It’s that time of the month: payday.
These days when we receive our paychecks, it’s done digitally more often than not. But no matter how you get your hands on the money you earn, there’s always a little something attached to it to tell you a little bit more about how much you made.
Understanding how to set up and decipher a pay stub is important for both employers and employees.
What is a pay stub?
A pay stub is the part of a paycheck that provides details regarding the amount an employee is being paid. The pay stub shows the amount of money deducted from their paycheck that goes towards taxes, and also reveals the net pay (amount earned after taxes are deducted).
A pay stub should itemize the amount earned for the pay period as well as the year-to-date payroll. Employees can receive their pay stubs electronically through direct deposit or in the mail on paper. Note that while federal law does not require that employers provide a pay stub to employees, there are some state laws that do.
The importance of a pay stub
Pay stubs are important for a number of reasons, but first and foremost being that it serves as a record for both employee and employer. It ensures that the company is paying the money that was promised to the employee and proves that the money that should have been deducted for taxes and other fees was truly deducted.
Overall, pay stubs are, and have been, an effective way to track and maintain accuracy and efficiency.
Below, we’ll go over 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 month.
On a pay stub, totals are typically displayed both by that pay period as well as the year-to-date total. Essential information includes the company’s name and address, the employee’s name, address, and 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 are the total amount of wages earned before any deductions.
On a pay stub, it’s important to list the hours an employee works. If an employee works a standard amount 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.
NOTE: Time tracking software can help employers and employees track those hours.
The pay stub should specify the amount of money deducted from gross wages to pay their federal and state taxes. Note that tax rates vary by state.
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.
If an employer offers a retirement plan like a 401k or pension, an employees 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 amount of those 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.
After all deductions are taken, net pay represents the amount of money that the employee can actually see being added to their account, while the lines above serve as an explanation for 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, free for you to download, so that you can see which elements go where.
Yay for payday!
Regardless of the way a pay stub is delivered to an employee, the importance is always there. Being able to keep everything organized and documented is priceless.
Not a fan of our template? No problem. Check out some of the best payroll software out there to help you out.