Key Payroll Terms and What They Mean

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In the context of payroll and workforce classification, it's essential to understand these key terms:

Employers (Company):

  • Definition: An employer is an individual or organization that hires employees or contractors to perform work in exchange for compensation. Employers have certain legal and financial obligations to their employees, which may include providing benefits, withholding taxes, and adhering to labor laws.


  • Definition: An employee is an individual worker at a company who follows the regulations and has their income taxed. They are also potentially offered benefits. They will receive a W-2 at the end of the year.

Contractors (Independent Contractors):

  • Definition: A contractor, or independent contractor, who has autonomy and flexibility but does not receive benefits such as health insurance and paid time off. Typically receive a 1099 form (in the U.S.) instead of a W-2 for tax reporting.

Additional Terms Used in Payroll Processing:

  • Benefits: Retirement, medical, or insurance deductions from an employee's pay before or after taxes depending on the benefit type.

  • Post-Tax Deductions: Miscellaneous deductions that are taken from an employee's pay after taxes.

  • Garnishments: Federal, state, child support, or creditor deductions from an employee's pay after tax.

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