Employee compensation is an issue you need to take very seriously as an employer and business owner. When you pay your employees, you are compensating them for their efforts and time.
When you only give an employee a paycheck, all they see is the net pay which might cause them to wonder how you arrived at that exact number.
That is when a paystub becomes necessary as employees can see everything from their gross pay to how it becomes their net pay.
What is a Paystub?
A pay stub, also called a paycheck stub, is a document outlining every detail of an employee’s pay. You will offer the pay stub as a separate document alongside the employee’s paycheck.
You can either give your employees a physical or an electronic pay stub, depending on your company policies. Regardless of how they receive their pay stub, you will need a paystub maker to generate the paystubs.
A pay stub will help your employees better comprehend their compensation, including the necessary deductions you have to make from their pay. They will understand how you arrive at the amount that you deposit into their accounts.
Information on a Paystub
There is plenty of information to include on a paystub, including:
General Information
A pay stub will include general information such as details about the company and employee, including names, addresses, social security numbers, and more.
The general information makes it clear who is receiving the pay and from whom it is coming.
Gross Income
The first line on an employee’s pay stub is their gross wages. It is the amount before you make any deductions to the employee’s pay, also called pre-tax wages.
The gross wages will also include any non-taxable income.
An employee’s gross wages will depend on whether they are a salaried employee or you pay them per hour.
The gross wage of a salaried employee will be their gross annual pay divided by the period for which you are making the pay stub. For example, a quarterly pay stub will have a gross wage of their total annual income divided by four.
The gross wage of an hourly employee will be the number of hours they worked in a period of time at their hourly rate. You will also add overtime for an hourly employee.
Employee Taxes
Another vital element of a pay stub is the tax deductions. The payroll will include a list of all the various Federal and state taxes deducted from their gross pay.
Some of the employee taxes include Federal income tax, state income tax, local income tax, Social Security, and Medicare taxes. There will also be additional state and local specific taxes.
You will separate employee paid and the taxes you pay on behalf of the employee on the pay stub.
Deductions
In addition to taxes, there will be other deductions to make from the employee’s gross pay. The deductions will depend on the benefits you offer your employees.
Deductions you may include in a pay stub are deductions for the employee’s benefit, such as health insurance premiums, life insurance contributions, and retirement contributions.
There will be voluntary deductions like charitable contributions. And involuntary deductions like child support payments.
Employer Contributions
As an employer, you are required to make some contributions to your employee’s pay. Contributions you may make include insurance premiums, retirement contributions, and the employer portion of FICA tax.
Net Pay
After making all the necessary deductions from the gross pay, the final element of a pay stub is the net pay. It is the amount that employees actually take home on payday.
Pay Stub Uses
You might need a pay stub for several reasons. For starters, state law may require you to provide your employees with pay stubs.
You may use a pay stub to help you file employee tax forms too. You will also need a pay stub to settle any employee pay discrepancies. Both employer and employee will find a use for pay stubs.