Thank Goodness It's Payday: What's Included On Your Pay Stub?
A pay stub or payslip itemizes wages and taxes for your employees to see and understand clearly. It is a useful tool for employers and employees alike. As an employee, it's useful to make sure you are being paid correctly. As an employer, they can help settle any discrepancies that may arise.
If you pay your employees with paper checks, you should make sure the payslip is attached to the check. If you pay via direct deposit, you should provide a printable, online pay stub. What information should be included on a stub? Read on to find out all you need to know.
What Should Be Included?
The information on the pay stub should help employees keep track of their wages and withholdings. This includes the following:
- Gross wages
- Withholdings, including taxes, deductions, and contributions
- Net pay
This is the payment owed to an employee before withholdings and deductions. If you have salaried employees, this is the yearly amount you offer them. The gross pay for each period will be their salary divided by the number of pay periods in a year.
For hourly employees, this is the hourly wage multiplied by the number of hours worked. For these employees, this section will show their hourly rate and hours worked. On a pay stub, you should include the gross pay for that period as well as the year-to-date pay.
This section will outline how much money is being taken out of the employee's paycheck for tax purposes and other contributions. This section will also include totals for a specific pay period and year-to-date totals.
It will outline federal taxes, state taxes, and local taxes withheld. State and local tax rates will depend on the employee's residence.
Some states and municipalities have no income tax. Some have a flat tax rate, meaning everyone pays the same tax regardless of earnings. Some have progressive tax rates similar to the federal tax rates. State income taxes can be confusing. If an employee works in one state but lives in another, both states cannot tax the income.
If you work in a state without income tax, you will still have to pay income taxes in your home state. The exception is if your home state also has no income tax.
The Supreme Court determined that only one state can tax a single income. You may need to do more research and speak with your employer about which state to pay taxes to.
Federal taxes withheld will depend on the individual's tax bracket, determined by their yearly earnings. These rates vary from 10-37%. These rates change frequently, so make sure you understand any changes when they occur.
Benefits and Other Deductions
An employee's wages may be subject to other deductions. As an employer, you may offer health insurance or other benefits. Employees will contribute out of their paycheck. This information should be on the pay stub.
Employees will make contributions to Medicare and Social Security. This will show up as FICA on a payslip. FICA stands for Federal Insurance Contributions Act. 6.2% of every employee's paycheck will go toward Social Security. The US government established the Social Security program in 1935 to provide a social safety net.
The money paid goes into a trust fund. This fund provides benefits for those with disabilities, retirees, and surviving dependents of a deceased worker. Each worker will contribute 1.5% of their wages to Medicare. Medicare is a program that provides health benefits to people over 65 and people with certain disabilities.
If you offer a retirement plan, such as a 401k, 403b, or pension, this information will appear. These contributions will vary depending on the individual employer's benefits. An employee can often choose to participate or not.
If an employee has any debts that are paid directly out of their paycheck, this information will be included. This includes child support and tax bills. If you owe an employee any backpay due to a change in employment status, this information should be listed.
Employees do not receive the whole of their gross earnings. There should be a net pay section, which outlines the amount of money the employee receives after all deductions and withholdings are made.
Similar to gross wages and withholdings, this will be divided into net pay for a specific pay period and year-to-date totals. In short, this is the actual paycheck an employee receives.
Why Should You Provide a Pay Stub?
Payslips come in handy beyond payroll discrepancies. When an employee starts a new job, they need to be able to make sure all deductions and withholdings are correct. They should check the first paycheck to make sure.
The employee should be sure to properly fill out their W-4. This will ensure that all dependants are accounted for. This will determine how much is withheld from each paycheck.
Pay stubs are also useful when someone goes to apply for a loan, mortgage, or rental agreement. They may be asked to show a copy of their pay stub to verify employment and income. When tax season comes, it is important to keep all pay stubs in the event of a discrepancy.
Essentially, payslips are used to verify accuracy for both employers and employees. Mistakes happen, and it's best to have a record to make amendments and changes as needed.
Understand This Vital Information
As an employer, your employees rely on you for financial stability. You owe them certain duties. One of these important duties is providing a pay stub with every paycheck. Whether you pay with paper or online, you should provide one that is easy to read and printable.
Now that you understand what information should be included, you need to know how you can make one. With an easy to use online paystub generator, you can provide this information to your employees effectively. Check out our generator to get started making your stub!