If you’re an employer, you need to know what information is on a pay stub. Understanding items on a pay stub helps you catch payroll errors. And, you can help employees decipher their paychecks.
What is a pay stub?
A pay stub is part of a paycheck that lists details about the employee’s pay. It itemizes the wages earned for the pay period and year-to-date payroll. The pay stub also shows taxes and other deductions taken out of an employee’s earnings. And, the pay stub shows the amount the employee actually receives (net pay).
You can give your employees an electronic or printed pay stub. In some states, you are required to provide pay stubs. The information you must include on a pay stub varies by state. You can keep a copy of each payroll stub for your payroll records.
What are pay stubs used for?
A pay stub includes information both employers and employees can use. Employees receive pay stubs as records of their wages. By reviewing their pay stubs, employees can make sure they were paid correctly and understand their deductions.
Employers can use pay stubs to settle discrepancies with employee pay. If there is a question about an employee’s pay, you might need to solve the issue by looking at the payroll pay stub. You can also use pay stubs to fill out each employee’s Form W-2 during tax time.
What information is included in a pay stub?
There are many details included on a pay stub to help you and your employee keep track of payments and deductions. Generally, the items on a pay stub can be broken down into three parts:
- Gross wages
- Taxes, deductions, and contributions
- Net pay
To understand what information is included in a pay stub, take a look at each category.
Gross wages are the starting point of your employee’s pay. The gross wages include money owed to an employee before deductions are taken out.
You calculate the gross pay differently, depending on if the employee is paid salary vs. hourly. For hourly workers, multiply the employee’s hourly pay rate by the number of hours worked. To find a salaried worker’s gross pay, divide the annual salary by the number of pay periods in the year.
An employee’s gross pay can be found on their pay stub. Information about gross pay is broken down into two separate columns. One column shows the current gross pay, or information for the pay period. Another column provides year-to-date totals. The following items are included in an employee’s pay stub.
Hours worked: Pay stubs for hourly workers include the number of hours worked. Salary workers can also have the hours worked recorded on their pay stubs. Nonexempt employees can work different types of hours, such as regular, overtime, and double-time. On the pay stub, put each kind of hour worked on its own line. Separate the hours worked into current and year-to-date columns.
Pay rate: The pay rate should be included in an employee’s pay stub. For hourly workers, note each employee’s hourly pay rate. In the case of a salaried worker, you can show the amount of pay they are due for the pay period worked. Also, record an employee’s increased pay rate on the pay stub for any overtime or double-time worked.
Gross pay: A pay stub lists the total wages earned before deductions. Besides regular wages, an employee might earn additional income. This can include overtime, sick pay, holiday pay, bonuses, personal time, and payroll advances. On the payroll pay stub, list each form of income on a separate line. Gross pay is recorded in two columns: current and year-to-date payroll.
Taxes, deductions, and contributions
Employees do not take home their gross pay. Payroll taxes and other deductions reduce their earnings. The pay stub itemizes deductions so that employees can see amounts taken from their gross pay.
Like gross pay, taxes and deductions are separated into two categories. One category shows current deductions, and the other shows year-to-date amounts. The following are common deductions found on pay stubs.
Employee tax deductions: Usually, government agencies (like the IRS and state tax departments) tax an employee’s pay. Common taxes deducted include federal income tax, the employee portion of FICA tax, and, sometimes, state and local income taxes. On the pay stub, create a separate line for each tax and show the amount deducted for the current pay period and year-to-date.
Benefits and other deductions: Other payroll deductions shown on a pay stub vary depending on the small business employee benefits you provide. For example, an employee might contribute to insurance premiums or retirement plans. Deductions could also include charitable contributions, payments toward loans, and any other voluntary deductions. List each deduction on its own line, and show current and year-to-date totals.
Employer contributions: Some items included in an employee’s pay stub are not deducted from the gross pay. They reflect amounts you contribute as an employer. For example, you pay taxes such as FUTA tax, SUTA tax, and the employer portion of FICA tax. You might also contribute to employee benefits, like insurance premiums and small business retirement plans. Each contribution should be listed on its own line.
Net pay is the amount left over after subtracting deductions from the gross pay. It is the employee’s take home pay. The net pay is the amount you write on the employee’s paycheck or direct deposit into their bank account.
The pay stub records net pay. You can find both the current net pay for the pay period and the year-to-date net pay.
Since the payroll pay stub itemizes earnings and deductions, you can easily check for accuracy. If an employee doesn’t understand their pay, explain each part of their pay stub.
Pay stub example
Now you know what information is included in a pay stub. But, you might be wondering, “What does a pay stub look like?” Below is an example of a pay stub. Take note of the parts of an employee pay stub:
- Employee name
- Pay period and date
- Hours worked
- Gross pay
- Employer contributions
- Direct deposit information
- Net pay
Understanding pay stub information
As a business owner, you don’t receive a pay stub like your employees do. But, understanding information on a pay stub solves several issues for you and your business. You should know how to create and decipher an employee pay stub.
If an employee suddenly quits or is fired, you might need to pay them quickly. Knowing pay stub information makes the process smoother. The more familiar you are with the parts of a pay stub, the faster you can check for accuracy and pay the employee.
Reviewing employee pay stubs can also bring mistakes to your attention. Check for correct pay rates, hours worked, and total earnings. If an amount seems unusually high or low, you can catch errors early to avoid IRS penalties and conflicts with employees.
You can print employee pay stubs or allow employees to access pay stubs online through the employee portal software included with Patriot Software’s online payroll. We offer free setup and support. Try it for free today.
This article has been updated from its original publication date (8/17/2015).