What is a Pay Stub? Everything You Need to Know

What is a pay stub

To create a pay stub, the first step is to have each employee complete a Form W-4. Once you have a completed W-4, you’ll need to collect additional information for the pay stub. If all of this still seems overwhelming, you might want to consider purchasing payroll software or hiring a payroll service that will do the work for you. Zenefits has easy to use payroll software that will keep you compliant and your records up-to-date. Regardless of where you do business, your employees should receive a pay stub with each paycheck.

What is a pay stub

“Gross wages” refers to an employee’s full pay before taxes and other deductions. HR and payroll staff are usually responsible for managing pay stubs each pay cycle. However, some companies opt to outsource payroll to a trusted third party for ease. This is a popular option for smaller businesses or companies that hire team members worldwide. Pay stubs are important record-keeping documents that benefit both you and your team members.

What Are Pay Stubs Used For?

This could be costly because a contractor pays social security and Medicare taxes on their own. If you’re new to payroll as an employer, making sure you calculate everything correctly might seem overwhelming at first. You’ve experienced payroll as an employee, but now you’re the one in control. You’re in charge of keeping up with changing tax laws, correctly classifying workers, and recordkeeping for compliance. If you are unsure about login information or where to find a pay stub, you can ask your manager or someone in the human resources department to assist you. They will likely provide you with online access or give you physical copies of the pay stubs for any given pay period.

  • It’s important for both the employer and employee to keep paper pay stubs and copies safe for future reference.
  • Some companies generate their paystubs internally and some decide to outsource such payroll tasks to a third party such as an accountancy firm or specialist payroll firm.
  • Many jurisdictions require employees to pay taxes and contributions, such as income tax, national insurance, and unemployment tax.
  • Horizons is a global PEO (“Professional Employer Organization”) which means we act as the ’employer of record’ of our clients’ international employees.

The important thing is that the pay stub accurately shows major details like gross pay, major deductions, employer contributions, and net wages. Sometimes, the amount of federal income tax deducted from your earnings may be too high or too low. This could be due to a job change or the birth of a child, for instance. If your circumstances change, then you should inform the IRS or your company’s human resources (HR) department as soon as possible. If you have paid too much tax, they will calculate the amount you are due and pay you a refund.

The federal government does not have a pay stub law that all
states must follow. However, the Fair Labor Standards Act requires employers to
“keep employee
time and pay records”. Your state’s Department of Labor website determines the
pay stub rules for your state.

More Resources on Small Business Accounting

It adds an element of transparency about how their gross pay is being allocated. And pay stubs will be useful for workers who need to prove gross wages when buying a car or getting a credit card. A pay stub example you see online will have varying information from the one you choose.

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Based on the allowances on her W-4, your company should
withhold 20% of her gross pay ($462) for federal taxes, and 5% ($115) for state
taxes. Sally also pays $50 each pay period for her share of the company health
insurance plan. As mentioned above, your pay stub will show you your wages and what you have made and any taxes taken off.

What Is A Pay Stub—And What Does It Need To Include?

The total dollar amount of
all pay stubs should be compared to the wage expenses and other labor costs in
your accounting records. Net pay, or take-home pay, is the amount left over after subtracting taxes and deductions from the employee’s gross pay. If the employee receives nontaxable income, include that income after subtracting all taxes and deductions. Gross wages are how much money you owe an employee before you take out any taxes and deductions.

What is a pay stub

The Social Security fund provides benefits to current Social Security recipients. If you don’t want to spend hours doing accounting work every pay period, another option you have is to choose an online payroll service. This option allows you to stress less about compliance knowing you have the help of experts. Employers must get consent from employees before changing away from paper paycheck stubs. Also, in case your business gets an involuntary audit by the IRS, having these records will make a big difference. Staying compliant with the Fair Labor Standards Act also requires you to keep a record of employees’ hours worked and wages.

Employee Taxes & Deductions

Keep a copy of each payroll stub for your employee payroll records. Across the USA, some states don’t require employers to generate pay stubs, while in other states pay stubs are mandatory, but the rules vary on what details must be included. What is a pay stub Companies should check with local laws to ensure they are providing pay stubs displaying accurate information when they are required to do so. However, in the absence of federal law, many states have statutes pertaining to pay statements.

Pay stubs may also be required as proof of earnings or employment in certain situations such as renting or buying a home. Each pay stub includes year-to-date fields for each withholding category so you can track how much money you’ve paid for taxes, Social Security and Medicare throughout the year. Many employers include a similar listing for contributions to retirement savings plans and health plans.

A pay stub can also be called a paycheck stub, salary statement, earnings statement, or pay slip. This guide is intended to be used as a starting point in analyzing an employer’s payroll obligations and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services. It also may be referred to as a paycheck stub, wage statement or pay slip. Some people don’t pay attention to their pay stubs and throw it away without so much as a quick read through. Try to keep you pay stubs at least until the end of the tax year.

  • Be sure to check the rules around electronic payslips for the states in which your business operates.
  • Banks and real estate agents often accept paycheck stubs as proof of income, allowing employees to rent and buy property or apply for a loan.
  • There is no federal law that requires employers to provide employees with pay stubs, though most states do require employers to provide a pay stub.
  • Companies should check with local laws to ensure they are providing pay stubs displaying accurate information when they are required to do so.

Deductions shows any additional deductions that might be taken out of your paycheck after tax, like group life or disability insurance. If your employee has direct deposit set up, the paycheck net pay would match the amount shown on the direct deposit. A pay stub is a tool one can use to understand how much money you have coming in and where your money is going.

The information you must include on a paycheck stub can also vary by state. While there is no federal law requiring employers to provide pay stubs, only nine states have left the matter unresolved. The other 41 have requirements that include how to distribute pay stubs and who gets to decide—always the employee. If your payroll or HR software offers a self-service portal for employees, they can typically access their payslips online this way. However, some states don’t consider electronic pay stubs to be sufficient. This avoids any confusion as both parties are able to clearly see how the calculations have been made.

The Fair Standards Labor Act (FSLA) requires employers to keep records of how many hours an employee has worked and the amount of money they were paid. But, it does not require that employers share this information with their employees. You may also make additional employer contributions, like contributing to insurance premiums or your employee’s retirement or savings plan. Just like gross wages, information on deductions should be included for both the individual pay period and year-to-date. Pay stubs typically include information on both the employee (including name, address, and social security number) and the employer (including company name and address). If you're using a payroll app—like Hourly—employee information would be easily accessible elsewhere for the worker to view and amend if needed.

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Banks and real estate agents often accept paycheck stubs as proof of income, allowing employees to rent and buy property or apply for a loan. It’s generally good practice for employees to save pay statements for at least one year. By doing so, they can verify the accuracy of their annual Form W-2, Wage and Tax Statement when preparing their individual income tax returns. Employers usually provide pay statements because it’s required by a state or local jurisdiction. Employers also pay 7.65%, and the cost is deducted as a business expense. Workers determine their federal income tax withholdings amounts
by completing Form W-4, and each state has a tax withholding form.