Glossary

1099

A family of US tax forms used to report various types of non-employment income, including freelance earnings (1099-NEC), investment income (1099-DIV/INT), and miscellaneous payments.

13th Month Pay

A mandatory or customary extra month's salary paid to employees, typically at the end of the year, in addition to the standard 12 monthly payments.

401(k)

A US employer-sponsored defined-contribution retirement plan that allows employees to save pre-tax or Roth (after-tax) dollars, often with an employer matching contribution.

401(k) Plan

A tax-advantaged retirement savings plan offered by US employers that allows employees to contribute pre-tax income, often with an employer match.

Alternative Minimum Tax

A parallel US tax system designed to ensure that high-income taxpayers who benefit from certain deductions and exemptions still pay a minimum amount of tax.

Anchoring

A cognitive bias and negotiation tactic where the first number mentioned disproportionately influences the final outcome of a negotiation.

Annual Leave

Paid vacation time that employees are entitled to take each year, with the minimum days often mandated by law in most countries outside the United States.

Annual Salary

The total gross compensation an employee earns over a full year, usually expressed as a single lump-sum figure before deductions.

Average Salary

The arithmetic mean of all salaries in a group, calculated by dividing the total salary sum by the number of earners, which can be skewed by extremely high or low values.

Backdoor Roth Conversion

A strategy allowing high-income earners to contribute to a Roth IRA by first making a non-deductible Traditional IRA contribution and then converting it to Roth.

Back Pay

Wages owed to an employee for work already performed but not yet compensated, often resulting from payroll errors, underpayment, or retroactive pay increases.

Base Salary

The fixed, regular amount of compensation an employee receives, excluding bonuses, overtime, benefits, and any other variable pay components.

BATNA (Best Alternative to a Negotiated Agreement)

The most favorable outcome a negotiator can achieve if the current negotiation fails, representing the walk-away point and primary source of negotiating power.

Bereavement Leave

Paid time off granted to employees following the death of a family member or close relative, allowing time for grieving and funeral arrangements.

Bonus

A supplemental payment awarded to an employee on top of their base salary, often tied to individual performance, company profits, or a specific event like signing.

Capital Gains Tax

A tax levied on the profit realized from the sale of a non-inventory asset — such as stocks, real estate, or business interests — that has increased in value.

Church Tax

A tax collected by the government on behalf of registered religious institutions in Germany, Austria, Switzerland, and some Nordic countries, calculated as a percentage of income tax.

Clawback

A contractual provision that requires employees to return previously paid compensation under certain conditions, such as leaving early, misconduct, or financial restatements.

Commission

A form of variable compensation paid to employees — usually in sales roles — as a percentage of the revenue or profit they generate.

Compensation Package

The complete set of pay and benefits an employer offers to an employee, encompassing base salary, variable pay, equity, insurance, retirement contributions, and perks.

Consumer Price Index

A measure of the average change over time in the prices of a fixed basket of goods and services purchased by consumers, used as the primary gauge of inflation.

Corporate Tax

A tax levied on the net profits of corporations, separate from the personal income tax paid by shareholders on distributed dividends.

Cost of Living

The amount of money needed to cover basic expenses — housing, food, transportation, healthcare, and taxes — in a particular location.

Cost of Living Index

A numerical indicator that compares the relative cost of living between locations, with a baseline (often 100 for the national average or a reference city) against which other areas are measured.

Cost to Company

The total annual cost an employer bears for an employee, including gross salary, employer-paid taxes, social contributions, insurance, and benefits — commonly used in South Africa and India.

Counter Offer

A response to an initial job offer or resignation in which the receiving party proposes different terms — typically higher pay, a better title, or additional benefits.

CPF (Central Provident Fund)

Singapore's mandatory social security savings scheme to which both employers and employees contribute, funding retirement, healthcare, and housing.

Deferred Compensation

An arrangement in which a portion of an employee's income is paid out at a later date, typically retirement, allowing the employee to defer taxes on that income.

Defined Benefit Pension

A retirement plan in which an employer guarantees a specific monthly benefit at retirement, calculated using a formula based on salary history and years of service.

Dental Insurance

Supplemental insurance that covers preventive, basic, and major dental care, typically offered as a separate benefit alongside medical insurance.

