUTA
- State Unemployment Tax Act — state unemployment tax, usually employer-paid at an experience-rated rate on a state wage base.
- SUTA dumping
- An illegal scheme to manipulate an employer's experience rate to lower state unemployment tax.
- Fringe benefit
- Pay for services in a form other than cash (e.g., personal use of a company car); taxable unless specifically excluded.
- De minimis fringe benefit
- A benefit so small that accounting for it is unreasonable or impractical — excluded from wages.
- Imputed income
- The taxable value of a noncash benefit (e.g., group-term life over $50,000) added to an employee's wages.
- Group-term life imputed income
- The cost (per IRS Table I) of employer-provided group-term life coverage over $50,000, taxable to the employee.
- Deferred compensation
- Compensation an employee earns now but receives later, such as a 401(k) deferral or a nonqualified plan.
- Section 409A
- The IRC rule governing nonqualified deferred compensation; violations trigger immediate tax plus a 20% penalty.
- Qualified transportation fringe
- Pre-tax commuter/parking benefit excludable up to the monthly IRS limit.
- Form W-4
- Employee's Withholding Certificate — tells the employer how much federal income tax to withhold.
- Form I-9
- Employment Eligibility Verification — confirms a new hire's identity and authorization to work in the U.S.
- Form W-9
- Request for Taxpayer Identification Number — collects a contractor's TIN for 1099 reporting.
- Form SS-4
- Application for an Employer Identification Number (EIN).
- Escheatment
- Turning unclaimed wages over to the state after a dwell period when a paycheck goes unclaimed.
- Workers' compensation
- State-mandated insurance paying for job-related injuries; premiums are based on payroll by job class code.
- Form 941
- Employer's Quarterly Federal Tax Return — reports wages, FIT withheld, and both shares of Social Security and Medicare.
- Form 940
- Employer's Annual Federal Unemployment (FUTA) Tax Return, filed once a year by January 31.
- Form 944
- Annual federal return for the smallest employers, filed instead of quarterly 941s when notified by the IRS.
- Form W-2
- Wage and Tax Statement reporting an employee's annual wages and taxes to the employee and the SSA.
- Form W-3
- Transmittal of Wage and Tax Statements — summarizes all W-2s sent to the SSA.
- Forms 1094-C / 1095-C
- ACA reporting forms Applicable Large Employers file to report offers of health coverage.
- EFTPS
- Electronic Federal Tax Payment System — the free Treasury system employers use to deposit federal payroll taxes.
- Lookback period
- The four quarters ending June 30 of the prior year, used to set the federal deposit schedule.
- Monthly depositor
- An employer with $50,000 or less of lookback liability; deposits by the 15th of the following month.
- Semiweekly depositor
- An employer with over $50,000 of lookback liability; deposits Wednesday or Friday based on payday.
- $100,000 next-day rule
- If accumulated tax liability reaches $100,000 on any day, the deposit is due the next business day.
- Trust fund taxes
- Withheld income tax and the employee FICA share the employer holds in trust for the government.
- Trust Fund Recovery Penalty
- A 100% penalty assessed against a responsible person who willfully fails to remit trust fund taxes.
- Failure-to-deposit penalty
- A graduated penalty (2%–15%) on late federal tax deposits, increasing with how late the deposit is.
- FMLA
- Family and Medical Leave Act — up to 12 weeks of unpaid, job-protected leave for eligible employees of covered employers.
- USERRA
- Uniformed Services Employment and Reemployment Rights Act — protects reemployment rights of returning service members.
- New Hire Reporting Program
- Requires employers to report newly hired and rehired employees to a state directory, generally within 20 days.
- Equal Pay Act
- Requires equal pay for equal work regardless of sex for jobs of substantially equal skill, effort, and responsibility.
- Davis-Bacon Act
- Requires prevailing wages on federally funded construction contracts.
- Sarbanes-Oxley Act (SOX)
- Requires public-company CEOs and CFOs to certify the accuracy of financial information, including payroll.
- WARN Act
- Worker Adjustment and Retraining Notification Act — requires 60 days' notice of mass layoffs or plant closings.
- Affordable Care Act (ACA)
- Requires Applicable Large Employers (50+ FTEs) to offer coverage and report it on Forms 1094-C/1095-C.
