Starting a business means learning a *ton* of new things, and payroll terminology can feel like a whole new language. Knowing a few key terms can save you time, money, and a lot of headaches. Here’s a quick breakdown of some basics every business owner should know.
Gross Pay vs. Net Pay: Gross pay is what you owe employees before deductions, like taxes and benefits. Net pay is what they actually take home. Think of gross pay as the full amount and net pay as what’s left after Uncle Sam and others get their share.
Withholding: This is the portion of an employee’s wages that’s “withheld” for taxes. It includes federal income tax, Social Security, and Medicare, along with any state taxes.
FICA: Short for Federal Insurance Contributions Act, FICA is a federal payroll tax that funds Social Security and Medicare. Both employees and employers contribute, so it’s a shared cost.
Overtime: This is the extra pay owed to non-exempt employees who work over 40 hours in a week. Typically, it’s time and a half, but rules can vary by state.
Exempt vs. Non-Exempt: Exempt employees aren’t entitled to overtime pay, while non-exempt employees are. Misclassifying employees here is a common (and costly) mistake.
Master these terms, and you’ll be well on your way to payroll confidence!
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