Understanding payroll terms

This topic contains a quick reference for some commonly-used payroll terms. As terminology can differ between state and federal governments, Ajera uses the most common terms.

Gross pay

An employee's total pay. Also called earnings.

Taxable earnings

Earnings subject to Federal, state, or any local taxes.  

Taxable earnings = Total pay - (Exempt pays + Pre-tax deductions)

Exempt pay

Pay that does not meet criteria for taxable earnings.

You set up exempt pays on the > Setup > Company > Payroll Setup > Pays window by selecting the applicable check boxes in the Employee Tax Exempt and Employer Tax Exempt area. For example, if you want to exclude sick pay from state unemployment tax, you select the State Unemployment Employer Tax Exempt check box.   

Example: $1,000 (gross) - $100 (Exempt Pay) = $900 (Taxable and Subject - to)

Pre-tax deductions

Deductions made from gross pay before deducting taxes. You set up pre-tax deductions on the > Setup > Company > Payroll Setup > Deductions window by selecting the applicable check boxes in the Employee Tax Exempt and Employer Tax Exempt area.  

Example: $1,000 (gross) - $100 (401(k) deduction) = $900 (Taxable and Subject - to).    

The taxable amount is specific to each tax. Many states refer to taxable pay as gross pay.

Subject-to earnings

Taxable earnings up to the wage limit, if any. You set up subject-to earnings on the > Setup > Company > Payroll Setup > Taxes window. The subject-to amount is specific to each tax.

Example:

Employee's salary is $5,000 per month.  

Federal Unemployment wage limit: $7,000  

First paycheck:

• Federal Unemployment Taxable = $5,000
• Federal Unemployment Subject-to = $5,000

Second paycheck:

• Federal Unemployment Taxable = $5,000
• Federal Unemployment Subject-to = $2,000