A payroll system is the tool or process businesses use to calculate employee wages, withhold taxes, manage benefits, and issue payments. It can be manual, software-based, or outsourced to a provider. A reliable payroll system ensures accurate pay, legal compliance, and smooth financial operations for both employers and employees.
Payroll remittance refers to the payments employers make to tax authorities and other agencies for amounts withheld from employee paychecks. These include income tax, social security, pension contributions, and other mandatory deductions. Timely and accurate remittance is critical for compliance and to avoid penalties for both employers and employees.
Payroll outsourcing is the practice of delegating payroll functions—such as salary calculation, tax withholdings, and benefit deductions—to an external service provider. It saves businesses time, reduces errors, and ensures compliance with labor and tax laws. Many companies choose payroll outsourcing to focus on core operations while experts handle complex payroll tasks.
A payroll account is a separate bank account that employers set up specifically for processing employee salaries and related payments. It helps businesses keep payroll funds distinct from other operating expenses, ensuring accuracy and compliance. Using a payroll account makes it easier to manage wages, taxes, and benefits while reducing accounting errors.
A PAYG contractor is a worker in Australia who operates as an independent contractor but has income tax withheld by the payer under the Pay As You Go (PAYG) system. This arrangement ensures that taxes are collected regularly rather than as a lump sum at year-end. It helps contractors meet tax obligations while providing businesses with compliance assurance.
Partial pay refers to compensation given to an employee for less than a full pay period. This usually occurs when someone joins or leaves a company mid-cycle, or takes unpaid leave during the period. Employers calculate partial pay based on actual days or hours worked, ensuring fair and accurate payment.
Overtime refers to the additional hours an employee works beyond the standard workweek set by labor laws or company policy. Employers usually pay a higher wage rate—commonly 1.5 times (time-and-a-half) or 2 times (double time)—to compensate for the extra work. Overtime rules vary by country and are designed to protect workers from excessive workloads while ensuring fair pay.
An overpaid salary happens when an employee receives more money than they are entitled to, usually because of payroll mistakes, miscalculations, or benefit errors. Employers are typically allowed to recover the excess amount, either through future payroll deductions or repayment agreements. Clear policies and accurate payroll systems help prevent and resolve such issues fairly.
The Ontario Employer Health Tax (EHT) is a payroll tax that employers in Ontario, Canada must pay based on the total wages, salaries, and benefits they provide to employees. It helps fund the province’s healthcare system and applies differently depending on employer size, with exemptions or reduced rates for smaller businesses. Employers are responsible for calculating, remitting, and filing EHT annually or monthly.
Net pay, often called “take-home pay,” is the actual amount an employee receives after all deductions are subtracted from gross salary. These deductions may include taxes, health insurance, retirement savings, and other withholdings. Net pay reflects what employees can spend or save and is typically deposited directly into their bank accounts.
A merit increase is a permanent boost to an employee’s base pay given as a reward for strong performance or significant contributions. Unlike bonuses, which are one-time payments, a merit increase raises ongoing salary and affects future earnings. Employers use merit increases to motivate employees, retain top talent, and recognize excellence.
Mandatory benefits are benefits that employers are legally required to provide to employees under labor and social security laws. These can include health insurance, retirement contributions, workers’ compensation, unemployment insurance, and paid leave. The exact requirements vary by country, but compliance ensures legal protection for both employers and employees.
Labor cost refers to the full amount a business spends on its workforce. This includes direct expenses like wages and salaries, as well as indirect costs such as payroll taxes, employee benefits, insurance, training, and overtime. Understanding labor cost helps companies budget accurately, set prices, and maintain profitability.
Form 1099-K is an IRS tax form used to report payments received through third-party settlement organizations such as PayPal, Stripe, or credit card companies. It shows the total payment transactions made to a business or individual during the year. Recipients use it to ensure all taxable income from digital platforms and payment processors is accurately reported.
Incentive compensation is a form of pay that rewards employees based on their performance or the company’s success. Unlike fixed salary, it includes variable components such as commissions, performance bonuses, and equity grants. Employers use incentive compensation to encourage productivity, align goals, and retain top talent.
Incentive-based compensation is pay that goes beyond base salary and directly links earnings to performance. It can include bonuses, commissions, profit-sharing, or stock options, designed to motivate employees to meet or exceed targets. This model aligns employee effort with company objectives while boosting engagement and productivity.
Holiday pay and paid time off (PTO) are two different employee benefits. Holiday pay is extra compensation for employees who work on public or company-declared holidays. PTO, on the other hand, is a bank of paid leave employees can use at their discretion, such as for vacation, illness, or personal matters. Together, they support both fair pay and work-life balance.
Holiday pay rate is the premium wage an employee earns for working on a recognized holiday. Depending on local labor laws or company policy, it may be 1.5x, 2x, or another multiplier of the regular hourly rate. This pay encourages employees to work during holidays while ensuring fair compensation for time away from personal or family activities.
Gross salary is the full amount an employee earns before any deductions are made. It includes base pay, overtime, bonuses, commissions, and allowances. Employers use gross salary as the starting point for calculating take-home pay after subtracting taxes and other withholdings.
FUTA tax, or Federal Unemployment Tax Act tax, is a payroll tax that employers in the United States must pay. The funds collected go toward federal and state unemployment programs, which provide temporary income to workers who lose their jobs. Employees do not pay FUTA tax; it is solely an employer responsibility.