- Applicable Large Employer (ALE)
- An employer with 50 or more full-time-equivalent employees, subject to ACA coverage and reporting rules.
- Record retention (FLSA)
- Payroll records must be kept at least 3 years; records used to compute pay (time cards) at least 2 years.
- Record retention (IRS)
- Employment-tax records must be kept at least 4 years after the tax is due or paid.
- The Payroll Source
- PayrollOrg's comprehensive reference text and the primary study resource for the CPP exam.
- IRS Publication 15 (Circular E)
- The employer's tax guide — deposit rules, withholding, and reporting; the payroll professional's core IRS resource.
- IRS Publication 15-T
- Federal Income Tax Withholding Methods — the percentage and wage-bracket withholding tables and formulas.
- IRS Publication 15-B
- Employer's Tax Guide to Fringe Benefits — which fringe benefits are taxable and how to value them.
- Gross pay
- Total earnings before any deductions: regular wages, overtime, bonuses, commissions, and taxable benefits.
- Net pay
- Take-home pay — gross pay minus all taxes and other deductions.
- Gross-to-net calculation
- The sequence converting gross pay to take-home pay: subtract pre-tax deductions, taxes, then post-tax deductions.
- Taxable wages
- The wage base each tax is figured on after pre-tax deductions; FIT, Social Security, and Medicare bases can differ.
- Overtime premium
- The extra half-time owed on overtime hours — 0.5× the regular rate above the straight-time already paid.
- FLSA overtime rate
- 1.5× the regular rate for hours worked over 40 in a workweek (non-exempt employees).
- Salaried regular rate
- A non-exempt salaried employee's weekly salary divided by the hours it is intended to compensate (often 40).
- Wage-bracket method
- An IRS withholding method that reads federal income tax from a table by wage range, status, and pay frequency.
- Percentage method
- A formula-based IRS withholding method that works for any wage amount; built into payroll software.
- Supplemental wages
- Pay other than regular wages — bonuses, commissions, severance — with special withholding rules.
- Supplemental flat rate
- A 22% flat federal income tax withholding option for supplemental wages paid separately.
- Supplemental wages over $1 million
- Federal income tax must be withheld at 37% on annual supplemental wages exceeding $1 million.
- Aggregate method
- Withholding on supplemental wages by combining them with regular wages and taxing the total per the W-4.
- Pre-tax deduction
- A deduction taken before tax is figured, lowering taxable wages — e.g., a traditional 401(k) or Section 125 premium.
- Post-tax deduction
- A deduction from already-taxed pay, such as a Roth 401(k), garnishment, or union dues.
- Section 125 cafeteria plan
- A plan letting employees pay for certain benefits with pre-tax dollars, reducing both income-tax and FICA wages.
- Traditional 401(k) tax treatment
- Reduces federal income tax wages but is still subject to Social Security and Medicare tax.
- Roth 401(k) tax treatment
- Contributed with after-tax dollars — no reduction to taxable wages; qualified withdrawals are tax-free.
- 401(k) elective deferral limit (2026)
- $24,500 — the 2026 employee elective-deferral limit for 401(k)/403(b) plans.
- 401(k) catch-up (age 50+, 2026)
- An additional $8,000 catch-up contribution allowed for employees age 50 and older in 2026.
- Grossing up
- Calculating a higher gross so the employee nets a target amount: gross = net ÷ (1 − total tax rate).
- Involuntary deduction
- A deduction required by law or court order — taxes, garnishments, child support, and tax levies.
- Garnishment
- A court- or agency-ordered deduction from pay to satisfy a debt; limited by the CCPA.
- CCPA garnishment cap
- An ordinary garnishment is limited to the lesser of 25% of disposable earnings or the amount over 30× minimum wage.
- Disposable earnings
- Pay left after legally required deductions (taxes); the base for most garnishments — voluntary items are not subtracted.
- Child support withholding
- An involuntary deduction with priority over most garnishments; CCPA allows up to 50–65% of disposable earnings.
- Federal tax levy
- An IRS deduction from pay to collect unpaid taxes; the exempt amount comes from a published IRS table.
