Back to Basics: What Is a Pay Stub?
If you are new to the business world and find yourself asking "What is a pay stub and how do I fill one out?", you've come to the right place. A pay stub is simply a form which details the difference between what you earn and what you actually receive. It shows the total amount paid out by a company to the employee, less any taxes withheld and any voluntary deductions, as well as the final take-home figure.
It is advisable to keep copies of your pay stubs for at least one year after you receive them. You may be wondering, “what is a pay stub’s use to me?’. Apart from helping you to understand the difference between your gross and net pay, a pay stub serves as an important reference.
Why you need to keep copies of your pay stubs
There are many circumstances in which you will need copies of all your paystubs, some of these are:
- As proof of employment
- To secure credit e.g. a retail store card, a credit card or home or car finance.
- To be accepted as a tenant.
- As proof of payments for income and tax return filing
- To provide proof of payment to employees or contract workers
- As proof of required deductions
- For tax purposes
Pay stubs prove that both income and payments have been consistent in the case of both employer and employee. Without this information, your loan or credit application could be declined, or you could find yourself in hot water with the IRS. If you are a business owner or contractor and do not have a bookkeeper to do your pay stubs for you, you need to compile them yourself.
How can I create my own pay stubs?
If you need to create pay stubs for your employees or for yourself you can do this easily with our online pay stub generator.
What is a pay stub generator?
This handy tool helps you to understand what a pay stub is made up of and how the calculations are done. All pay stubs created online with us are checked by a team of qualified accountants, so you can be sure that they are accurate and legal. Let’s have a look at how it works by going through the process step by step. Once you have all the information in hand, it only takes 2 minutes to complete and is easy to do.
Step One – Getting Started
Click on the link to open our pay stub generator page.
Step Two – State of Residency
Select the state that you live in from the drop-down menu. Some states impose a personal income tax on those who live and work there. This amount needs to be indicated on your pay stub and will be calculated for you.
Step Three – The Details
Are you creating a pay stub for one of your employees, or for yourself as an independent contractor? Check the box that applies to you.
What is the pay stub recipient’s name? Fill in either your name or the employee’s name here. Fill in the applicable social security number. You can fill in address details, the number of dependents, and other extra information as it applies. Fill in your company details.
Step Four – Salary Information
Hours worked, as well as the rate of pay per hour, need to be included on hourly-paid workers’ pay stubs. This is not necessary for employees who are paid according to a fixed monthly or weekly rate but can be included if preferred. Fill in a new section for each additional amount earned e.g. bonuses, commission or overtime pay.
Step Five – Deductions
What is a pay stub deduction? These are amounts which are subtracted from the employee’s gross pay before they are remunerated. On your pay stub, create a separate line for each type of tax, with the amount deducted for the current pay period as well as year-to-date. Examples of pay stub deductions are:
Government agencies such as the IRS and state tax departments impose taxes according to your or your employees’ earnings. These need to be deducted before the employee is paid out what they earned for the pay period. Factors such as marital status, retirement contributions, health insurance and exemptions will determine the amount of federal taxes that you need to pay. Exemptions include the number of dependents and the minimum taxable wage amount.
See the Internal Revenue Services (IRS) website for more information on how to calculate any federal taxes and other amounts that need to be deducted. Some areas may charge local taxes but this is uncommon. Further deductions may be made according to a written agreement with the employee in regard to insurance and retirement plans.
According to the IRS, employers are responsible for withholding half of the Medicare Tax rate from an employees’ earnings. The other half must be paid by the employer. Where earnings exceed $200,000 per year, and additional 0.9% is payable to Medicare.
Likewise, the current rate for social security deductions is 6.2% for the employer and 6.2% for the employee. The base rate for Social Security deductions is $127,200 annually.
Retirement pension, or 401(k) plan contribution
Employer-sponsored 401(k) plans may be deducted before tax, while the Roth 401(k) is deducted after tax.
If you have an agreement with your employees regarding life insurance premiums, you can deduct the relevant amount from their pay before tax. This amount usually consists of a base rate plus extra for any additional members of their family which the employee would like to include.
Occasionally you may be required to deduct a wage garnishment from an employee’s earnings. Wage garnishments are amounts stipulated by the court which must be deducted regularly from an employee’s salary until they are paid off. These usually involve child support or loan repayments. If you are in any doubt about how to calculate the necessary deductions, consult your state Department of Labor before you start employing workers or give us a call and we can advise you on where to start.
Step 6 – You’re done
What is a pay stub without a check number? Pretty worthless. Our online form creates an automatic check number for our pay stub. You can amend this to reflect the correct number according to your records. Submit the information, choose one of our templates to suit your style, submit your payment and then download and print your pay stub.
Repeat according to the number of pay stubs that you require. Now all you need to do is submit the information, choose one of our templates to suit your style, submit your payment and then download and print your pay stub. Repeat according to the number of pay stubs that you require. Nothing could be simpler.
If you get stuck along the way, our consultants are standing by to assist you every step of the way. You can contact us anytime via live chat or give us a call during office hours.