Definition of Employee
A person who renders services to another entity in exchange for compensation.
A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.
A company contributes to a trust fund that buys stock on behalf of
a profit-sharing compensation program in which investments are made in
the securities of the employer
a source document that indicates, for each employee, what jobs were worked on during the day and for what amount of time
an employee who is directly responsible for
achieving the organization’s goals and objectives
an employee responsible for providing advice,
guidance, and service to line personnel
A federal Act that sets minimum operational and funding standards for employee benefit
A fund containing company stock and owned by employees, paid for by ongoing contributions by the employer.
An IRA set up by an employer with no other retirement plan and employing fewer than 100 employees,
into which they can contribute up to $9,000 per year (as of 2004).
employee of a brokerage or fund management house who studies companies and makes buy-and-sell
recommendations on their stocks. Most specialize in a specific industry.
A pension plan in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor.
Related: defined contribution plan
Decisions concerning the operation of the firm, such as the choice of firm size, firm
growth rates, and employee compensation.
Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.
The entities that establish pension plans, including private business entities acting for their
employees; state and local entities operating on behalf of their employees; unions acting on behalf of their
members; and individuals representing themselves.
An insurance policy bought by the sponsor of a pension plan for a single
premium. In return, the insurance company agrees to make lifelong payments to the employee (the
policyholder) when that employee retires.
All parties that have an interest, financial or otherwise, in a firm - stockholders, creditors,
bondholders, employees, customers, management, the community, and the government.
The amount paid to employees for services rendered; synonymous with salary expense and wage expense.
The amount paid to employees for services rendered; synonymous with payroll expense and wage expense.
The amount paid to employees for services rendered; synonymous with salary expense and payroll expense.
accrued expenses payable
The account that records the short-term, noninterest-
bearing liabilities of a business that accumulate over time, such
as vacation pay owed to employees. This liability is different than
accounts payable, which is the liability account for bills that have been
received by a business from purchases on credit.
A street-smart term that refers to the practice by many businesses
of recording very large lump-sum write-offs of certain assets or
recording large amounts for pending liabilities triggered by business
restructurings, massive employee layoffs, disposals of major segments of
the business, and other major traumas in the life of a business. Businesses
have been known to use these occasions to record every conceivable
asset write-off and/or liability write-up that they can think of in
order to clear the decks for the future. In this way a business avoids
recording expenses in the future, and its profits in the coming years will
be higher. The term is derisive, but investors generally seem very forgiving
regarding the abuses of this accounting device. But you never
know—investors may cast a more wary eye on this practice in the future.
internal accounting controls
Refers to forms used and procedures
established by a business—beyond what would be required for the
record-keeping function of accounting—that are designed to prevent
errors and fraud. Two examples of internal controls are (1) requiring a
second signature by someone higher in the organization to approve a
transaction in excess of a certain dollar amount and (2) giving customers
printed receipts as proof of sale. Other examples of internal
control procedures are restricting entry and exit routes of employees,
requiring all employees to take their vacations and assigning another
person to do their jobs while they are away, surveillance cameras, surprise
counts of cash and inventory, and rotation of duties. Internal controls
should be cost-effective; the cost of a control should be less than
the potential loss that is prevented. The guiding principle for designing
internal accounting controls is to deter and detect errors and dishonesty.
The best internal controls in the world cannot prevent most fraud
by high-level managers who take advantage of their positions of trust
A term describing the loss of products from inventory
due to shoplifting by customers, employee theft, damaged and
spoiled products that are thrown away, and errors in recording the purchase
and sale of products. A business should make a physical count and
inspection of its inventory to determine this loss.
