Payroll & Labor Economics Glossary
Comprehensive definitions, statutory tax formulas, and general ledger journal entries for Gross-to-Net payroll, FICA/FUTA taxes, FLSA overtime, and fully burdened labor rates.
Gross Pay
Total compensation earned by an employee before any tax withholding or voluntary deductions.
Net Pay (Take-Home Pay)
Final payment disbursed to an employee after statutory taxes and benefit deductions.
FICA Tax (Social Security & Medicare)
Federal Insurance Contributions Act tax funding Social Security and Medicare programs.
Social Security Wage Base Cap ($168,600)
Maximum annual employee gross earnings subject to the 6.2% Social Security tax rate.
Additional Medicare Tax (0.9%)
Mandatory 0.9% employee Medicare tax on wages exceeding statutory filing thresholds.
FUTA Tax (Federal Unemployment)
Federal Unemployment Tax Act tax paid exclusively by employers on the first $7,000 of wages.
FUTA Tax Credit Reduction (5.4%)
Standard 5.4% credit against the 6.0% gross FUTA tax for employers paying state SUTA on time.
SUTA Tax (State Unemployment)
State unemployment tax paid by employers based on experience rating and state wage base caps.
FLSA Regular Rate of Pay
Hourly wage rate including non-discretionary bonuses and shift premiums used for 1.5× overtime.
Overtime Multiplier (1.5×)
Mandatory 150% pay rate required for non-exempt employee hours worked exceeding 40 per week.
Fully Burdened Labor Rate
Total cost of employing a worker per hour including wages, payroll taxes, benefits, and overhead.
Fringe Benefit Burden Rate (%)
Total employer taxes, healthcare, pension, and insurance costs expressed as a percentage of gross wages.
Shift Differential Pay
Additional hourly premium paid to employees working undesirable night, weekend, or holiday shifts.
Gross-Up Calculation
Formula calculating the higher gross payment required to deliver a desired net payment post-taxes.
Form 941 (Employer Quarterly Tax Return)
Quarterly federal tax return reporting employee income tax withholding and FICA tax liabilities.
Form 940 (Employer Annual FUTA Return)
Annual federal tax return reporting employer FUTA unemployment liabilities and credit reductions.
Form W-2 (Wage and Tax Statement)
Annual tax document issued to employees reporting total annual wages and tax withholdings.
Form 1099-NEC
Tax form reporting non-employee compensation of $600+ paid to independent contractors.
Exempt vs Non-Exempt Status
Classification determining whether an employee is eligible for mandatory FLSA overtime pay.
FLSA Salary Basis Test ($43,888 / $58,656)
Minimum annual salary threshold required to qualify an employee for administrative/executive exemption.
Wage Garnishment
Court-ordered mandatory deduction from employee earnings for child support, taxes, or defaulted loans.
Payroll Expense Accrual
End-of-period liability journal entry accruing unpaid wages earned by employees before pay date.
Compensated Absences (Paid Time Off Accrual)
Balance sheet liability recorded for vested, unused employee vacation and sick leave benefits.
Tip Credit
Employer allowance permitting tipped employee direct hourly wages to be below minimum wage ($2.13/hr).
IRS Form 8846 (FICA Tip Credit)
Non-refundable tax credit for food and beverage employers for FICA taxes paid on employee tips.
Weighted Average Overtime Rate
Overtime calculation method for employees working two distinct pay rates in the same workweek.
FLSA 8/80 Overtime Rule (Healthcare)
Hospital overtime exception requiring 1.5× pay for hours exceeding 8 in a day OR 80 in 14 days.
Sales Commission Tiered Structure
Incentive pay scaling sales commission percentage rates as total revenue targets are exceeded.
Pre-Tax Deductions (Section 125 Cafeteria Plan)
Employee benefit deductions (health insurance, HSA, 401k) reducing taxable gross wage bases.
Post-Tax Deductions
Payroll deductions made after all statutory taxes have been calculated (Roth 401k, garnishments).
Hourly-to-Salary Conversion (2,080 Hours)
Standard annual equivalent conversion based on a 40-hour workweek across 52 weeks (2,080 hours).
Payroll Tax Penalty (IRS Sec 6656)
Mandatory penalty levied by IRS for failing to deposit payroll taxes on time (2% to 15%).
Trust Fund Recovery Penalty (TFRP)
Personal 100% penalty assessed against responsible corporate officers for unpaid payroll taxes.
Non-Discretionary Bonus
Performance bonus tied to production or quality metrics that MUST be included in FLSA regular rate.
Discretionary Bonus
Spontaneous reward paid solely at employer discretion, excluded from FLSA overtime regular rate.
De Minimis Fringe Benefits
Low-value employee perks (occasional snacks, transit passes) excluded from gross taxable income.
Direct Deposit Electronic Clearing (ACH)
Automated Clearing House electronic disbursement of employee net wages on payday.
Supplemental Wage Tax Withholding (22%)
Flat 22% federal tax withholding rate applied to bonuses, commissions, and severance payments.
Labor Burden Overhead Allocation
Distribution of indirect warehouse, supervisory, and equipment costs onto direct labor hours.
Statutory Employee
Independent worker classified as an employee for FICA tax purposes but not income tax withholding.
Semi-Monthly vs Bi-Weekly Payroll
Comparison between 24 annual pay periods (semi-monthly) and 26 annual pay periods (bi-weekly).
Payroll Tax Deposit Schedule (Semi-Weekly vs Monthly)
IRS deposit schedule determined by employer aggregate 4-quarter lookback tax liability ($50,000 threshold).
Workers Compensation Insurance Rate
Employer insurance rate per $100 of gross payroll determined by job classification risk.
Employer 401(k) Matching Contribution
Tax-deductible employer contribution matching employee elective deferrals up to a cap %.
Excess Wages (FUTA / Social Security)
Portion of employee cumulative annual earnings exceeding statutory wage base caps.
Non-Exempt Salaried Employee Overtime
Salaried employee entitlement to FLSA 1.5× overtime pay when working over 40 hours per week.
Double Time Pay (2.0×)
Mandatory 200% pay rate required by certain state laws for work exceeding 12 hours in a day.
Payroll Clearing Account
Interim balance sheet zero-balance bank account used exclusively for net payroll disbursements.
State Disability Insurance (SDI) Tax
State mandatory employee payroll deduction funding non-work-related disability coverage.
Pre-Tax HSA Contribution Cap
Statutory annual cap on pre-tax Health Savings Account contributions for individual/family plans.
Golden Parachute Payment
Executive severance package triggering 20% excise tax penalty if exceeding 3× base compensation.
Payroll Turnover Cost
Total financial burden of recruiting, onboarding, and training a replacement employee.