What is a pay stub?
Every employee's paycheck comes with a pay stub, which is a financial record of the employee's earnings. In the days before digital banking, employees would cash a paper paycheck that was tied to a paper "stub" detailing the breakdown of hours worked, earnings, deductions, and taxes. Many businesses still utilise paper checks, and even with direct deposit, many employees will receive their first paycheck at a new job on paper, along with a real, old-fashioned paper pay stub.
Even though the medium has changed, the premise behind pay stubs remains the same: companies must provide pay stub information so employees may examine the breakdown of each payment.
Also read : Salary of employees - How to discuss pay with your employees
What information should a pay stub contain?
A pay stub typically includes the following:
- Employee information, including name, social security number, and address
- Employer information, including name and address
- The dates of the pay period
- Employee pay rate
- Gross earnings, or their earnings before taxes, employee contributions, and deductions are taken out
- Taxes withheld, such as federal income tax, and if applicable, state or local taxes
- Employee contributions, such as to retirement plans or pensions
- Deductions, such as for health insurance or life insurance
- Net pay, which is the total amount the employee actually takes home in their paycheck after all taxes, contributions, and deductions are subtracted from gross earnings
The hourly rate and hours worked should be listed under gross earnings for hourly employees. The default for salaried staff is 40 hours per week.
If the employee is entitled for overtime, the pay stub should additionally show how many hours of overtime they worked. Any incentives received by an employee would likewise be listed under gross earnings.
Why should employers provide pay stubs?
A pay stub is useful for tax purposes and for resolving any issues with employee pay as an employer.
It offers a record of your employee's salary, assists them in understanding their taxes, contributions, and deductions, and allows them to verify that they were paid correctly. It can also be used as proof of income or work, which is frequently required when asking for a loan or other type of credit.
How to Read a Pay Stub?
- Employee Information: This section includes the employee's name, address, and sometimes their social security number or employee ID.
- Pay Period: The pay stub specifies the start and end dates of the pay period for which the paycheck is issued.
- Gross Earnings: This is the total amount the employee earned before any deductions. It includes regular wages, overtime pay, bonuses, and other forms of compensation.
- Deductions: Deductions are amounts subtracted from the gross earnings to determine the net pay. Common deductions include federal and state taxes, Social Security, Medicare, and various benefits such as health insurance, retirement contributions, and union dues.
- Taxes: The pay stub itemizes the taxes withheld from the employee's earnings, including federal income tax, state income tax (if applicable), Social Security, and Medicare taxes.
- Net Pay: Net pay, also known as take-home pay, is the amount the employee receives after all deductions have been subtracted from gross earnings.
- Year-to-Date (YTD): This section provides a summary of the employee's earnings and deductions for the entire year up to the current pay period.
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