Disability Insurance

Insurance that replaces a portion of income if an employee becomes unable to work due to illness or injury, available as short-term and long-term coverage.

Disposable Income

The amount of personal income remaining after direct taxes and mandatory social contributions have been paid, available for spending, saving, or investing.

Dollar Cost Averaging

An investment strategy of regularly investing a fixed amount regardless of market conditions, reducing the impact of volatility on the overall purchase price.

Double Taxation

The taxation of the same income by two or more jurisdictions, typically occurring when a person earns income in one country while being a tax resident of another.

Effective Tax Rate

The actual percentage of total income paid in taxes, calculated by dividing total tax liability by total gross income.

Employee Assistance Program

A confidential employer-sponsored program providing free short-term counseling and referral services for personal or work-related issues such as mental health, substance abuse, and financial stress.

Employee Stock Purchase Plan (ESPP)

A company-run benefit program that allows employees to purchase company stock at a discount, typically 10-15% below market price, through payroll deductions.

Employer Match

A contribution made by an employer to an employee's retirement plan that matches a portion of the employee's own contributions, effectively providing free money for retirement savings.

Employment Contract

A legally binding agreement between employer and employee that sets out the terms of employment, including duties, compensation, working hours, termination conditions, and restrictive covenants.

Equity Compensation

Non-cash pay that represents an ownership stake in the employer, including stock options, RSUs, restricted stock, ESPP shares, and profit interests.

ESOP (Employee Stock Ownership Plan)

A qualified retirement plan in which employees receive shares of company stock, often used to align employee interests with company performance or facilitate ownership transitions.

Estate Tax

A tax on the net value of a deceased person's estate before distribution to heirs, applied when the estate exceeds a threshold amount.

Expatriate Premium

Additional compensation paid to employees who relocate internationally, covering the extra costs and disruptions of living and working abroad.

FICA (Federal Insurance Contributions Act)

A US federal payroll tax that funds Social Security and Medicare, split equally between employer and employee at a combined rate of 15.3% on earnings up to the wage base.

Filing Status

A classification used in the US tax system that determines the tax rate schedule, standard deduction amount, and eligibility for certain credits — such as Single, Married Filing Jointly, or Head of Household.

Fiscal Year

The 12-month accounting period used by governments and businesses for budgeting and financial reporting, which may differ from the calendar year.

Flat Tax

A tax system that applies the same rate to all levels of income without brackets or graduated rates, often paired with a basic exemption.

Flexible Spending Account

A US tax-advantaged account that allows employees to set aside pre-tax dollars for eligible medical or dependent-care expenses, subject to annual limits and use-it-or-lose-it rules.

Garden Leave

A period during which a departing employee remains on the payroll and is bound by their employment terms but is not required to work, preventing immediate access to a competitor's operations.

GDP per Capita

A country's total economic output (Gross Domestic Product) divided by its population, used as a broad indicator of average economic well-being and productivity.

Gender Pay Gap

The difference in average or median earnings between women and men, expressed as a percentage of men's earnings, reflecting both direct pay disparities and structural factors.

Geographic Pay Differential

The variation in pay for the same role based on geographic location, reflecting differences in cost of living, local labor market supply and demand, and regional economic conditions.

Gini Coefficient

A statistical measure of income or wealth inequality within a population, ranging from 0 (perfect equality) to 1 (maximum inequality).

Golden Parachute

A substantial compensation package guaranteed to a senior executive if they are terminated — especially during a merger, acquisition, or change of control.

Gross Salary

The total amount of money an employee earns before any deductions such as taxes, insurance premiums, or retirement contributions.

Hardship Allowance

A pay supplement provided to employees assigned to locations with difficult living conditions, such as remote areas, conflict zones, or countries with limited infrastructure.

Health Insurance

Coverage that pays for medical, surgical, and sometimes dental and vision expenses, provided by employers, purchased individually, or funded by government programs.

Health Savings Account

A US tax-advantaged savings account available to individuals enrolled in a High Deductible Health Plan, offering triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses.

Hourly Rate

The amount an employee earns for each hour of work, commonly used for non-exempt workers, freelancers, and part-time employees.

Income Tax

A government-imposed tax levied on individuals' or entities' earnings, including wages, salaries, investment income, and business profits.

Inflation

The rate at which the general level of prices for goods and services rises over time, eroding the purchasing power of money and reducing the real value of wages.