an ongoing process of enhancing employee task performance, level of product quality, and level of company service through eliminating nonvalue-added activities to reduce lead time, making products
(performing services) with zero defects, reducing
product costs on an ongoing basis, and simplifying products
a system that maps the skill sets employees
need and delivers the training they need just as they need it
the set of basic assumptions about
the organization and its goals and ways of doing business;
a system of shared values about what is important and
beliefs about how things get accomplished; it provides a
framework that organizes and directs employee behavior
at work; it describes an organization’s norms in internal
and external, as well as formal and informal, transactions
a card given to selected employees as a
means of securing greater control over spending and eliminating
the paper-based purchase authorization process
an incentive payment to employees that is
contingent on organizational or individual performance
an approach to personnel management
that requires a department to analyze its staffing needs by
considering its long-term objectives and those of the overall
company and determining a specific combination of
permanent and temporary employees with the best skills
to meet those needs
A factor that has a direct impact on the incurring of a cost. For example, adding
an employee results in new costs to purchase office equipment for that person;
therefore, additions to headcount are cost driver for office expenses.
A formal agreement between an entity and its employees, whereby the
entity agrees to provide some benefits to the employees upon their retirement.
An unwritten understanding between two groups, such as an understanding between an employer and employees that employees will receive a stable wage despite business cycle activity.
A retirement plan set up by an employer, into which employees can
contribute the lesser of $13,000 or 15 percent of their pay (as of 2004), which
is excluded from taxation until such time as they remove the funds from the account.
A test used to determine the status of an employee under a state unemployment
insurance program, where a person is a contractor only if there is
an Absence of control by the company, Business conducted by the employee is
substantially different from that of the company, and the person Customarily
works independently from the company.
Benefit Ratio Method
The proportion of unemployment benefits paid to a company’s
former employees during the measurement period, divided by the total
payroll during the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.
Benefit Wage Ratio Method
The proportion of total taxable wages for laid off
employees during the measurement period divided by the total payroll during
the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.
A flexible benefits plan authorized under the Internal Revenue
Code allowing employees to pay for a selection of benefits with pay deductions,
some of which may be pretax.
All forms of pay given to an employee in exchange for services rendered.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
A federal Act
containing the requirements for offering insurance to departed employees.
Current Tax Payment Act of 1943
A federal Act requiring employers to withhold income taxes from employee pay.
Davis-Bacon Act of 1931
A federal Act providing wage protection to nongovernment
workers by requiring businesses engaged in federal construction
projects to pay their employees prevailing wages and fringe benefits.
Defined Benefit Plan
A pension plan that pays out a predetermined dollar
amount to participants, based on a set of rules that typically combine the number
of years of employment and wages paid over the time period when each
employee worked for the company.
The direct transfer of payroll funds from the company bank account
directly into that of the employee, avoiding the use of a paycheck.
Educational Assistance Plan
A plan that an employer creates on behalf of its
employees covering a variety of educational expenses incurred on behalf of
employees, for which they can avoid recognizing some income.
Family and Medical Leave Act
A federal Act containing the rules for offering
health insurance to employees who are on leave.
Federal Unemployment Tax Act (FUTA)
A federal Act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a
pool of funds to be used for unemployment benefits.
The acronym for the Federal Insurance Contributions Act, also used to describe
the combined amount of Social Security and Medicare deductions from
an employee’s pay.
Flexible Spending Account
A form of cafeteria plan allowing employees to pay
for some medical or dependent care expenses with pretax pay deductions.
A form used by employees to report to an employer the amount of
their tip income.
The standard form used for notifying a company to garnish an employee’s
wages for unpaid taxes.
The form used by employers to report tip income by their employees
to the government.
The Employment Eligibility Verification form, which must be filled
out for all new employees to establish their identity and eligibility to work.
A court-ordered authorization to shift employee wages to a creditor.
The amount of earnings due to an employee prior to tax and other deductions.
Health Insurance Portability and Accountability Act of 1996 (HIPAA)
A federal Act expanding upon many of the insurance reforms created by
COBRA. In particular, it ensures that small businesses will have access to
health insurance, despite the special health status of any employees.
Hourly Rate Plan
A method for calculating wages for hourly employees that involves
the multiplication of the wage rate per hour times the number of hours
worked during the work week.
Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA)
A federal Act shielding employers from liability if they have made
a good-faith effort to verify a new employee’s identity and employment eligibility.
Immigration Reform and Control Act of 1986
A federal Act requiring all employers having at least four employees to verify the identity and employment
eligibility of all regular, temporary, casual, and student employees.
Incentive Stock Option
An option to purchase company stock that is not taxable
to the employee at the time it is granted nor at the time when the employee
eventually exercises the option to buy stock.
McNamara-O'Hara Service Contract Act of 1965
A federal Act requiring federal contractors to pay those employees working on a federal contract at
least as much as the wage and benefit levels prevailing locally.
The amount of an employee’s wages payable after all tax and other deductions have been removed.
A pay premium of 50 percent of the regular rate of pay that is earned
by employees on all hours worked beyond 40 hours in a standard work week
A credit card into which a company directly deposits an employee's net pay.
The period of service for which a company compensates its employees.
A report on which is summarized the wage and deduction information
for employees for a specific payroll.
A fixed rate paid to employees traveling on behalf of a business,
which substitutes for reimbursement of exact expenses incurred.
Piece Rate Plan
A wage calculation method based on the number of units of production
completed by an employee.
Section 83(b) Election
The decision by an employee to recognize taxable income
on the purchase price of an incentive stock option within 30 days following
the date when an option is exercised and withhold taxes at the ordinary
income tax rate at that time.
Self-Employment Contributions Act (SECA)
A federal Act requiring self-employed business owners to pay the same total tax rates for Social Security and
Medicare taxes that are split between employees and employers under the Federal Insurance Contributions Act.
A fixed amount of pay benefit available to employees who cannot
work due to sickness. Company policy fixes the amount of this benefit that can
be carried forward into future periods.
State Disability Tax
A tax charged by selected states to maintain a disability insurance
fund, from which payments are made to employees who are unable to
work due to illness or injury.
Additional pay due to an employee whose employment is
being terminated, usually in accordance with a termination pay schedule contained
within the employee manual.
A document or electronic record on which an employee records his or
her hours worked during a payroll period.
A device used to stamp an employee’s incoming or outgoing time
on either a paper document or an electronic record.
An agreement between countries whereby an employee only has to pay Social Security taxes to the country in which he or she is working
Net pay not collected by an employee, which is typically transferred
to the local state government after a mandated interval has passed from
the date of payment.
A form used to report gross pay and tax deductions for each employee
to the IRS for a calendar year.
A form on which an employee declares the amount of federal tax deductions
to be deducted from his or her pay.
Workers' Compensation Benefits
Employer-paid insurance that provides their employees with wage compensation if they are injured on the job.
Adjusted Cash Flow Provided by Continuing Operations
Cash flow provided by operating
activities adjusted to provide a more recurring, sustainable measure. Adjustments to reported cash
provided by operating activities are made to remove such nonrecurring cash items as: the operating
component of discontinued operations, income taxes on items classified as investing or financing activities, income tax benefits from nonqualified employee stock options, the cash effects of purchases and sales of trading securities for nonfinancial firms, capitalized expenditures, and other nonrecurring cash inflows and outflows.
Cash Flow Provided by Operating Activities
With some exceptions, the cash effects of transactions
that enter into the determination of net income, such as cash receipts from sales of goods
and services and cash payments to suppliers and employees for acquisitions of inventory and
Term life insurance products are offered as non-convertible or convertible to a certain time in the future. The coversion right has a time limit, usually to the policy holder's age 60 or possibly even age 70. This right means that the policy holder has the right to convert their existing policy to another specific different plan of permanent insurance within the specified time period, without providing evidence of insurability. There is a slightly higher cost for a term policy with the conversion priviledge but it is a valuable feature should a policy holder's health change for the worst and continued insurance coverage becomes a necessity.
