Pay Stubs: What Do I Need To Know?
What Is A Pay Stub?
It is very important for employers to know what they can get from a pay stub, like what each piece of information means and what it represents. By understanding these little items, the pay stub can help employers to filter out and spot any errors and inconsistencies in the payroll. In addition, this would also make it easier to explain and for your employee to understand. New employers should check out this pay stub creator for a quick and easy way to generate pay stubs.
The Pay Stub
A pay stub is like a detailed breakdown of the employee’s pay for the month, which includes information like the salary earned for the month of the pay period, as well as taxes that are deducted from their pay. Finally, it then also shows the final take-home salary of the employee, or also known as the net salary.
There are several ways to produce a pay stub, such as the conventional printed ones, or an electronic copy where they can access anytime. You should check with the company or manpower laws if they require a hardcopy pay stub to be issued to employees. For record purposes, it would be good to have a copy of every pay stub issued for future reference.
The pay stub is useful not only for the employer but also for the employee. Employers can use the pay stub to review and check for the correct deductions while an employee can use it to keep as a record of their salaries each month. Should there be any issues between the employer and employee regarding their salaries, the pay stub would be a good record to pull out as a reference to settle any disputes.
In general, a pay stub consists of 3 main parts, namely gross wages, taxes, deductions and contributions, and net pay. These will help both the employee and employer to be updated on the different payments.
Gross wages refer to the amount of money the employee should be getting before any deductions were made. There are mainly 2 ways to calculate gross wages which are dependent on the way the employee is paid, which are hourly or monthly salary. If the employee is paid by each hour, you can calculate the gross wages by multiplying the number of working hours by the hourly wage. For a monthly-paid employee, take the annual pay and divide by the number of salary periods for that year. This information can be found on the pay stub which helps the employee to understand how his/her was calculated for the pay period.
In this section, the gross wages are usually divided into two columns which show the current gross salary, while the other consists of the year-to-date total. There are also these three categories which would be included:
This would indicate the total number of hours that the employee has worked for the pay period. This would include the different types of working hours such as overtime or double-time pay which would be grouped accordingly. This usually applies to non-exempt workers.
2.Rate of Pay
This depends on how the employee is paid. If the employee is paid by the hour, it would be pay per hour. In the case of a monthly-paid employee, it would reflect the amount of pay each month. This section would also include any different paying systems such as for overtime payments or double-pay rates.
This section reflects the total salary before any deduction. It includes all the overtime and bonuses and payroll advances that are accumulated for the pay period.
Taxes, deductions, and contributions
The gross pay refers to the total amount of pay before any deductions. These deductions reduce the earnings by the employees and are shown in detail on the pay stub for employees to check and review the deductions taken away from their pay. Here are some common deductions which are usually seen on pay stubs:
1.Employee tax deductions
This tax is applied to every working person by the government.
2.Benefits and other deductions
This deduction depends on the benefits provided by the employer, and also includes any contributions to charity organizations or payment to loans as well as those which are voluntary.
This contribution is not deducted from the employer but represents the amount that is contributed by the employer to the employee. This can also include insurance premiums and any business retirement plans.
This represents the amount of pay remaining the employee can take home after all the deductions from the gross pay. This is the amount that would be deposited into the employee’s bank accounts. It is important for the employer to be up to date with each employee’s pay stub and understand the information it encompasses, as it aids in explaining this important information to the employee should the need for one arise.
What does a pay stub look like?
Usually, a pay stub would include several pieces of information, including those which were mentioned above, such as the employee’s name, pay period and date, working hours, gross pay, deductions, taxes, employer contributions, direct deposit information, and net pay.
How to make sense of the information on the pay stub
For the employer, you do not receive a pay stub, unlike the employees, and the pay stub is the only way of communicating salary-related inquiries. Hence, it is important for employers to understand how to interpret the pay stub to prevent any unnecessary issues between the employer and employee. In case of special circumstances such as if an employee suddenly quits, it is important to know how the pay stub works in order to properly and efficiently produce a pay stub for the leaving employee.
In addition, the use of a pay stub can help the employer to note and point out any mistakes regarding the employee’s pay and to make corrections to prevent penalties from the governmental manpower agencies. This also helps to prevent any conflicts and issues with employees about the pay stub.
Using the pay stub
The pay stub is a useful way to keep track of your employees’ salaries. It also ensures fairness and transparency in the workplace and will be your go-to if your employee raises any issues about their salary.
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