Common Payroll Terms That HR Needs To Know

Payroll is a far more complex business function than most people realise. There are plenty of payroll terms to be aware of, alongside compliance with local and regional statutory legislations. On top of that, it is imperative to ensure accurate and correct salary computations for every payroll period.

Whether you are new to payroll or a seasoned HR specialist, payroll terms may vary from time to time. Lack of understanding of these payroll terms may result in inaccuracies and even hefty penalties due to non-compliance.

To help you avoid potential payroll mistakes, here are some common payroll terms used across countries:

MINIMUM WAGE
A minimum wage is the lowest remuneration that employers can legally pay their employees. It is the price floor in which employers are mandated to compensate their employees. Most countries had introduced minimum wage legislation by the end of the 20th century. Across Asia Pacific, countries that had introduced minimum wage include Australia, India, Japan, Indonesia and South Korea.

ANNUAL BASIC SALARY
Annual basic salary is the basic rate of pay that an employee is entitled to receive under their contract of service. This does not include overtime payments, allowances, or reimbursement of expenses.

PAID TIME-OFF (PTO)
Paid time-off (PTO) is an employee benefit that is typically given by the organisation, where employees are still compensated for time away from work. PTO is typically measured in hours and classified for different types of absences such as medical leave, mate
ity leave or personal leave.

OVERTIME PAY
Overtime pay is when organisations compensate the employee for all work in excess of normal working hours, excluding breaks. The rate of overtime pay also differs across the respective countries. Different countries may also set varying wage ceilings for employees who are eligible for overtime pay.

VARIABLE BONUS
Variable bonus, commonly referred to as performance pay, is intended to compensate the employee for the performance achieved, be it individual or shared within the team or organisation. The amount of variable bonus provided also differs depending on the employee’s position within the organisation.

SALES COMMISSION
Commissions are a form of variable-pay compensation provided for selling the organisation’s products and/or services. It is the amount of compensation a sales employee earns based on the number of sales that they have made. This is additional compensation that sales employees earn on top of their basic salary. Sales commissions are a common way to motivate and reward sales employees, and can also be used to encourage specific sales behaviours.

SALES INCENTIVE
Sales incentives are also a type of variable-pay compensation typically provided to sales employees for selling products and/or services. However, the structure of sales incentives and commissions are different. Sales incentives are monetary rewards provided to a sales employee for exceeding a predetermined sales target.

ANNUAL GROSS SALARY
Annual gross salary is the total amount of compensation that an employee has earned. This includes allowances that an employee is entitled to under their contract of service.

ANNUAL NET SALARY
Annual net salary is the actual amount of compensation that an employee will receive from the employer, as referred to as “take-home salary”. This is essentially the annual gross salary minus any statutory contributions and taxes.

EXPENSES REIMBURSEMENT
Reimbursement is compensation paid to an employee as repayment for a business expense or out-of-pocket expense. Some organisations impose a cap on reimbursable expenses to minimise the likelihood of employees claiming more than what is morally and legally acceptable based on the organisation’s internal policies.

TAX WITHHOLDING
In most countries, employees will need to deduct a certain amount of money from employees’ salaries to be paid to the local tax authorities. The percentage of tax withholding varies from country to country.

PAY PERIOD
A pay period is defined as a time frame to calculate employees’ earned wages and determine when employees receive their salaries. In most organisations, pay periods are fixed and recur on a monthly basis. For certain jobs, such as freelancers or contractors, pay periods can vary such as weekly or bi-weekly. It is important to remember that a pay period is different from a work week.

OFF-CYCLE PAYROLL
Off-cycle payroll simply refers to salary payments that are not processed during the originally stipulated pay period. Situations where off-cycle payroll may happen are when an employee resigns from the organisation, salary adjustments due to promotions, or in the unfortunate situation when an employee’s salary is computed wrongly and needs to be adjusted.

HUMAN CAPITAL MANAGEMENT (HCM)
As defined by Gartner, human capital management is a set of practices related to people resource management. These practices are typically focused on the organisation’s need to provide specific competencies and are implemented in three categories: workforce acquisition, workforce management and workforce optimisation.

HUMAN RESOURCES INFORMATION SYSTEMS (HRIS)
Human Resources Information Systems (HRIS) is a software solution that maintains, manages and processes detailed employee information and HR-related policies and practices. As it is an interactive system of information management, HRIS helps to standardise multiple HR tasks and processes while ensuring accurate record keeping and reporting.

HUMAN RESOURCES MANAGEMENT SYSTEM (HRMS)
Human Resources Management System (HRMS) refers to a suite of software that organisations use to manage their internal HR functions. This can include employee data management, time attendance and payroll through to recruitment, benefits, talent management and employee engagement. In today’s modern workplace, HRMS software helps the HR department to effectively consolidate all their HR functions into a central platform to streamline processes.

Whether you are a new HR specialist or a seasoned HR professional, it is good to constantly keep yourself abreast with these common payroll terms. Understanding these payroll terms and concepts will put you ahead of the game and ensure that you are well-equipped to manage the organisation’s payroll accurately and competently.