You pay your employees for their time each pay period. This is regardless of whether they are hourly or exempt employees.
However, if employees only get a check or direct deposit, they will not see their net pay. They might be curious as to how that number came to be. How much of their salary was taken out to pay income tax? What was their compensation for the hours worked during this pay period? How much were they paid this year?
A pay stub is the answer. Your employees will be able to see their gross pay and what deductions they have made from their paychecks each pay period with their paystubs.
What exactly is a pay slip? What information is it required to give to your employees? Are you a small-business owner and must your employees receive a pay slip with every paycheck?
A paycheck stub, or pay stub as it is commonly known, is an attachment to a paycheck that contains details about the employee’s current salary and their YTD earnings. The paper pay stub can be attached to physical checks by your employees. Your team’s paycheck stub will be digital if you pay them electronically. Your employees will be able to see their compensation and their rate of pay. They can also see their gross earnings per pay period and YTD amounts. Also, they can see any deductions taken from their pay like income tax or employee benefits. You can provide proof of income to employees for things like a car loan or leasing an apartment. You can also provide your team an online pay stub so they don’t have to call you each time they need proof of income.
What information do you need to include on a pay stub?
Paycheck stubs provide insight into key areas of employee pay such as:
General Information
Pay stubs usually include information about both the employee (including address and social security numbers) and the employer (including address and company name).
Gross Wages
Gross wages, also known as gross income, are the wages earned by your employee before taxes. This is the amount that your employee earned before any federal, state or other deductions are taken from their pay.
Hourly workers are paid gross wages by multiplying their hourly rates by the hours they worked in a given pay period. For example, an employee with a $20 hourly wage and who works 80 hours per pay period would have gross wages of $1600 ($20 x80). This calculation should include overtime hours.
You would divide the salary of salaried or exempt employees by the number per year to calculate their gross wages. For example, let’s say you have a $52,000 salary employee and you pay them weekly. Their gross wages would be $1000 ($52,000/52).
Pay stubs for gross wages should contain at least the minimum information, though your state may require more.
Both the individual pay period earnings and the YTD earnings are gross pay.
Hours worked
Pay rate: Regular
Additional earnings (including overtime)
Accrued vacation and sick time
Deductions
Gross pay refers to how much your employees earn, but it’s not the amount they take home for each pay period. There are many deductions that are taken from your employee’s wages. These deductions should be listed on their pay stubs. You, the employer, are responsible for withholding taxes.
The following deductions should be added to an employee’s pay slip:
Income tax deductions include federal, state, and local tax withholdings. These taxes fund things like unemployment, disability insurance, Social Security and Medicare.
Employee benefits deductions (for example, for health insurance, retirement savings, life insurance or contributions to health savings accounts)
Voluntary deductions (e.g., charitable contributions)
Involuntary deductions/Wage garnishments: Court-ordered child support payments, for example
Information on deductions, just like gross wages should be included for each pay period as well as the year-to date.
Contributions from Employers
Employers are required to make contributions for their employees (e.g., the employer portion FICA tax, also known under the Federal Insurance Contributions Act). Additional employer contributions may be made by you, such as contributing to the insurance premiums of your employee’s retirement plan or saving plan.
These contributions can be included on an employee’s pay stub, even though they won’t be deducted from their wages.
Employer contributions should also be listed for the individual pay period as well as the total contributions for the year.
Net Pay
All the information on a paycheck stub will lead to one number: the employee’s net or take-home salary. This is the amount of money that they actually bring home each payday. Paycheck stubs show both the net pay for each pay period and the YTD total pay. Direct deposit is a popular option for many employees. However, it’s important that you keep track of how much money was sent to each paycheck.
Do you have to provide pay stubs for your employees?
Pay stubs can be a valuable tool for your employees. Are you legally required to provide them?
The Fair Labor Standards Act, also known as the FLSA, requires that business owners track employees’ hours. However, it is up to them to determine how to track that time. Although federal law doesn’t require pay stubs, most states (including California) do.
If you own a California business, you must provide employees with an itemized payroll stub for each pay period. Even if pay stubs were not a requirement for business owners, they offer some significant benefits.
You can track the hours worked, taxes and deductions of your employees by issuing pay stubs via your payroll service each pay period. You can quickly spot discrepancies or mistakes in your employees’ gross wages and net earnings and rectify them before they become a problem with you, your benefit partners or the IRS.
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