- Retroactive pay
- Wages owed for a prior period (e.g., a late raise), paid in a later period as supplemental wages.
- Commuter benefits (pre-tax)
- Qualified transportation deductions that reduce taxable wages up to the monthly IRS limit.
- Payroll processing cycle
- The recurring loop: collect time → calculate → approve & fund → distribute pay → report & deposit taxes.
- Payroll source document
- The records (W-4, time cards, authorizations) that establish the basis for payroll calculations and withholdings.
- Payroll register
- A report listing each employee's earnings, deductions, taxes, and net pay for a pay period.
- Pay cut-off date
- The deadline for submitting time so payroll can be processed on schedule.
- Year-to-date (YTD)
- Cumulative earnings, taxes, and deductions for the year through the current pay period, shown on the pay stub.
- Time and attendance system
- A system that captures hours worked and feeds the gross-pay calculation.
- HRIS
- A Human Resource Information System that integrates employee, benefit, and payroll data.
- Automated timekeeping system
- Technology that accurately captures and reports employee work hours for payroll calculation.
- Employee Self-Service (ESS)
- A portal letting employees update personal/tax data and view pay stubs, reducing payroll errors.
- Direct deposit
- Electronic delivery of net pay to an employee's bank account via ACH; cuts check processing time and cost.
- Paycard
- A reloadable card used to deliver net pay to employees without a bank account.
- Pay statement
- The earnings statement (stub) most states require each payday, showing earnings, deductions, and net pay.
- Parallel testing
- Running a new payroll system alongside the old to confirm identical results before go-live.
- Payroll system controls
- Access controls, edit/validation checks, and audit trails that protect payroll data and accuracy.
- Encryption
- Securing employee financial data (e.g., direct-deposit details) during transmission and storage.
- Audit trail
- A historical record of payroll transactions and changes, used for review and verification.
- Payroll Service Provider (PSP)
- A third party that processes payroll for an employer, which usually keeps the tax liability.
- Reporting agent (Form 8655)
- An authorized agent that deposits and files payroll taxes on an employer's behalf.
- Professional Employer Organization (PEO)
- A co-employer that handles payroll, taxes, and HR for client companies.
- Benefits integration
- Linking benefits enrollment with payroll so deductions update automatically and accurately.
- Payroll reconciliation (in-cycle)
- Verifying payroll calculations and deductions against the payroll records before pay is released.
- Disaster recovery / continuity plan
- A plan ensuring payroll can continue after a system failure or disaster.
- Garnishment processing
- Managing court-ordered deductions accurately within priority and CCPA limits — a system challenge at scale.
- Payroll segmentation
- Splitting payroll into groups (by entity, location, or pay frequency) in complex organizations.
- Payroll policies and procedures
- Documented rules (overtime approval, the payroll calendar, desk procedures) giving payroll consistency and continuity.
- Confidentiality (payroll)
- Restricting access to sensitive payroll data and following privacy laws.
- Cross-training
- Training multiple staff on payroll tasks to protect the function from knowledge loss.
- Payroll analytics
- Using payroll data for trend, cost, and forecasting insight to inform strategic decisions.
- Variance analysis
- Comparing actual payroll results to budget or prior periods to spot problems.
- Benchmarking
- Comparing payroll metrics against peers or industry standards to find improvement opportunities.
- Key performance indicator (KPI)
- A measurable payroll metric such as payroll accuracy % or on-time pay %.
- Service-level agreement (SLA)
- A defined service standard (e.g., response time) for the payroll department's customers.
- Internal customer
- An employee or department payroll serves with accurate, timely, confidential answers.
- Change management
- Planning and overseeing the transition to a new payroll system or process.
- Payroll balancing and controls
- Methods ensuring payroll accuracy and compliance through verification and reconciliation.
- Risk management (payroll)
- Identifying, assessing, and mitigating risks in payroll processing and compliance.
- Overpayment recovery
- Recovering wages overpaid to an employee under federal and state wage-deduction rules, often by written agreement.
- Prior-year overpayment
- An overpayment repaid in a later year; the employee repays the gross, and the employer corrects FICA via Form 941-X / W-2c.
- Vendor selection (payroll)
- Choosing a payroll system or provider by weighing compliance, scalability, integration, support, and cost.
