Glossary of Payroll Terms


A catch-all term for operating your business in accordance with local, state and federal laws and regulations. To help ensure compliance, payroll managers either do extensive research to educate themselves on all relevant laws or outsource the responsibility to an accountant, payroll service provider or professional employer organization.

Employer Identification Number (EIN)

Also known as the Federal Identification Number, the EIN is a unique nine-digit number issued to your business by the IRS for tax purposes. Think of it as a Social Security Number for your business. You can apply for yours here.

Form 941

Form 941 is the Employer’s Quarterly Federal Tax Return. It tells the IRS how much income tax, Social Security tax and Medicare tax you have withheld from your employees’ paychecks during the past quarter. You can download a blank form 941 here.

Form 1099

Form 1099-Misc is a year-end summary of all your non-employee compensation. That includes money you paid to independent contractors, freelancers, vendors, landlords — anyone who isn’t on staff. You can download a blank Form 1099-Misc here.

Form W-2

Employers use the Form W-2 to report how much compensation they paid their employees for the previous year and how much they withheld in taxes. The forms are divided into state and federal sections, since employees must file taxes with each. You can download a blank Form W-2 form here.

Form W-4

The Form W-4 is a form that employees fill out to let their employer know how much money to withhold from their paycheck for taxes. The form includes information such as marital status, number of dependents, exemptions claimed and more. You should have all employees fill out a Form W-4 on their first day, but they can file a new one any time their situation changes. You can download a blank Form W-4 here.

Form W-9

The Form W-9 is a form that employers use to get basic identity and tax information from independent contractors. Though employers don’t withhold taxes for independent contractors, they are required to tell the IRS how much they pay them over the course of a year (if the amount exceeds $600); employers use the information in the Form W-9 to report that income to the IRS. You can download a blank Form W-9 here.

Fringe Benefits

Forms of compensation provided by the employer other than income, such as company cars, health insurance, rewards travel, or employee discounts. Such benefits are subject to federal and state taxes and must be reported to the IRS.

Federal Unemployment Tax Act (FUTA)

The Federal Unemployment Tax Act is a piece of legislation that authorized the federal government to collect taxes from employers for the purposes of funding state unemployment agencies and compensating former employees who are eligible for unemployment insurance.

Independent Contractor

An independent contractor is an outside worker hired only for a specific and limited scope of work. Independent contractors should determine the manner in which they complete their assignments to the extent possible. Be careful: Employee misclassification  is a common pitfall of the payroll process.

The Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act is a federal law that sets the rules for minimum wage, overtime pay, record keeping and child labor. The law applies to most private or public businesses, so it’s vital that employers familiarize themselves with the standards and understand how to properly classify and pay their employees.


Garnishments are deductions that must be withheld from an employee’s wages to satisfy that person’s debts or legal obligations. Common garnishments include child support, unpaid taxes and defaulted student loans.

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