Have you ever heard people discussing paystub and asked yourself, what is a pay stub for?
When you pay your employees during every payment period, you're compensating them for the time they've spent working, irrespective of whether they are exempt or hourly employees.
Although your employees are getting a check or a direct deposit, the only thing they will see is their net pay, and they might start wondering how you arrived at that number. They might start wondering how much you took out of their pay for income tax, the number of hours they were given compensation for during the pay period, or how much their total compensation for the year sums up.
If you were wondering what is a paystub for, here is where the paystub comes in. The paystub gives your employees an insight into their gross pay and the deductions they took out from their checks during every pay period.
Even though you've got an overview of what paystubs mean, you still need to fully understand it's uses. In this article, you'll fully understand what a paycheck stub is, its requirements, and everything related to it.
What Is A Paycheck Stub?
A paycheck stub (or pay stub as it is popularly called) is a paycheck attachment that goes into an employee's pay details. When paying your employees with physical checks, the paystub is an attachment to their paper check. Electronical payment means paycheck would be digital.
A Paystub assists your employees in getting a better sense of their compensation, as well as their rate of pay, gross earnings (both per pay period and YTD amount), and deductions that will be taken out of their pay, like income tax and employee benefits.
What To Include On A Pay Stub
The information found on each pay stub are as follows:
Pay Period Start & End Date: The pay period dates are reflected here. Each payment period, salaried workers are expected to receive the same amount of money; some companies issue monthly or bi-weekly paychecks, and on the pay stub, the start and end dates of that timeframe are noted.
Pay Rate: For this particular employee's job, the wage rate is the rate of pay. This is how much an employee is paid per hour; if hourly, it is equivalent to salaried workers.
Number Of Hours Worked: The hours an employee worked during that pay period will be calculated by the employer.
Other Compensation: Does the employee earn overtime? Is there regular and rate and holiday pay the same? Was there anything like an earned bonus? Within the period of pay, any other money earned is itemized on a paystub. The ambiguity between hours worked, pay rate, and net pay should not be there.
Gross Earnings: Before any taxes or deductions are removed, gross earnings are what an employee earns.
Net Pay: This is the amount minus taxes and deductions. It is the paycheck amount during the pay period that each employee takes home.
Year-To-Date Payroll Earnings: The year-to-date payroll earnings are the amount of money from January 1st until now that your employee has earned.
Withholdings For Federal, State, & Local Taxes: At the federal, state, and local level, these withholdings correspond with the number of allowances on an employee's W-2 and are an approximation of what the employee owes in taxes.
Since the Federal income tax is considered a pay-as-you-go tax, it is collected from paychecks and sent to the IRS regularly. Contractors, however, are responsible for withholding their taxes.
FICA Tax Deductions: The FICA stands for Federal Insurance Contributions Act. The FICA Tax Deductions are mandatory payroll deductions that all workers must pay with each pay period. The money is used in providing services to Social Security and Medicare.
Deductions For Benefits: These are often health benefits or 401(k) retirement benefits. Some benefit deductions are taken out of an employee's paycheck pre-tax. Nevertheless, depending on the employer, there are other benefit deductions an employee may have.
Employer Benefit Contributions: If an employer also makes certain money contributions to benefits, this money is listed on the pay stub.
Wage Garnishments: For an employer to garnish wages may be required by the government. However, any money owed is subtracted by the employer and sent to the government on the employee's behalf.
What Requirements Does My State Have About Providing PayStubs?
You don't only need to understand what is a pay stub for, you also need your state's requirements concerning providing pay stubs.
Many states have laws and regulations that do require you to supply them. Notwithstanding, Federal labor law does not require you to provide paycheck stubs to your employees.
Here are the three types of actions your state may require:
Do you live in a state where there are no requirements? If you are in a state like Alabama and Florida that are yet to create their own rules, and you do not have to provide any kind of paycheck stub.
Where you live, is it an "access state"? You are required to provide some stubs in states like Ohio and Texas, either electronic or paper.
Where you live, is it an "access/print" state? Providing electronic or paper stubs in States like Indiana and Kansas is allowed, but employees ought to have a simple way to print or access the electronic stubs they got.
Whether you are in an "opt-out" or "opt-in" state is what you also need to figure out.
In opt-out states, employees' consent must be gotten in businesses before making a change in their delivering paycheck stubs, and if employees prefer the previous method, it must be adhered to.
In opt-in states, except for an employee who decided to get the stub electronically, offering the paperstub to the employers is a must.
To figure out the exact kind of state you live in, check your state's Department of Labour website and make sure you are compliant with any applicable regulations.
What Should a Pay Stub Look Like?
Since you now understand what is a paycheck stub and what is a pay stub for, you will have to know what a paystub looks like.
Business Information: Your company's business detail always has to be on a pay stub. The business location's name and address are good enough.
