Pay Stub

Published on :

21 Aug, 2024

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Pay Stub refers to a document provided to a company's staff along with every paycheck showing the exact amount of salary earned plus all deductions from the salary. It helps the employee and employer track the records of pay, deductions, and taxes.

Hence, this provides transparency and lets employees understand how their salary or wages are calculated. Moreover, it also contains the net salary that an employee gets. It helps employees ascertain the compensation they get as promised by the employer. These paychecks also get used while filling out every staff's W-2 form during the time of payment of taxes.

Pay Stub Meaning

Pay Stub often means a document containing details of wages, taxes, deductions, and contributions by an employer toward employee welfare attached to the employee's paycheck.
Hence, it requires every employer to keep a record of working hours and wages along with other details. Here, employees get to know their exact details of salary, taxes, and deductions.
Although not required under any federal law to provide to employees, employers do it to fulfill their duties under flsa and the requirements of some states to provide pay stubs.

Pay Stub Explained

A pay stub is a document that provides a breakdown of an employee's earnings and deductions for a specific pay period. The pay stub document also affirms that salary has been deposited into employees' accounts. It also reflects the gross earnings, taxes, and deductions from the compensation that can be reported to authorities by the employer.

Furthermore, it also sums up how the total employee salary gets distributed. Besides, it also includes the total taxes paid by the employer on behalf of the employer. Additionally, pay stub generators automate the process of generating pay stubs. And, thus it can be helpful for small businesses, freelancers, or anyone who needs to produce accurate and professional paychecks. However, instead of receiving a physical paper check, the employer can transfer the net pay directly into the bank account, referred to as a pay stub direct deposit.

Therefore, every pay stub check has four parts, namely:

Personal plus check details: It contains personal information, withholding number, as per employee IRS form W-4, and filing status.
Earnings: It shows the earnings received during the pay period, including overtime. Pre-tax deductions cut out from the pay stub for various employee benefits are reflected.
Deductions: It represents all extra deductions on one's earnings for benefits like disability or group life insurance after tax deductions.
Withholding: It refers to the amount deducted from an employee's salary for federal and state taxes, social security, workers compensation, and unemployment insurance payments.
Net salary: The net salary after tax and per deductions given to the employee.

As per the Fair Labor Standards Act (FLSA), every employer has to provide track of the working hours of their employee, which gets noted through the pay stub.

Requirements

No federal law mandates companies to provide pay stubs to their employees. Nevertheless, the Fair Labor Standards Act has required businesses to maintain accurate employee payroll records. The payroll records must contain the details of the number of hours an employee worked and the salary received by the worker for their labor. However, the requirements for paystub vary from state to state in the US:

Some states require employers to give paychecks to employees
Some states require printed pay stubs to be handed over to employees
Others require digital paychecks to be provided to the employees
A few states do not require any pay stub document to be given to the employee.

Generally, these must contain the beginning & end date of payment frequency, total wages, deductions, taxes, employer contributions, and net pay.

Examples

Let us use a few examples to understand the concept better manner.

Example #1

Here is a simple example of a pay stub

PAY STUB EXAMPLE
DexCom Company
Employee Name: Karelin	Pay Period: 1/11/2021 - 31/11/2021
Employee ID: 1342	Issue Date: 31/11/2021
EARNINGS
Regular hours worked (40hours)	$800.00
Over Time Hours ( 5 hours)	$125.00
Bonus	$100.00
Commission	$300.00
Total Earnings	$ 1,325.00
DEDUCTIONS
Federal Income TAX	$150.00
State Income TAX	$60.00
Social Security TAX	$81.50
Medicare TAX	$18.25
Health Insurance Premium	$150.00
Total Deductions	$459.75
NET PAY	$ 865.25
Year To Date (YTD Totals)
YTD Earnings	$ 12.450.00
YTD Deductions	$ 2,650.00
YTD Net-Pay	$ 9,800.00

Example #2

Freddie Mac announced on May 22, 2023, that it had improved its computerized income assessment tool to integrate digital pay stub data from borrowers.

The tool helps borrowers to evaluate a homebuyer's direct deposit income. Adding pay stub data "can help lenders compute earnings more quickly and accurately to enhance lending quality, simplify the home financing process, and, most importantly, expand credit access," Freddie Mac claims.

Moreover, the upgrade is offered to mortgage lenders nationwide via the firm's Loan Product Advisor (LPASM) asset and income modeler (AIM). According to the government-sponsored company, AIM, for revenue via direct deposit, delivers these cost-saving efficiencies while continuing to meet Freddie Mac's stringent credit underwriting standards.

Hence, on June 7, 2023, this new feature will be offered to the firm's approved sellers using Loan Product Advisor.

Template

The template for pay stub contains the following:

Pay Stub vs Paycheck vs W2

Let us understand the difference between pay stub, paycheck, and W2 using the table below:

Pay Stub	Paycheck	W2
Its document contains details of employees, salary, deductions, and taxes.	Usually provided with each paycheck to the employee	W2 shows the taxable income reported just after pre-tax deductions.
They summarize various components of a paycheck.	Moreover, it represents the details of an employee's remuneration in numeric form.	The document contains all information concerning the tax payment.
Issued on payday along with pay stub	Issued on pay day along with pay stub	These are given once a year
Helpful for employees to understand their pay and verify the accuracy	Useful to receive accurate payment for work done during the pay period	Enables to file income tax returns and report income, taxes, and deductions.

Frequently Asked Questions (FAQs)

1. Do pay stubs expire?

These do not have an expiration date. However, it's important to note that these checks are time-sensitive documents that pertain to a specific pay period. Once a new pay period begins, a recent pay stub will be generated, reflecting the updated earnings and deductions.

2. Why is a pay stub important?

These are important because they provide transparency and accountability in the payment process. They allow employees to verify their earnings, understand deductions, and ensure they are paid correctly.

3. Do independent contractors receive pay stubs?

Independent contractors usually do not receive traditional pay stubs like regular employees. Instead, they may receive invoices or payment summaries detailing the services provided and the amount due.