What Are Pay Stubs? A Quick Explanation
By Goran Dautovic
June 19, 2023
While every business owner likes to think that their employees come to work solely to be in the company of a great boss, the truth is that getting paid is their main incentive. Therefore, their payment stub (also called payslip or paycheck stub) is one of their priorities – and must become one of yours too!
Whether using payroll software or the manual method, it’s imperative that you can answer key questions like “what are pay stubs?”, “why are paystubs important”, and “what should be included on an employee pay stub?” as a part of your successful HR scheme. This quick guide will provide all you need to know.
Pay Stubs Explained
Merriam-Webster defines a pay stub as: “a piece of paper that is given to an employee with each paycheck and that shows the amount of money that the employee earned and the amount that was removed for taxes, insurance costs, etc.”, although it can now be an electronic file instead of an actual paper stub.
In essence, it’s an attachment that is connected to the paycheck. It details key information relating to the specific pay period (weekly, biweekly, or monthly) in one column while also specifying the year-to-date (YTD) figures for the tax year.
Payment stubs are not technically a legal requirement for employers under federal law. However, most states have them factored into their regional legislations. Meanwhile, the Fair Labor Standards Act states that all business owners must record the number of hours worked by each employee.
Why Are Pay Stubs Important?
From a company’s perspective, pay stubs are a key tool for recording employee gross wages and managing tax requirements. Moreover, they can help you quickly rectify any mistakes noticed by an employee or disprove false allegations and disputes.
When used as part of the onboarding process, it encourages optimal organization from the start while also making the individual feel like they belong. Other benefits for all workers, new or otherwise, include:
- Having a better understanding of their earnings
- Gaining clear insight into their deductions
- Knowing that they are fairly treated
- Seeing how their taxes and 401(k) contributions are handled
- Proving thier income when applying for mortgages and similar
Pay stubs are a simple yet powerful tool for recording all relevant info for the employee pay period. Statistics show the correlation between happy workers and increased productivity; a defined pay slip strategy will ensure your employees get paid correctly, which is one of the keys to worker satisfaction. All companies across all sectors should take this into consideration.
What’s Included in an Employee Pay Stub?
When using the best payroll and HR software providers, it’s likely that the majority of payslip data will be clear. You simply need to fill in the appropriate fields. In many cases, you need to enter the hourly rate of pay and the number of hours worked. All subsequent calculations relating to taxes and deductions for calculating your paycheck can be automated. Likewise, YTD records can be instantly calculated from the individual’s files and previous pay slips.
Many businesses and workers also ask “what kind of paper are paystubs printed on?”. While the attachment is often connected to the check with perforation, the type of paper used can be standard – as well as business checks or software-friendly stubs – as there are no specific requirements. Ultimately, all pay stubs should be clear, as the content is far more important than the format.
Employers and employees should know what to look for on a payment stub. Firstly, there will be two separate columns: current pay duration and YTD. As for the items included under each, below is an overview of the key features.
Basic Info
Every paycheck should contain general information relating to both parties (company and worker) as well as the time frame of the employee pay period. The company name and address will be added, along with the name, address, and Social Security number of the employee. It can be a part of the onboarding process to gather all relevant details right away. Many software packages allow employees to update their info as and when required.
Wages
A gross wages section should be the first main section under the general info. It sets out the gross income earned by the employee during the given period. The employee gross wages will set out the person’s hourly wage as well as the hours worked during this time. Those figures are then multiplied to produce the correct figure.
Where applicable, overtime pay will also feature under this section. Many employees have a different hourly pay for overtime hours, so it needs to be shown as a separate row. It also ensures that employees have accurate pay slips when applying for credit. Additional earnings and accrued time off will also be listed in this section.
Deductions
Deductions are the next group of items to feature. Voluntary deductions pay stub items and involuntary deductions pay stub elements are covered under this section. All deductions should be listed in an itemized fashion, with clear information for the individual pay period and YTD.
Income tax deductions will include federal tax, state tax withholdings, and local taxes, as well as Social Security, Medicare, and other relevant features. The majority are involuntary deductions. While employees are forced to pay them, it is the employer’s responsibility to withhold them and subsequently pay them on behalf of the employee.
Other deductions can cover employee benefits like health insurance or retirement savings, while charitable contributions fall under the umbrella of voluntary deductions. Wage garnishments for outside issues like child support payments are involuntary.
Employer Contributions
Employer contributions are items that the company has paid in relation to the worker’s employment and taxes. An employer’s portion of the Federal Insurance Contributions Act (FICA) is the most common item to appear in this section. However, other items like matched pension contributions may feature.
Insurance premiums can also be added here. While they are not a form of paycheck stubs taxes or deductions that reduce a person’s overall pay, these items must always be listed. It provides transparency for the employee and ensures that the company’s files and accounts all sync up. It’s another reminder of the support you provide your workers, which could otherwise go unappreciated.
Net Pay Pay Stubs
Finally, the bottom of the employee’s pay check will show the net pay, also known as take-home pay. This figure is the money that they actually receive during the employee pay period after their income tax deductions and other commitments have been taken into account.
When calculating your paycheck, it’s important to know the gross and net pay, along with all the details of deductions. It’s essential for allowing workers to know exactly what they are paid, how much they will take home, and understand how much they’ve been taxed. In most cases, this is the figure that employees will look at as soon as they receive their paycheck.
Conclusion
The significance of handling payment slips should by no means be overlooked by any employer or HR department due to their role in maintaining a happy workforce. After all, a content and productive team of employees is the greatest asset a company can have.
Now that you can answer key questions like “what are pay stubs?” and “what should be included on a payslip stub?”, there’s no excuse for getting it wrong. Whether using payroll software or not, the results for your business will be excellent.