Payroll Company Logo: If you are fortunate enough to get a company running payroll for you (such as Gusto or ADP), the logo in that software provider might pop up on your printed pay stubs. Some payroll software permits you to customize the look of pay stubs, while some do not. If aesthetics and logos are vital to you, look for a program that features customizable options.
Employee Information: On your pay stub, you will see your name, address, and number (or the last four digits of their social security number) of your employee. While it is not needed, some pay stubs bring the total value of the tax allowances too.
Pay Period/Pay Date: For documentation, the pay stub should reveal the pay period (you are crediting the employee from a certain date to another date?) then add the pay date.
Hours & Earnings: How many hours has the employee worked, and how much does that amount in gross pay?
Tax Deductions: This is where the payroll tax calculations are displayed. The income tax is dependent on your employee's tax bracket and allowances; your pay stub will appear both on the present deductions and the year-to-date deductions.
Other Withholdings: If there are available withholdings (contributions to medical, dental, or retirement), the pay stub will reveal how much the employee contributed. Some pay stubs also reveal what an employer has brought into those categories, but it is mostly an extra, not a required component of a pay stub.
Payroll Earnings: Finally, the pay stub will appear at the bottom line: The amount earned, how much was taken out, and what was the net pay.
Are You Required To Provide Pay Stubs For Your Employees?
It would help if you used the pay stubs to provide a host of the necessary information to your employees. But are you meant to provide them?
The Fair Labor Standards Act (also called the FLSA) needs business owners to watch their employees' hours, though how they track that time is completely up to them. But as pay stubs aren't required by federal law, they are mandated by most states—including California.
So, if you're managing a business in California, you'll need to provide your employees with a cataloged pay stub during pay period times. But pay stubs were not a requirement; as a business owner, they accumulate serious benefits.
When you issue pay stubs via your payroll service during the pay period, you can easily watch your employees' hours, pay, taxes, and deductions.
Suppose you place a finger on the pulse of your employee's gross wages and net pay. In that case, you can more easily spot any mistakes or discrepancies and rectify them before you get into any issues—with your employees, your benefit partners, or the IRS.
Am I Required To Provide Pay Stubs?
After figuring out what is a pay stub for, you will also have to know if you have to provide paystubs to your employees. Though no federal laws imply that employers should provide pay stubs, this doesn't mean that there is an absence of state employment laws requiring employers to provide paper/online access to payment details.
The Fair Labor Standards Act (FLSA) states that employers keep accurate records of hours and wages, including those records up to three years. A pay stub is a fulfillment of that implication, though no one needs it at the federal level. If twenty-six states need an employer to provide a pay stub, eleven additional states will need the paystub document in physical/paper form. It's essential to work with your state to confirm legal requirements.
In states that do not need employers to give out pay stubs continuously, employees still possess the right to access payroll files when requested either on paper or online. In cases where the employer doesn't want to comply, there'll be fines and lawsuits that follow. Here's why: The government finds it incriminating that a business refuses to offer transparency around their wages, so would employees.
Non-compliance is costly and unethical. And: All states vary in pay stub requirements, even though all employers must show payroll documentation if asked.
There are presently eleven states that require a printed pay stub; see the list below:
Why Should I Provide a Pay Stub?
A pay stub is used to resolve any variance with employees' pay. It is also useful for tax purposes.
It provides a record of wages for the employees, enables them to understand their taxes, contributions, and deductions, and ensures they were paid correctly. When applying for a loan or form of credit, it can also serve as proof of income or employment for them.
1. How would an employee get a pay stub?
Your pay stub comes from your employer. Your employer may roll out physically, store it on an online database (if you have an employee portal, you should look there, since that's the place it's most likely stored), or transfer it to you by email.
If you can't locate your pay stub and aren't sure if your employer has provided one to you, you should ask your manager, a human resources representative, or a name from your company's payroll department about how you can get one.
2. Does an employer need to give employees a pay stub?
Do you now understand what is a pay stub for? If you do, you should know that Federal law does not need an employer to get a pay stub. However, some states do.
No requirement states include:
"Access" states that require the provision of a pay statement information wage detail include:
States requesting the provision of the option of a print pay statement comprise:
Employers in Delaware, Minnesota, and Oregon might require this information digitally, while others provide a paper statement if an employee needs one. In Hawaii, employers must request employees to permit them to provide this detail digitally.
Although, according to the Fair Labor Standards Act (FLSA), your employer must keep track of records of your wage work hours, and you might need access to these records.
Well, that's it concerning everything you have to know about paystubs. Paystubs are not needed at the federal level, though they might need them at the state level. Regardless, providing a pay stub for your employee is a necessary aspect of the employer/worker relationship.
There are many alternatives for creating paystubs, from software programs to free online pay stub generators. If you have several employees and do not require the creation of pay stubs by hand during the pay period, consider looking into payroll software, as it will assist you.