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5 Basic Payroll Terms to Learn Before Doing Payroll for Your Small Business

Managing payroll can give an entirely new meaning to the phrase ‘money talks’ and sometimes it can feel like you’re talking in a completely different language. Most people aren’t fluent in financial terms on their first attempt at navigating payroll and it can be difficult to understand what everything means. Allow us to be your dictionary and help you define 5 basic payroll terms that you should learn before completing payroll for your small business. 


1) Gross pay - the total amount the employee earns each pay period before any deductions for taxes or other purposes are made.


This amount is calculated differently for salary and hourly employees. For salaried employees, gross pay is stated as an annual amount and is divided by the number of pay periods in the year. For hourly employees, gross pay is the worker’s hourly rate times the number of hours worked. 


2) Net Pay - the amount of pay an employee receives after all withholding and deductions from gross pay have been made (the amount of the employee’s paycheque). 


When calculating net pay, you take the gross pay and subtract federal, provincial and local income taxes as well as discretionary deductions such as health plan contributions or retirement plan amounts. 


3) Pay Periods - a recurring length of time over which employee pay is recorded and paid. 


Some examples of pay periods include:

  • Monthly (12 pay periods a year)

  • Weekly (52 pay periods a year)

  • Bi-weekly (every other week, 26 pay periods a year)


4) Withholdings - the amounts taken from an employee’s paycheque for several different types of taxes.


This includes amounts taken for federal, provincial and local income taxes.


5) Deductions - other types of payments taken out other than withholdings. 


These elements were briefly mentioned in our definition of net pay and involve various withdrawals such as insurance premiums and retirement plan contributions. 


Although the entire vocabulary of payroll can’t be summed up in one post, these 5 terms should help you get a good start. But, even with this added knowledge, payroll can still be an overwhelming task. It can be valuable to have the guidance of professionals who are trained to help you navigate the confusing process. At STEPS, we provide payroll assistance and can help you and your small business manage the task with ease. Learn more on our payroll tab or reach out to us on our contact page.

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