Completing employee payroll accounting requires a basic knowledge of some accounting terms. Making a mistake about the meaning of any of the terms could cost your business money. Many terms you will encounter seem interchangeable but, in fact, most of the time, each term has a slightly different meaning and purpose.
Before you print out employee checks or complete deposits, make sure you review the following payroll accounting key terms:
1. Know the meaning of the different types of payments associated with payroll accounting.
2. Figure out if you are paying employees or independent contractors.
3. Determine which benefits are taxable and which ones are non-taxable.
Learn payroll accounting key terms for payment typesThere are different types of employee pay types, including extra hours and excess hours, which differ slightly but, can make a big impact on accounting and payroll. Extra hours are hours that an employee works in addition to the normal schedule. Excess hours are authorized additional hours an employee works beyond the regular schedule. The difference between the two is that you must pay overtime hours on excess hours, but it may not be necessary on extra hours.
California State University Monterey Bay offers detailed explanations of common accounting and payroll terms, including those associated with payment types. AccountingCoach.com has in depth definitions for common payment types you will find when completing employee payroll, even if you are using an online payroll accounting program or payroll accounting software.
Determine if your payroll database includes independent contractorsDetermining if people on your payroll are employees or independent contractors affects payroll processing. You must withhold taxes from employees, but not from independent contractors. Generally, an employee works is required to work how you deem fit, while following a schedule you decide. An independent contractor is free to set his own hours and do the job his way, as long as he completes it properly. For the most part, an employee has benefits, while an independent contractor does not.
The Internal Revenue Service website offers information to help you determine if a person on your payroll database is an employee or a contractor. You can find information on how to distinguish an employee from an independent contractor on the State of California website. This website offers explanations and interpretations of both employee types.
Know the common payroll accounting benefit termsCertain types of benefits must be taxed in certain ways. Knowing the difference between taxable fringe benefits, such as awards and stipends, and non-taxable benefits, such as de minimis fringe benefits and qualified employee discounts, is vital, even if you are using an online payroll processing service. An award or stipend is a standard of amount of money presented to an employee in addition to regular payroll. A de minimis fringe benefit is a benefit with a value so small, it wouldn't amount to a taxable amount as determined by your state law. A qualified employee discount is any discount under 20% for hourly employees and 50% for salaried employees that is part of the employee benefit package.
Sacramento State and Duke University offer definitions of benefits types you may encounter when accounting payroll amounts. Both websites offer easy to understand definitions.
- If you need more detailed help completing employee payroll accounting, consider enrolling in an online course or a course at a local college.