What Is a Pay Stub? A Complete Guide for Employers

This period can be weekly, bi-weekly, monthly, or semi-monthly, varying based on the employer’s operational needs and bookkeeping and payroll services payroll strategy. The purpose of a pay stub is to help your employees understand how their compensation is calculated and where their money is going. It allows them to review and verify their earnings, deductions, and benefits.

Benefits of Pay Stubs

Many employers offer retirement plans, such as 401(k)s or pensions, as a benefit to their employees. These plans allow employees to save for retirement by setting aside a portion of their pay on a tax-deferred basis. Employers may also contribute to these plans on behalf of their employees.

Miscellaneous Deductions:

Each pay stub should have some basic elements that are commonly found on all pay stubs. Pay stubs typically include the amount per pay period and a year-to-date value. Prorated compensation may result from fewer work hours due to holidays within a pay period. The contributions are to Social Security and Medicare, and they’re listed separately on pay stubs.

• Child support and large debt payments are example scenarios where courts may require this situation.
• Resolving payroll issues early is important to establish trust among your employees and avoid compensation lawsuits and penalties.
• A pay stub is essential to payroll processing and helps employees understand their gross earnings, deductions, and net salary.
• A prorated salary calculates the amount of money an employee is paid.
• Keep it safe like any other important document as it helps you catch errors, budget well, and know your rights.

The prorated salary accounts for the days when they didn’t work. A prorated salary calculates the amount of money an employee is paid. This is according to the number of hours or days they worked in the particular pay cycle.

Table of Contents

• They act like a detailed receipt for each paycheck given to an employee.
• It ensures that tipped employees earn at least minimum wage between their hourly rate, which is often quite low, and their tips.
• This includes the base salary, overtime pay, commissions, bonuses, and any other income.
• They serve as proof of income at several points, including when employees apply for loans from banks, rent a property or building, or avail of state benefits.
• If you ever have to lay off employees, they might need recent proof of pay to file for unemployment insurance.

This could be costly because a contractor pays social security and Medicare taxes on their own. In contrast, an employer pays half of those taxes for employees. If delivered digitally, they must ensure the employee has access to a printer. A pay stub shows identifying information about your employee and details on their wages. Here are some examples of things you’ll find on their pay stubs. If you are a non-exempt employee that qualifies for overtime pay, you should see a pay rate 1.5 times greater than your regular pay rate for weeks you work over 40 hours.

• If an employee feels like their net pay should be higher, you can have them look at the information on their pay stubs.
• If your employee has direct deposit set up, the paycheck net pay would match the amount shown on the direct deposit.
• More detailed definitions can be found in accounting textbooks or from an accounting professional.
• Garnishments only apply to employees who are legally obligated to withhold a portion of their earnings by a court.
• Pay stubs can satisfy the record-keeping requirements of the FLSA and keep employees well informed about their pay.

Typically, while hourly employees are paid weekly or biweekly, monthly payment is generally more common for salaried employees. Once you know their yearly pay, divide that by the total number of workdays in a year. However, you may also need to know the hourly rate, depending on your pay structure. For this, divide the yearly compensation by the total number of hours worked in a year.

What Information Is Included on a Pay Stub?

Most are taxable, and employees shouldn’t be unpleasantly surprised by that at tax time. You would do some workers a great service by talking them through the sections to explain where a portion of their money goes. If you haven’t used pay stubs in a while, they’re worth brushing up on. Rule No. 12 is the one that makes manually generated pay stubs the stuff of nightmares for business owners. A pay stub augments the paycheck stub with finer details of how the net pay arrived. He’s provided services to populations in excess of 100,000 employees and previously worked with Walgreens Boots Alliance, PwC, Serco, and Essentra PLC.

Do states require employers to provide pay stubs?

This Certified Bookkeeper option allows you to stress less about compliance knowing you have the help of experts. Employers have to provide a way for their employees to access their pay information. Depending on the state, providing your employee pay stubs is a necessary part of being compliant.

Next steps for streamlining your payroll process

Different states have different requirements for employees’ pay stubs. Your pay stubs should come with your physical paycheck or be available to view and download online. Your employer should be able to provide information on how to access your pay stub. Your pay stub should always show any period when employees were paid while taking time off. This is important for both employers and employees in case there is a dispute with the payment amount.

More Resources on Small Business Accounting

Regularly checking your pay stubs helps you catch mistakes early. Whether it’s a wrong deduction, a missing bonus, or a pay miscalculation, spotting these issues fast allows you fix them before they cause bigger problems. Unexpected changes in your pay from one period to the next can mean there’s an error that needs looking into. Have you ever looked at your paycheck and felt lost in all those numbers?

Still, you’ll want to consider leveraging payroll software as you scale. It’ll make logistics like creating pay stubs ridiculously easy. Adding more employees increases the complexity and risks of making pay stubs. This makes you more vulnerable to payroll errors like typos for critical information. Data from state-level studies show that between 10% to 20% of employers misclassify workers as independent contractors.