Each pay period you pay your employees, you are compensating them for their work, regardless of whether they are exempt or hourly.
If your employees get a paycheck or a direct deposit only, then they can’t see the net pay and might ask you how it came about. What percentage of their pay was taken out for tax purposes? How many hours were they paid for during the pay period Or, how much have you paid them this year?
This is where a pay slip comes in. The pay stubs provide key insight into your employees’ gross pay, and the deductions that are taken from their checks each pay period.
But what exactly is a stub for? What information will it provide your employees? As a small business owner, do you have to provide your employees with a pay stub along with every direct deposit or paycheck?
A paycheck stub or pay stub is an attachment to your paycheck that includes details about an employee’s current and YTD pay. If your employees receive physical checks, the pay stub on paper is attached to their paper check. Their paycheck stub is digital if your team pays electronically. Pay stubs give your employees a better understanding of their compensation. This includes their rate, gross earnings (both per period and YTD), as well as any deductions they have taken, such as income tax and employee benefits. These stubs can be used to provide proof of income for employees, such as when they need it to rent an apartment or get a car loan. Your team won’t have to ask you for proof of income every time they need it.
What information should you include on a Pay Stub?
Paycheck stubs give insight into some key areas of employee compensation, including:
General Information
Pay stubs often include information on the employer and employee, including name, address, social security number, and company name and address.
Gross Wages
The gross wages of your employee (also known as gross income or gross wages) are the pre-tax wages. This is the sum of all wages your employee has earned before any state income tax, federal income tax or other deductions are removed.
The gross wages of hourly workers are calculated with a paystub generator by multiplying the hourly rate and the number hours worked during a pay period. If an employee has a 20 hourly rate and works 80 hours per week, their gross wages will be $1600 ($20×80). Do not forget to add overtime hours into this calculation.
Exempted and salaried employees would be paid their gross wages by multiplying their salary by the number a year. If you have an employee earning $52,000 per week and pay them weekly, the gross wages per pay period for that employee would be $1000 (52 x $52,000).
Gross wages are the most important information. Pay stubs must include the minimum information. Your state law may require more.
Gross pay for the individual pay period as well as YTD earnings
Hours worked
Regular pay rate
Additional earnings (including overtime compensation)
Accrued time off (including vacation time and sick time)
Deductions
Gross pay is the total amount your employees earned. However, it doesn’t include how much they take home at the end of each pay period. There are many deductions that can be taken out of the employee’s salary. These deductions must be included on the employees’ pay stubs. It is you, as the employer, who are responsible for withholding taxes.
These deductions must be listed on an employee’s pay statement:
Income tax deductions (including federal and state tax withholdings and local taxes that finance things like unemployment insurance, Social Security, Medicare and other critical services).
Employer benefits deductibles, such as life insurance, savings accounts, and health insurance.
Voluntary deductions, such as charitable contributions, are possible.
Involuntary Deductions/Wage Garnishments (for example, court-ordered Child Support Payments)
As with gross wages, it is important to include information about deductions for both the individual and annual pay periods.
Employer Contributions
You, as an employer, are required to make certain contributions for your employee. These include the employer portion FICA tax (also known as Federal Insurance Contributions Act). Other employer contributions can be made, including contributing to premiums and your employee’s retirement/save plan.
Although these contributions cannot be deducted directly from the wages of your employees, they can still be added to the employee’s paycheck stub.
Remember to list employer contributions for each pay period and for the entire year.
Net Pay
The final result of all information on a pay slip is one number. It’s the employee’s net salary or take-home pay. This shows how much they bring home every payday. Paycheck stubs contain both the net pay and the YTD net. Many employees prefer direct deposit. It is important to keep track of each paycheck and provide proof of this to them.
Are you required to provide pay stubs to your employees?
Your employees will find a lot of useful information in pay stubs. However, are they required?
The Fair Labor Standards Act (also known by the FLSA), requires employers to keep track of their employees’ hours. But, ultimately, they can decide how to do that. While federal law does not require pay stubs to be kept, the majority of states, including California, do.
California law requires that you provide each employee with an itemized pay slip for each pay period. Although pay stubs are not required, business owners can enjoy some significant benefits.
Pay stubs can be easily tracked by your payroll service. You can track employees’ hours, wages, taxes, and deductions when you issue pay slips each pay period. If you keep an eye on your employees net and gross wages, you can spot any discrepancies quickly and fix them before any problems arise with your employees, benefit partners, the IRS, or your employees.
