Federal labor laws do not require employers to provide pay stubs to their employees. But many states do require payment stubs so check with your state’s labor department to find out the law pertaining to your company.
But regardless of legal requirements, payment stubs are a professional necessity no company should ignore. Employees depend on their pay stubs to give them accurate information regarding their pay. A quick glance at their payment stub answers most questions an employee may have.
Creating a payment stub isn’t difficult. Just make sure the right information is included. Read on to discover a quick checklist of the items every pay stub should include.
The wages section of your paystub offers other important information such as:
Net pay: The first box every employee looks at is the amount of their current paycheck after taxes and other deductions. Following this box is the year-to-date figure for their net pay.
Gross pay: This box shows the total amount an employee earns before taxes and other withholdings.
Employee pay stubs show regular wages as well as additional income such as sick pay, holiday pay, bonuses and personal time.
Pay rate: You can list the employee’s hourly rate, or their salary rate (annual salary divided by the annual number of pay periods).
Hours worked: Here you detail the number of hours an employee worked during the pay period. Differentiate the hours into regular, overtime and double-time.
Even salary employees should be able to see how many hours they work. Separate the hours worked column to also show the year-to-date hours.
Withholdings (Taxes, Deductions, and Contributions)
All items which show withholdings information should also show information for each pay period along with year-to-date figures.
Federal taxes: This section reveals the pay-as-you-go taxes withheld from an employee’s gross earnings. These taxes will eventually be included on their W-2 forms for the tax year.
State taxes: Many states do not require state tax while others use a flat rate. Still, other states operate with bracketed tax rates similar to what the IRS uses.
Check with your accountant or your state’s tax laws to make sure your company is in compliance. Many of the best accounting software programs integrate state and local tax laws.
Local taxes: Many metropolitan cities require local taxes to support local government services while other cities do not.
FICA: Have you ever wondered what this word means? Simply put, FICA stands for Federal Insurance Contributions Act. This box on the payment stub shows employee contributions to Medicare and Social Security.
Benefits and other deductions: Your employees may submit part of their pay towards their own benefits. For example, they may contribute to their insurance and retirement plans. If so, it needs to be itemized on their payment stub. Other deductions may include voluntary deductions, such as loan payments and charitable contributions.
A quality paycheck stub creator can help you create a complete stub including all of these items.
Final Thoughts on What Goes on a Payment Stub
Creating payment stubs is a simple process. But make sure you’re including all the information employees have come to expect. Providing accurate information in these key areas helps employees make important financial decisions.
If you enjoyed this article, please check out our favorite tips for keeping your small business accounting on track.