Most often this right is also granted to individuals covered under employee group benefit policies where individuals leaving the employee group have a limited amount of time, usually anywhere from 30 to 90 days, to convert to a specific permanent individual policy without evidence of insurability.
Dead Peasants Insurance
Also known as "Dead Janitors Insurance", this is the practice, where allowed, in several U.S. states, of numerous well known large American Corporations taking out corporate owned life insurance policies on millions of their regular employees, often without the knowledge or consent of those employees. Corporations profiting from the deaths of their employees [and sometimes ex-employees] have attracted adverse publicity because ultimate death benefits are seldom, even partially passed down to surviving families.
Group Life Insurance
This is a very common form of life insurance which is found in employee benefit plans and bank mortgage insurance. In employee benefit plans the form of this insurance is usually one year renewable term insurance. The cost of this coverage is based on the average age of everyone in the group. Therefore a group of young people would have inexpensive rates and an older group would have more expensive rates.
Some people rely on this kind of insurance as their primary coverage forgetting that group life insurance is a condition of employment with their employer. The coverage is not portable and cannot be taken with you if you change jobs. If you have a change in health, you may not qualify for new coverage at your new place of employment.
Bank mortgage insurance is also usually group insurance and you can tell this by virtue of the fact that you only receive a certificate of insurance, and not a complete policy. The only form in which bank mortgage insurance is sold is reducing term insurance, matching the declining mortgage balance. The only beneficiary that can be chosen for this kind of insurance is the bank. In both cases, employee benefit plan group insurance and bank mortgage insurance, the coverage is not guaranteed. This means that coverage can be cancelled by the insurance company underwriting that particular plan, if they are experiencing excessive claims.
Registered Pension Plan
Commonly referred to as an RPP this is a tax sheltered employee group plan approved by Federal and Provincial governments allowing employees to have deductions made directly from their wages by their employer with a resulting reduction of income taxes at source. These plans are easy to implement but difficult to dissolve should the group have a change of heart. Employer contributions are usually a percentage of the employee's salary, typically from 3% to 5%, with a maximum of the lessor of 20% or $3,500 per annum. The employee has the same right of contribution. Vesting is generally set at 2 years, which means that the employee has right of ownership of both his/her and his/her employers contributions to the plan after 2 years. It also means that all contributions are locked in after 2 years and cannot be cashed in for use by the employee in a low income year. Should the employee change jobs, these funds can only be transferred to the RPP of a new employer or the funds can be transferred to an individual RRSP (or any number of RRSPs) but in either scenario, the funds are locked in and cannot be accessed until at least age 60. The only choices available to access locked in RPP funds after age 60 are the conversion to a Life Income Fund or a Unisex Annuity.
To further define an RPP, Registered Pension Plans take two forms; Defined Benefit or Defined Contribution (also known as money purchase plans). The Defined Benefit plan establishes the amount of money in advance that is to be paid out at retirement based usually on number of years of employee service and various formulae involving percentages of average employee earnings. The Defined Benefit plan is subject to constant government scrutiny to make certain that sufficient contributions are being made to provide for the predetermined pension payout. On the other hand, the Defined Contribution plan is considerably easier to manage. The employer simply determines the percentage to be contributed within the prescribed limits. Whatever amount has grown in the employee's reserve by retirement determines how much the pension payout will be by virtue of the amount of LIF or Annuity payout it will purchase.
The most simple group RRSP plan is a group billed RRSP. This means that each employee has his own RRSP plan and the employer deducts the contributions directly from the employee's wages and sends them directly to the RRSP plan administrator. Regular RRSP rules apply in that maximum contribution in the current year is the lessor of 18% or $13,500. Generally, to encourage this kind of plan, the employer also agrees to make a regular contribution to the employee's plans, knowing full well that any contributions made immediately belong to the employee. Should the employee change jobs, he/she can take their plan with them and continue making contributions or cash it in and pay tax in the year in which the money is taken into income.
An unincorporated business owned by one person which may or may not have employees.
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