Outsourcing your payroll to us here at Cathy E. Parker, E.A. Bookkeeping & Tax Service is a great way to cut back on expenses and ensure your payroll always goes out on time. However, even if you don’t do your own payroll, there are many different terms you should still be aware of as a business owner:
• Gross pay—This refers to the total amount paid by your business to an employee every month. For an hourly employee, their gross pay is their pay rate multiplied by the number of hours they worked within a given time period.
• Net pay—Net pay is the amount the employee receives after all of the deductions and withholdings have been taken out of their gross pay. An employee’s net pay is essentially the amount they receive when they get their paycheck.
• Withholding—This is the amount that is taken out of an employee’s paycheck for state and federal income tax purposes. The amount withheld from each employee’s paycheck is determined by the Form W-4 they completed when they were hired.
• Overtime—This refers to any additional amount paid to an hourly employee who works over 40 hours in a one-week period. When an employee exceeds this 40-hour limit, as their employer, federal law mandates that you pay them at a rate of 1.5 times their regular hourly rate. However, this does not mean that you cannot pay them more for their overtime hours.