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What is a Pay Stub? A Simple Guide on the Important Things to Know

Wondering what is a pay stub and how it relates to your business?

Most businesses are required by law to issue pay stubs to their employees.

It’s an essential part of payroll and essential to regulatory compliance for many businesses across the US.

If you are unsure about pay stubs, check out our simple guide on the important things to understand.

What Is a Pay Stub? 

Pay stubs, also known as payslips, or paycheck stubs, are an essential part of payroll. When your employees receive their paychecks, they have to know the details of their pay for each pay period.

Pay stubs serve to inform employees about the specifics of their pay. Several states have specific laws about pay stubs or any other form of a written statement that explains how much each employee is getting.

Even if you are not legally required to provide a pay stub, you still need to keep track of how many hours your employees work during each pay period according to the Fair Labor Standards Act.

If you are paying your employee with paper checks, your payroll manager will attach the pay stub to each individual paycheck.

If you are paying your employees by direct bank deposit, you may have to provide digital, printable pay stubs. You can look at this check stub maker for an easy and affordable online pay stub service.

Pay Stub Anatomy: What’s On a Pay Stub?

The size and detail of your pay stub both depend on the nature of your businesses. A pay stub may include some or all of the following:

  • Gross pay
  • Net pay
  • Back pay
  • State, Federal, and local taxes withheld
  • Benefit deductions
  • Federal Insurance Contributions Act (FICA) deductions
  • Retirement and pension plan deductions
  • Wage garnishments
  • Employer contributions

You will only have to include wage garnishments if your employee has an outstanding debt. Similarly, you don’t have to list retirement and pension plan deductions if you are not offering retirement plans such as 401k.

The Pay Stub and Your Business

The most important aspect of pay stubs is all the tax deductions and contributions that come out of the gross pay. Employees are often confused about the difference between their gross and net pay. This is always due to deductions.

Thanks to pay stubs, your employees can quickly see how much of their gross pay goes to taxes or other deductions without having to ring up your accounting department.

Deductions fall into two broad categories: current deductions and year-to-date deductions. Current deductions apply on an individual pay period basis. Year-to-date deductions cover the entire fiscal year.

Finally, the pay stub may include employer contributions. These are contributions that you pay on behalf of your employees and they are not deducted from their gross pay. Such contributions include SUTA tax or your own FICA tax obligations.

Your Pay Stubs Are Important

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