You withhold taxes when you pay employees. You must provide a pay stub to your employees, regardless of how you pay them (direct deposit or withholding taxes). What exactly is a stub? What’s on a pay slip? What is a pay stub for employees?
A pay stub (also known as a pay slip or check slip) is a document that details the employee’s wages. It shows the wage earned for each pay period, as well the year-to date payroll information. You will also see taxes and any other deductions from an employee’s earnings on the check stub. Also, the pay slip shows the actual amount that the employee receives (i.e. the net pay).
What does a pay stub look like?
You and your employee can keep track of all payments, taxes and deductions by having a pay slip. A pay stub generally includes:
Gross wages
Taxes for employees
Deductions
Employer contributions
Employer taxes
Net pay
Below are the categories that will help you understand what information should be included on your pay stub.
Gross wages
Gross wages are your starting point for employee pay. Gross wages are the total amount that you owe to an employee before deducting any taxes or deductions. Gross wages must also include non-taxable income.
The hourly and salaried workers will affect how you calculate their gross wages. Hourly workers multiply the employee’s hourly wage rate by the amount of work done in the pay period. Divide the employee’s annual salary by the number o pay periods to calculate their gross income.
Paystubs typically show gross pay information in two columns. Current gross pay and Year-to-date gross.
This information could also be included on a stub employee’s gross salary portion:
Hours worked total: The number of hours must be listed on pay stubs for hourly workers and nonexempt employees. Nonexempt employees may work overtime, regular, and double-time. The check stub should include the total hours worked for each hour. Each hour worked should be noted on the pay slip. Although it is possible to include salaried employees’ hours on the pay stubs as an option, it is not required. Separate hours worked into current or year-to date columns.
Pay rate: On the employee’s pay stub, you should indicate their pay rate. Hourly workers should note the hourly pay rate for each employee. For salaried workers, indicate the total salary earned for the work period. You should also record the separate pay rate of an employee on the pay stub, for overtime, double time, etc. worked.
Taxes for employees
The gross amount of the employee’s pay does not go home with them. The employee’s earnings are affected by payroll taxes and any other deductions (we’ll get back to those later). The pay stub details taxes so employees can see the total tax withheld from gross pay.
The standard employee payroll taxes included on a pay statement include:
Federal income tax
FICA tax is paid by the employee.
State income tax
Local income tax
State unemployment tax (for Alaska and New Jersey)
Local- and state-specific taxes
Make sure to create a separate line for each tax on your pay stub. Show the amount withheld from the current pay period, and the year-to-date. Separate the employer-paid taxes from employee-paid taxes in the pay stub.
Deductions
Payroll deductions on a pay slip can vary depending upon the benefits that you provide to small business employees. Employees might, for example, contribute to their retirement or insurance premiums.
Other deductions include payments towards loans, charitable contributions, and any other voluntary or unassisted deductions (e.g. child support). Each deduction can be listed on its individual line. The current and annual totals should also be shown.
Contributions by employers
Your business may have line items that an employee’s pay slip does not show. These include amounts you as an employer contribute.
You might contribute to:
Health insurance premiums
401(k), plans
Health savings accounts (HSAs)
Retirement plans
Include each contribution along with its current and annual totals.
Employer taxes
Employers also have to pay payroll taxes on each employee. These taxes must be listed in separate sections, with current and historical totals. Payroll taxes paid by employers include:
Federal unemployment taxes (FUTA tax)
State unemployment taxes (SUTA tax)
FICA tax is paid by the employer
To find out if your state has any employer-paid taxes, check with them and add it to the employee pay stubs.
Net pay
Net pay (or take-home pay) is the remaining amount after subtracting taxes from gross pay. Add any nontaxable income to the gross pay.
After subtracting taxes, deductions, you will get the employee’s take-home salary. The employee’s net pay is the sum you pay.
On the check slip, include the net pay for the pay period and the year-to date net pay.
What is the purpose of pay stubs?
An employer and employee can both use the information on a pay stub.
As records of their wages, employees are provided with pay stubs. Employees can check their pay stubs and make sure they understand all deductions.
Employers may use pay stubs as a way to resolve disputes with employee pay. Payroll stubs can be used to answer questions regarding employee pay. To fill out the Form W-2 of each employee, you can also use check slips.
Are I required to provide pay slips to my employees
Some states require that employers provide pay stubs. Each state may have different requirements regarding the information that you should include on a paycheck slip.
Your employees can choose to receive an electronic (epaystub), or a paper pay slip. Employers may be able access their pay stubs online if they use payroll software. For your payroll records, keep a copy for each payroll stub.
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