- Outsourcing
- Contracting payroll processing to a third party while managing the vendor against contracts and SLAs.
- Global payroll
- Managing payroll across countries with differing tax rules, currencies, and labor laws.
- Expatriate payroll
- Payroll for employees working abroad, involving tax equalization, hypothetical tax, and host-country rules.
- Tax equalization
- An arrangement keeping an expatriate's tax burden similar to what it would have been at home.
- Payroll audit
- A review ensuring payroll processes comply with applicable laws and that records are accurate.
- Internal control
- A procedure (segregation of duties, approval, reconciliation) that prevents and detects payroll error and fraud.
- Segregation of duties
- Splitting payroll tasks among different people so no one person controls a whole transaction.
- Compensating control
- An alternative control (independent review, reconciliation) used when duties cannot be fully separated.
- Ghost employee
- A fictitious or terminated employee kept on payroll so someone can divert the pay — a key fraud control target.
- Phantom hours
- Hours not actually worked, entered to inflate pay — a fraud internal controls aim to detect.
- Authorization control
- Requiring that payroll changes be properly approved before they take effect.
- Reconciliation
- Matching one record to another (register to GL, 941s to W-2s) to confirm they agree.
- 941-to-W-2 reconciliation
- Confirming the four quarterly 941 totals tie to the annual W-2/W-3; FICA on the 941s ≈ 2× the W-3 (both shares).
- Year-end reconciliation
- Verifying wages, withholdings, and deposits tie out across the 941s, W-2s, W-3, and GL before filing.
- SSA reconciliation notice
- Sent when W-2/W-3 wages are LESS than the Forms 941, so the SSA cannot fully credit workers' earnings.
- Compliance audit
- An audit checking whether payroll follows wage-and-hour, tax, and other laws.
- Workers' comp audit
- An audit of payroll by class code that sets the workers' compensation insurance premium.
- I-9 audit
- A review confirming Forms I-9 are complete and properly retained.
- Self-audit
- The payroll team's own review to catch errors before an external auditor or agency does.
- SOX internal controls over financial reporting
- Controls public companies must maintain over financial reporting, including payroll.
- Exception report
- A report flagging unusual items (e.g., negative net pay) for review.
- Double-entry bookkeeping
- Every transaction has equal debits and credits, keeping the accounting equation in balance.
- Debit
- An entry that increases asset and expense accounts and decreases liabilities, revenue, and equity.
- Credit
- An entry that increases liability, revenue, and equity accounts and decreases assets and expenses.
- Wages Expense
- The expense account, increased by a debit, recording gross wages in the payroll journal entry.
- Payroll Tax Expense
- The expense account for the employer's own payroll taxes (employer FICA, FUTA, SUTA).
- Taxes Payable
- A liability account crediting taxes withheld plus the employer share until they are deposited.
- Payroll journal entry
- The double-entry recording of a pay run; total debits (wages + employer tax) must equal total credits.
- Accrued payroll
- Wages employees have earned but not yet been paid at period-end — a liability recorded under the matching principle.
- Matching principle
- The rule that expenses are recorded in the period they help generate revenue — so wages accrue when earned.
- Accrual accounting
- Recording expenses when incurred and revenue when earned, regardless of when cash moves.
- Reversing entry
- An entry at the start of a period that reverses a prior accrual so the actual payment records cleanly.
- Compensated absences
- Earned vacation and sick leave accrued as a liability in the year earned, per the matching principle.
- Income statement
- The financial statement reflecting total payroll expense for a period (wages and employer payroll taxes).
- Balance sheet
- The financial statement showing taxes and deductions payable as liabilities until remitted.
- Bonus accounting
- Bonuses recorded as an expense in the period they are declared/earned.
- Payroll tax reconciliation
- Confirming taxes withheld and deposited match the payroll records and tax-agency filings.
- General ledger (GL)
- The set of accounts where payroll is posted; wage and tax accounts must reconcile to the payroll register.
- Gross method (payroll entry)
- Debiting full gross wages, then crediting withholdings (liabilities) and net pay (cash).
- Cost allocation
- Distributing payroll expense across departments, jobs, or cost centers for accurate reporting.
