Last Updated on December 15, 2023
A pay stub, a document wthat sums up how an employee’s total remuneration was distributed during a particular pay period, comes as an attachment to a worker’s paycheck. It’s a summary of an employee’s earnings, their taxes, and all the deductions made. A pay stub can be availed electronically or in a printed format. The document comes in handy for employees and employers as well. Outlined below is everything you need to know about pay stubs.
Why prepare pay stubs
A pay stub or a check stub is prepared for various reasons, including:
- Proof of income for employees: Employees may be required to provide proof of income when leasing a new house or applying for a loan. This means they might approach their employers to get the proof in the form of pay stubs
- Transparency for employees and employers: Check stubs enable employees to clearly understand their earnings while ensuring they receive the accurate paycheck amount, which helps build employee trust in their employers. Also, employers can use pay stubs to deal with discrepancies in a staff’s pay
- Track company expenses: Since employee payments are a substantial part of business expenditure, generating pay stubs can help make it easier to monitor company expenses
- Ease the tax season: The information in employee pay stubs comes in handy during the tax season. Keeping these records smoothens the tax filing process
Components of a pay stub
Besides basic employee personal details like name, ID, and Social Security number, a pay stub displays a lot of information, including:
- Pay period: It refers to the calendar dates your paycheck covers
- Year to date: It’s the total amount an employee earns in a calendar year and is normally found next to the gross pay, deductions, and net pay
- Hours worked: It lists the hours an employee has worked during a particular pay period. This list is common for part-time or hourly workers
- Gross pay: It’s the amount an employee earns before any withholdings or deductions are taken out
- Deductions: These include insurance premiums, taxes, and other program costs deducted from an employee’s total gross earnings, including Medicare
- Net income/pay: These are the total earnings earned less the amount removed from taxes and deductions
Pay stub deductions
State and federal deductions account for most of the difference between an employee’s net income and gross income, including:
- Federal income taxes: The withheld amount depends on how much an employee earns and the details they provide their employer when completing the W4 form
- Social Security: Every working American is required to contribute a part of their income to the Social Security Fund, which offers benefits to the current beneficiaries
- State taxes: Based on where an employee resides, they may have to pay state income tax
- Insurance: This could be the life, dental, or medical insurance you’ve signed up through your employer
- Medicare: Every working American contributes to this insurance plan that offers medical benefits to citizens aged 65 and above, and others with specific disabilities
- Retirement savings plan: This may include the 401K plan and others you’ve signed up for
Pay stub best practices
Pay stubs that aren’t accurately prepared may increase legal liability risk and confuse workers. To avoid these issues, employers should consider:
- Understanding all local and state requirements
- Including all the necessary information
- Ensuring pay stubs are easy to access
- Working with payroll service providers
Endnote
Pay stubs come in handy for both employer and employee use. Consider familiarizing yourself with everything you need about these documents to avoid pay stub errors.
