Paying your employees every pay period is a way of compensating them, regardless if they are hourly, exempt, or exempt.
Your employees might not be able to see their net salary if they only receive a check, direct deposit or a draft. This could lead to them asking questions about how they got there. Consider, for example, how much was deducted from their pay to pay income taxes. How many hours did they get paid? Or how much did they get compensated for this year?
Here’s where the pay stub comes into play. A real pay stub gives your employees important insight into their gross wages and which deductions are being made each pay period.
But what is a Pay Stub? What information does it give employees? Is it required for small business owners to give their employees a pay statement with every paycheck or direct deposit?
A paycheck slip (or pay stub) is a attachment to a paycheck. It contains information about the current pay and YTD amounts of employees. If you send your employees paper checks, the paper stub will be an attachment to their check. The paycheck stub for your employees would be digital if they were paid electronically. Pay stubs allow employees to get a better idea of their compensation. These include their rate of salary, gross earnings (both per month and YTD amount), as well any deductions from their pay such as income tax, employee benefits, and other deductions. Employees can use them to show proof of income, for example, to get a loan car or lease an apartment. If you give your team an online pay slip, they won’t need to ask each time they need that proof of income.
What information must you include on a pay slip?
Paycheck stubs can provide insights into some key areas in employee pay.
General Information
Pay stubs include information on both employees (including name, address and social security number) as well as the employer (including company name/address).
Gross Wages
Your employee’s pre-tax wages are also called gross wages. This is the total amount an employee has earned before any federal or state income taxes, and other deductions are taken out of their pay.
When hourly workers work, their gross wages can be calculated by multiplying their hourly wage by the number of hours they worked in each pay period. An example of this is a $20 per hour employee who works 80 hours in a pay cycle. Their gross wages would then be $1600 ($20 x80). Remember to add any overtime hours to this calculation.
If your employees are salaried, exempt or salaried, you calculate their gross salaries by subtracting their salary from the number of pay periods each year. As an example, suppose you have a $52,000 employee and you pay them weekly. Your gross wages per month would be $1000 ($52,000 / 52).
For gross wages, the minimum information required for pay stubs is:
Gross pay for each individual pay period, as well as for YTD earnings
Hours worked
Regular pay rate
Additional earnings (including overtime payment)
Accrued Time Off (including sick and vacation time)
Deductions
Gross pay simply refers to the salary your employees are paid. It doesn’t necessarily reflect how much they earn each pay period. There are many deductions from the pay of your employees. These must be detailed on employee pay stubs. The employer is responsible for withholding taxes.
There are several deductions that an employee should include on his or her pay stub:
Income tax deductions: This includes federal tax, state tax mitholdings, as well as local taxes that help fund things such as unemployment and disability insurance. Social Security, Medicare, Social Security and other crucial services.
Deductions for employee benefits, such as health insurance, life insurance, or retirement savings contributions
Voluntary deductions (for instance, charitable donations)
Involuntary deductions/Wage garnishments (for instance, court-ordered child maintenance payments)
Similar to gross wages, data on deductions should also be included for the individual pay period as well and the entire year.
Employer Contributions
You are an employer and must make certain contributions on behalf your employee. This includes the employer part of FICA tax also known as Federal Insurance Contributions Act. Additional employer contributions are possible, including those to insurance premiums or the retirement or savings plans of your employees.
These contributions don’t get deducted from your employee’s wages but they can still be included on the employee’s pay stub.
The employer contributions for individual pay periods and total contributions for the current year should be included.
Net Pay
All information on a pay statement leads to one number, the net pay or take home pay of the employee. This is how much money the employee actually brings home on payday. Paycheck stubs will include the net pay for that pay period as well as the YTD pay. Although direct deposit is popular among employees, it is essential that they keep track of every paycheck sent to their bank accounts.
Are you required by law to provide pay slips for your employees
You can see that pay stubs are a useful tool for employees. But do you have to provide them with your employees?
The Fair Labor Standards Act (also called the FLSA) is a law that requires employers to keep track on employees’ hours. However it is up to them how they track this time. However, pay stubs don’t have to be required by federal law. They are however required by most states, including California.
California businesses must give their employees an itemized pay stub each pay period. They are a great benefit for business owners even though they aren’t required.
Each pay period can be tracked easily by generating pay stubs using your payroll system. If you are constantly keeping an eye on the net wages and gross wages of your employees, you will be able to spot and correct any errors or discrepancies faster than you could with your benefit partners and the IRS.
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