Running a small business comes with many responsibilities, and managing payroll is one of the most crucial tasks.

But when it comes to pay stubs, are you confident you’re providing your employees with all the essential information?

Also known as payslips, pay statements or wage statements, pay stubs aren’t just a piece of paper. They’re a record of earnings, deductions, and compliance that can protect your business and build trust with your team. You can generate a pay stub on your own using templates or ease the process with payroll software. Employees can receive their pay stubs electronically through direct deposit or in the mail on paper. Sounds difficult? Don't worry. 

In this guide, we’ll explain everything you need to know about creating and managing pay stubs and ensuring your business stays organized and compliant.

Why should you give pay stub to your employees?

Providing pay stubs to your employees is more than just a best practice—it’s a smart business move. Here’s why:

• Transparency and trust: When employees or contractors receive a detailed pay stub, they can clearly see how their earnings are calculated, including deductions for taxes, benefits, and other withholdings. This transparency helps build trust and reduces the chances of payroll disputes.
• Legal compliance: While federal law doesn’t require employers to provide pay stubs, many states have specific regulations that mandate it. By issuing pay stubs, you ensure compliance with state laws and avoid potential penalties.
• Record keeping: Pay stubs serve as an official record for both you and your employees. They can be essential when resolving disputes, preparing for audits, or verifying employment history.
• Employee financial planning: Pay stubs give employees a clear breakdown of their earnings, helping them understand their finances better. This is especially important for budgeting, applying for loans, or filing taxes.
• Professionalism: Consistently providing pay stubs reflects well on your business. It shows that you take payroll seriously and are committed to running an organized and responsible operation.

Overall, pay stubs are an effective way to track and maintain accuracy and efficiency. Below is the general information to include on a pay stub.

What information should be included in a pay stub?

A pay stub is there to give employees information about the money they’ve earned for the most recent pay period, whether that be every week, two weeks, or a month. Totals are typically displayed both by that pay period and the year-to-date total.

Essential information includes

• the company’s name and address
• the employee’s name
• address
• partial SSN for identification purposes.

In addition, it lists categories that are withheld from gross pay as well as their specific amounts for both the pay period and the year.

To keep things organized, each of these categories should be listed on their own line on a pay stub. Below are some of the most common categories to see listed on a pay stub.

Gross wages

Gross wages are the total amount of wages earned before any deductions.

Hours worked

It’s important to list the hours an employee works on a pay stub. If an employee works a standard number of hours and is paid a salary, the hourly number will be consistent each pay period. But if the employee is paid hourly, that number will change each time a pay period arises.

Taxes

The pay stub should specify the amount of money deducted from gross wages to pay federal and state taxes, which commonly consist of federal income tax, Federal Insurance Contribution Act (FICA) taxes (Medicare and Social Security), and state and local taxes, if applicable. Note that tax rates vary by state.

Deductions

Employees may contribute a percentage of their gross wages to health, dental, vision, or other insurance options provided by your company. The amount that the employee shares should be included on the pay stub. Any other deductions like wage garnishment and union fees are also included. 

Employer contributions

If an employer offers a retirement plan like a 401k or pension, an employee's contributions to those accounts should also appear on a pay stub.

Paid time off (PTO)

If an employer offers the option for PTO, the total number of days taken by an employee should be listed on the pay stub so that employees can note how many days they have left without having to ask a manager or employee in HR.

Net pay

After all deductions are taken, net pay represents the amount of money that the employee can actually see being added to their account, and the lines above explain that number.

Pay stub template

We've gone over everything that needs to be included in a pay stub, but it can be difficult to visualize exactly how it's all laid out. Luckily, we've designed a template that is free for you to download so that you can see which elements go where. 

Paycheck vs. pay stub

People often confuse "paycheck" and "pay stub." But they refer to different aspects of the payroll process:

• Paycheck: This is the actual payment an employee receives for their work, either as a physical check or through direct deposit. A paycheck represents the total earnings after all deductions, allowing employees to access their net pay.
• Pay stub: This is a detailed breakdown of an employee’s earnings and deductions for a specific pay period. It shows information like gross pay, taxes, benefits, and net pay. Even if payment is made via direct deposit, employees typically receive a pay stub to understand how their earnings were calculated.

In summary, a paycheck is the payment itself, while a pay stub is a record that explains the details behind the payment. Both are essential for transparency and record-keeping

Frequently asked questions (FAQ) on pay stub

Q. What is a pay stub?

A. A pay stub, also known as a paycheck stub or pay slip, is a document that provides detailed information about an employee’s earnings and deductions for a specific pay period. It includes details like gross income, taxes withheld, and net pay.

Q. What information is typically included on a pay stub?

A. A pay stub typically includes:

• Gross earnings: Total income before deductions.
• Deductions: Taxes, health insurance, retirement contributions, etc.
• Net pay: The amount an employee takes home after deductions.

Q. Are employers legally required to provide pay stubs?

A. Yes, in many states, employers are legally required to provide pay stubs, either in physical or digital form. Understanding your state’s specific requirements is crucial to ensuring compliance and avoiding potential penalties.

Q. How do I get pay stubs?

Employers are responsible for providing employees with a monthly pay stub in either electronic or printed form. Business owners can use payroll software to generate pay stubs automatically. Many payroll solutions offer templates that comply with state-specific requirements, making it easier to ensure accuracy and compliance.

Q. How can I read a pay stub?

A. To read your pay stub, start with the gross earnings, then review the deductions, such as taxes, insurance, and retirement contributions. The final figure is your net pay, which is your actual take-home pay.

Yay for payday!

Managing payroll is a critical part of running a successful small business, and providing clear, accurate pay stubs is a key component of that process. Whether you’re new to payroll or looking to streamline your process, use the pay stub template and simplify the task. By prioritizing proper documentation, you’re not just avoiding potential issues but also fostering a more professional and trustworthy workplace.

Want more? Learn about the best practices for payroll management with this free G2 guide. 

This article was originally published in 2019 and has been updated with new information.