IRA (Individual Retirement Account)

A US tax-advantaged personal retirement account that individuals can open independently of an employer, available in Traditional (pre-tax) and Roth (after-tax) versions.

Itemized Deduction

Individual deductible expenses that a taxpayer lists separately on their tax return, chosen instead of the standard deduction when the total exceeds the standard amount.

Labor Force Participation Rate

The percentage of the working-age population that is either employed or actively seeking employment, providing a broader view of labor market engagement than the unemployment rate alone.

Life Insurance

Insurance that pays a lump-sum death benefit to designated beneficiaries upon the death of the insured, commonly offered by employers as a basic group benefit.

Living Wage

The income level necessary for a worker to meet basic needs — food, housing, transportation, healthcare — without government assistance, typically higher than the legal minimum wage.

Marginal Tax Rate

The tax rate applied to the last dollar (or unit of currency) of income earned, corresponding to the highest tax bracket into which an individual's income falls.

Maternity Leave

Paid or unpaid leave granted to mothers before and after childbirth, with duration and pay level set by statutory requirements that vary greatly by country.

Median Salary

The middle value in a sorted list of salaries, where half of workers earn more and half earn less — a more representative measure than the average when high earners skew the data.

Medicare

A US federal health insurance program primarily for people aged 65 and older, funded through payroll taxes (1.45% employee + 1.45% employer) with no earnings cap.

Minimum Wage

The lowest hourly, daily, or monthly rate that employers are legally required to pay workers, set by government statute or collective agreement.

Monthly Salary

The gross amount an employee earns each calendar month, calculated by dividing the annual salary by 12 (or the number of pay periods in countries with 13th/14th month pay).

Net Salary

The amount of money an employee actually receives after all deductions — taxes, social security, insurance, and retirement contributions — have been subtracted from gross salary.

NIC (National Insurance Contributions)

A UK payroll tax paid by employees and employers that funds the state pension, NHS, and other social security benefits.

Nominal Wage

The face-value amount of wages paid in current dollars without any adjustment for inflation or changes in the price level.

Non-Compete Clause

A contractual provision that restricts an employee from working for a competing business or starting a competing venture for a specified period and geographic area after leaving the employer.

Non-Disclosure Agreement

A legal contract that prohibits an employee or party from sharing confidential information — such as trade secrets, client lists, or proprietary technology — with outside parties.

Notice Period

The length of time an employee or employer must give before terminating the employment relationship, typically specified in the employment contract or mandated by law.

Offer Letter

A formal document from an employer specifying the terms of employment — including position, salary, benefits, start date, and conditions — provided to a selected candidate.

On-Target Earnings

The total expected annual compensation when an employee meets 100% of their performance targets, combining base salary with target variable pay.

Overtime Pay

Additional compensation paid to employees for hours worked beyond the standard workweek, typically calculated at 1.5× to 2× the regular hourly rate.

Paid Time Off

A consolidated leave policy that combines vacation, sick days, and personal days into a single bank of days that employees can use for any reason.

Parental Leave

Extended leave available to either parent (or both) for child-rearing after the initial maternity/paternity period, often partially paid through social insurance.

Paternity Leave

Paid or unpaid leave granted to fathers or non-birthing partners around the birth or adoption of a child.

PAYE (Pay As You Earn)

A tax withholding system used primarily in the UK, Ireland, and several Commonwealth countries, where the employer deducts income tax from each paycheck before paying the employee.

Pension

A retirement plan that provides regular income payments after retirement, funded by employer contributions, employee contributions, or both, with benefits based on salary and years of service.

Per Diem

A daily allowance paid to employees to cover lodging, meals, and incidental expenses while traveling for work, often based on rates set by government agencies.

Performance Bonus

A variable payment awarded to an employee based on meeting or exceeding predefined performance targets, such as individual KPIs, team goals, or company financial results.

Probation Period

An initial trial period at the start of employment during which either party can end the relationship with shorter notice and fewer procedural requirements than normal.

Profit Sharing

A compensation arrangement in which employees receive a portion of the company's profits, distributed as cash bonuses or contributions to retirement accounts.

Progressive Tax

A tax system where the tax rate increases as the taxable income increases, so higher earners pay a larger percentage of their income in tax.

