Whether you’re an employee or an employer, you must know the basics of pay stubs. By understanding the different things that are on a paystub, you can catch accounting errors, and if you are an employer, help your employees decipher their paychecks.
Did you realize that 78% of employees live paycheck to paycheck? This is why, as an employer, it is critical to have accurate pay stubs. Understanding “what are pay stubs?” is perhaps the most efficient method of ensuring that workers are appropriately compensated for their work.
Knowing what the basics pay stubs are is equivalent to knowing what a check stub and paycheck stub are. All of these words have the same meaning. A pay stub is found on a paycheck from an employer and specifies the payment.
However, not all states need pay stubs, and in certain circumstances when they are required, the information that should be included may be vague. As a result, we’ve compiled a list of suggested items that might assist you in maintaining a credible audit trail and reducing employee enquiries.
What Are Paystubs?
A paystub is the itemized part of a paycheck. The paystub, also called a pay slip, shows the wages earned during a specific pay period and year-to-date. This will include your hourly rate, overtime pay, your pay stubs deductions, time tracking, and taxes withheld. The total amount of earnings will be listed as an employee’s gross and net pay. Gross wages are what you earn before any taxes and deductions are taken. The pay stub then details the taxes and deductions that are taken out of the gross earnings. After all taxes and deductions, the amount the person receives, known as net pay, is listed.
A pay stub can be either electronic or printed. Employment laws, for some states, require an employer to provide an employee’s pay stub. Some companies only offer electronic paystubs, unless otherwise requested in writing. Each state has its own requirements on what should be on a paystub. Some states have a state tax in addition to the federal tax. But one thing that will be on every paystub is the various federal taxes.
Paystubs are typically required by banks if you are trying to get a loan, car dealerships, and some rental agencies will require proof of income. They are also important for keeping records of your earned wages and making sure you are being paid appropriately.
Pay Stub Specifics
Knowing what information is on a pay stub can help you understand how to interpret it.
- Personal employee information such as name, social security number, and address are often included on the basics of pay stubs.
- Employer details, such as name and address
- Dates of pay periods
- Employee salary scale
- Before-tax earnings, employee contributions, and deductions
- Deductions for health insurance or life insurance.
- Net pay is the real amount an employee receives after taxes, deductions, and contributions.
The functions of a pay stub varies depending on whether an employee is paid hourly or on a salary. Where gross earnings are mentioned, for example, the hourly rate will be included with the hours worked. The standard amount of hours for a paid employee is 40 per week.
If an employee is eligible, pay stub information will also contain overtime. This section of the pay stub will also include the hours spent in overtime.
Bonuses are also listed under gross earnings on a pay stub. Additional information may be necessary depending on the state in which you work. This may include things like sick leave.
The Value of Keeping Pay Stubs
You should save your pay stubs for the tax year in addition to glancing at them on payday. The apparent explanation is that it might be useful if you have a disagreement with your employer or a tax collector.
Pay stubs, moreover, are proof of income. This may be required if you apply for a mortgage, auto loan, or even certain employment.
Proof of income is especially necessary for freelancing and part-time employees. To stay on top of record keeping, many of these non-traditional professionals utilize a pay stub creator. These online solutions are especially beneficial to firms that have difficulty arranging their payroll procedures.
Deciphering Your Paystub
The different items on a paystub can be broken up into three categories:
- Gross wages
- Taxes, deductions, and contributions
- Net pay
Let’s take a closer look at each of these categories.
1. Gross Wages
As mentioned earlier, gross wages are the total amount earned before any taxes, deductions, or contributions are taken out. Gross wages fall into two categories: hourly or salary.
- Hourly: Hourly gross wages are calculated by multiplying the total hours worked during a specific pay period by the hourly pay rate.
- Salary: Salary gross wages are calculated by dividing the annual salary amount by the number of pay periods designated for that year. So if you are on a monthly salary, it would be your yearly salary divided by 12.
Gross pay is broken down into two separate columns, current and year to date. Within this section, your hours worked, and pay rate will be included. All overtime and double time worked will also be included.
2. Taxes, Deductions, and Contributions
As nice as it would be, you do not take home your gross wages. Payroll taxes and other deductions are taken from the gross pay, reducing your take-home pay. These taxes and deductions will be itemized so you can see the amounts taken from your gross pay. Let us take a look at the most common taxes and deductions.
- What is OASDI on a paystub? OASDI is an acronym for Old Age, Survivors, and Disability Insurance. It is also called FICA tax (Federal Insurance Contributions Act). In terms that everyone can understand, Social Security Tax.
- What is GTL on a paystub? GTL stands for Group Term Life. This is a life insurance policy provided by your employer. Not all employers offer this, and you can typically opt-out if you don’t want it. This benefit is frequently offered at no cost to the employee, but options to purchase additional coverage for spouses and children are available.
- What is FIT on my paystub? Federal Income Tax, or FIT, will be on everyone’s paystub. FIT tax is calculated based on the amount earned, marital status, federal withholding allowance, and any other withholding amount specified by the employee. This tax rate is different for everyone and is based on annual income.
Other types of taxes and deductions might include retirement plans, health insurance premiums, state and local taxes if applicable, and a number of other voluntary deductions.
3. Net Pay
Net pay is the amount left after all taxes, deductions, and contributions. This is the amount you will take home or have directly deposited into your bank account.
What Does a Paystub Look Like?
Below an example shows the basics of pay stubs. Keep in mind, pay stub looks will vary but usually, the same information is included such as:
- Employee name
- Pay period and date
- Hours worked
- Gross pay
- Employer contributions
- Net pay
How to Get a Paystub?
If you are an employee, your employer will likely provide you with a paystub. If you are paid in cash, you can easily create one using our pay stub generator.
How Do I Make a Paystub?
Whether you are a small business owner looking to create paystubs for your employees or an individual needing proof of income, you can easily and quickly create a paystub using the paystub generator offered on our website. Simply fill in all of the required information and click “View Your Stub.”
Pay Stub Reading Tips
Understanding the basics of pay stubs might be difficult if this is your first job or you’ve never paid attention before.
The first thing you should do is study how it’s formatted and the fundamental paycheck stub abbreviations. What, for example, is the distinction between a deduction and withholding? How does gross compensation differ from net pay?
Payroll offices make mistakes as well, so double-check your wages for each payment, especially if you expect overtime.
It’s also critical to maintain track of your pay stub deductions to ensure that extra money isn’t being deducted for services you didn’t sign up for.
It’s Time to Read Your Pay Stub
Technology is frequently used to provide a quick and easy answer to professional problems. Are you curious about how the latest technology may keep you one step ahead? Read more about the basics of pay stubs.