Property Tax

A tax levied by local governments on real estate and, in some jurisdictions, personal property, based on the assessed value of the property.

Provident Fund

A mandatory government-managed savings scheme, common in Asian countries, where both employers and employees contribute a fixed percentage of salary toward retirement.

Purchasing Power

The quantity of goods and services that can be bought with a unit of currency, reflecting the real value of money after accounting for price levels and inflation.

Purchasing Power Parity (PPP)

An economic theory and exchange-rate adjustment that equalizes the purchasing power of different currencies by accounting for the relative cost of a representative basket of goods.

Real Wage

The purchasing power of wages after adjusting for inflation, showing whether workers can actually buy more goods and services over time.

Relocation Package

A set of benefits and payments provided by an employer to help a new or transferring employee move to a different city or country for work.

Remote Work Benefit

An employer-provided stipend or reimbursement to help employees set up and maintain a productive home office, covering equipment, internet, and workspace expenses.

Required Minimum Distribution (RMD)

The minimum amount that US retirement account holders must withdraw annually from tax-deferred accounts starting at age 73, calculated based on account balance and life expectancy.

Restrictive Covenant

A contractual clause that limits an employee's activities after leaving a company, including non-compete, non-solicitation, non-dealing, and non-disclosure provisions.

Retainer

A fixed, recurring fee paid to a professional or consultant to secure their availability and services over a specified period, regardless of the actual hours worked.

Retention Bonus

A financial incentive paid to key employees to encourage them to remain with the company during critical periods such as mergers, restructurings, or project completions.

RSU (Restricted Stock Units)

A promise by an employer to grant shares of company stock to an employee once specific vesting conditions — typically time-based — are met.

Sabbatical

An extended period of leave — typically weeks to months — offered to long-tenured employees for rest, personal development, travel, or research.

Salary Band

A defined range of pay levels (minimum, midpoint, maximum) for a specific job grade or role, used by organizations to structure and standardize compensation.

Salary Benchmarking

The process of comparing an organization's pay levels to external market data from salary surveys to ensure compensation is competitive for attracting and retaining talent.

Salary Expectation

The compensation range a job candidate is willing to accept for a position, often requested by employers during the application or interview process.

Salary Negotiation

The process of discussing and reaching agreement on compensation between an employer and a current or prospective employee, typically at the time of hiring, promotion, or annual review.

Salary Percentile

A measure indicating the percentage of salaries in a distribution that fall at or below a given value, used to understand where a specific salary ranks relative to peers.

Salary Range

The spread between the minimum and maximum pay offered for a particular job, typically expressed as a low-high range in job postings or compensation structures.

Sales Tax

A consumption tax imposed at the point of final sale to the consumer, collected by the retailer and remitted to the government.

Section 83(b) Election

A US tax election that allows employees to pay income tax on the fair market value of restricted stock at the time of grant rather than at vesting, potentially saving significant taxes if the stock appreciates.

Self-Employment Tax

A US tax that self-employed individuals pay to cover Social Security and Medicare contributions, equivalent to both the employee and employer shares of FICA at a combined rate of 15.3%.

Severance Pay

Compensation provided to an employee upon termination of employment, typically calculated based on length of service and often governed by statute or contract.

Sick Leave

Paid or unpaid time off granted to employees who are ill, injured, or need medical attention, with entitlements varying widely by country and employer.

Signing Bonus

A one-time lump-sum payment offered to a new hire as an incentive to accept a job offer, often used to compensate for forfeited benefits at a previous employer.

Social Security

A government program that provides retirement, disability, and survivor benefits funded through payroll taxes, with the US system (OASDI) being the most well-known example.

Solidarity Surcharge

A supplementary tax levied in Germany (Solidaritätszuschlag) on top of income and corporate tax, originally introduced to fund reunification costs.

Standard Deduction

A fixed amount that taxpayers can subtract from their gross income without needing to itemize individual expenses, simplifying the tax filing process.

Stipend

A fixed, periodic payment made to interns, fellows, trainees, or clergy that is not considered a traditional salary and may be exempt from certain payroll taxes.

Stock Option

A contract giving an employee the right to buy company shares at a predetermined price (strike price) within a specified period, potentially profiting if the stock price rises.

Stock Options

A form of equity compensation that gives employees the right to purchase company shares at a predetermined price (the strike price) after a vesting period.

Stock Purchase Plan

An employer-sponsored program (ESPP) that allows employees to purchase company stock at a discount — typically 15% below market price — through payroll deductions.

Superannuation

Australia's mandatory retirement savings system in which employers must contribute a percentage of an employee's salary (11.5% as of 2025) into a regulated retirement fund.

Take-Home Pay

The amount of money an employee receives after all deductions from their gross salary, synonymous with net salary or net pay.

Tax Avoidance

The legal use of tax laws, deductions, credits, and structures to minimize tax liability within the bounds of the law.

Tax Bracket

A range of income taxed at a specific rate in a progressive tax system; each bracket has a lower threshold, an upper threshold, and an associated tax rate.

Tax Credit

A direct, dollar-for-dollar reduction in tax liability, more valuable than a deduction of the same amount because it reduces tax owed rather than taxable income.

Tax Deduction

An expense or allowance that reduces taxable income, lowering the amount of income subject to tax rather than directly reducing the tax owed.

Tax Evasion

The illegal act of deliberately misrepresenting or concealing information to reduce tax liability, including hiding income, inflating deductions, or failing to file returns.

Tax Exemption

An amount or type of income that is completely excluded from taxation, either for the taxpayer or for specific categories of income.

Tax-Free Allowance

An amount of income that is not subject to income tax, effectively creating a zero-rate band at the bottom of the tax scale.

Tax Haven

A jurisdiction that offers very low or zero tax rates and financial secrecy to attract foreign individuals and businesses seeking to minimize their tax obligations.

Tax-Loss Harvesting

An investment strategy of selling securities at a loss to offset capital gains taxes, commonly used by employees with significant equity compensation.

Tax Refund

A reimbursement from the government when the total tax withheld or prepaid during the year exceeds the actual tax liability calculated on the annual return.

Tax Residency

The jurisdiction in which a person is considered a resident for tax purposes, determining which country has the primary right to tax their worldwide income.

Tax Return

A form filed with the tax authority reporting income, deductions, credits, and calculated tax liability for a specific period, typically one year.

Tax Treaty

A bilateral agreement between two countries that establishes rules for taxing cross-border income, aimed at preventing double taxation and tax evasion.

Tax Year

The 12-month period used for calculating and reporting taxes, which may or may not align with the calendar year depending on the jurisdiction.

Total Compensation

The complete value of everything an employer provides to an employee, including base salary, bonuses, equity, benefits, retirement contributions, and perks.

Transfer Pricing

The pricing of goods, services, or intellectual property exchanged between related entities within a multinational corporation, subject to the arm's-length principle.

Tuition Reimbursement

An employer benefit that pays for part or all of an employee's education expenses, including tuition, books, and fees, often in exchange for a service commitment.

Unemployment Insurance

A government-administered program that provides temporary income replacement to workers who lose their jobs through no fault of their own.

Unemployment Rate

The percentage of the labor force that is actively seeking employment but unable to find work, a key economic indicator of labor market health.

Variable Pay

Any compensation that fluctuates based on performance metrics, sales results, company profitability, or other non-fixed criteria.

VAT (Value Added Tax)

A consumption tax levied at each stage of production and distribution, collected incrementally based on the value added at each stage.

Vesting Schedule

A timeline that determines when an employee gains full ownership of employer-provided benefits such as stock options, RSUs, or retirement contributions.

Vision Insurance

Supplemental insurance that covers eye exams, prescription eyeglasses, and contact lenses, typically offered separately from medical and dental plans.

W-2

A US tax form issued by employers showing an employee's annual wages, tax withholdings, and benefits deductions, used to file federal and state income tax returns.

Wage Compression

A situation where the pay difference between experienced and new employees narrows, often because starting salaries rise with the market while tenured employees' pay stagnates.

Wage Growth

The percentage change in average wages over a period, measured either in nominal terms (current dollars) or real terms (adjusted for inflation).

Withholding Tax

Tax deducted at source by an employer or payer from wages, dividends, or other income before the recipient receives the payment.

Workers' Compensation

A mandatory employer-funded insurance program that provides medical care and wage replacement to employees injured or made ill in the course of their employment.

ZOPA (Zone of Possible Agreement)

The range between the employer's maximum budget and the candidate's minimum acceptable salary, within which a mutually beneficial agreement can be reached.