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How Important are Pay Stubs to Employers

One of the worst mistakes an employer can make is to take for granted the payroll management because it involves the payment of the monthly wages of the employees who are working for his or her company. Any mistake on your payroll system can cost you a lot of money.

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As a business entrepreneur, it is extremely important to understand that completing a payroll is one of the vital tasks in running a business. Most of the members of your organization rely on getting their pay on a consistent basis without any delays. As much as they have been working hard to meet the demand of your clients and customers, it is only right to make sure that they will get their monthly pay right on time. Hence, it makes sense to say that how you implement your payroll system can have a huge impact on every aspect of your business from financial planning and stability to the morale of your employees.

What Is a Pay Stub?

According to the definition provided by the Merriam-Webster Dictionary website, a pay stub is “a piece of paper that is given to an employee with each pay check and that shows the amount of money that the employee earned and the amount that was removed from taxes, insurance cost, and others.” It is considered to be a crucial element of a paycheck because it contains important details about the employee’s salary. It keeps a detailed record of the income that the employee earned for the pay period, either bi-monthly or monthly and year-to-date payroll. Among the other details that are shown on the pay stub are the taxes and deduction that were taken from the employee’s income, as well as the net pay or the final amount that is received by the employee.

The payroll department can either send out a paper printed or email pay stub to their employees. Depending on which state your company belongs, the information contained in your company’s pay stub can vary. No matter what the case may be, as an employer, it is always important to keep a copy of the payroll stubs for the purpose of payroll records.

Purpose of Pay Stubs

As mentioned above, a pay stub contains some of the basic information that can be both used by the employee and employers. Using this information, it helps show the employee that he or she has received the correct amount of payment, as well as understand the amount that has been deducted from his or her salary.

On the other hand, a pay stub is an effective tool that can help the employer settle any discrepancies with regards to the payment received by the employee. In case the employee has any issue with his or her salary, then the employer can refer to the employee’s pay stub and review all the information needed to settle the issue. Additionally, a pay stub is also used to fill out the Form W-2 of the employees during the filing of tax.

Key Elements of a Pay Stub

An employee’s pay stub is broken into three main elements. In this section, we will discuss all the essential information that is associated with each element to help you gain a better understanding.

Gross Wages

According to the definition found at the Business Dictionary website, a gross wage or pay is “the total of an employee’s regular remuneration including allowances, overtime pay, commissions, and bonuses, and any other amount, before deductions are made”.

There are different ways in which the employee’s gross pay is calculated, depending on whether the employee is paid hourly or with fixed monthly salary. To get the gross pay for hourly employees, you must multiply the number of hours worked by their hourly rate. On the other hand, to determine the gross pay of an employee with a fixed salary, you will need to divide his or her yearly salary by the number of pay periods that he or she will receive annually. The gross pay of the employee will be broken down into two different columns: the current gross pay (shows the details for the pay period) and the year-to-date totals.

To have a clear picture of the gross pay, read the following items that are provided below:

  • Number of Hours Worked – Whether the employee is paid hourly or with a fixed salary, the number of hours in which he or she has invested in working in the company is reflected in his or her pay stub. It is also important to record the kind of hour worked by the employee, such as regular, overtime, and double-time.
  • Pay Rate – In order to have a better understanding of the employee’s gross income, the pay stub should include his or her pay rate. For employees who are earning hourly, you must record his or her hourly pay rate while for a fixed salaried employee, the amount of the pay for the pay period must be reflected on the pay stub. The overtime or double-time worked by the employee must also be also be recorded.

Taxes, Contributions, and Other Deductions

As much as employees want to take home their gross pay, but sadly, they cannot because there are certain amounts that need to be deducted from the income. That is why the deductions should be itemized on the pay stub so that the employees will know what has been taken from their gross pay.

  • Employee Tax Deductions – Government agencies, such as the IRS and state tax departments will deduct a certain percentage from the employee’s gross income. The common taxes include federal income tax, FICA tax, and state and local income taxes. Just like the gross income, there should be two column for the deductions: one for the deduction for the current pay period and the other should be for the year-to-date deductions.
  • Government Mandated Benefits and Other Deductions – Other forms of payroll deduction may depend on the employee benefits that your company provides. Let us take for instance that an employee may be deducted for retirement plans and insurance premiums, charitable contributions, loan payments, and other forms of voluntary deductions. Make a section in your pay stub and list down all the deductions that have been made, as well as the current and year-to-date totals.
  • Employer Contributions – While there are items that are included in the pay stub, they do not necessarily mean that they will be deducted from the employee’s gross pay. The amounts that are reflected on the pay stub are the contributions made by the employer. Let us take for instance, the employers pay certain taxes, such as the SUTA tax, FUTA tax, and a portion of the FICA tax. Additionally, the employer also contributes to employee benefits, such as retirement plans and insurance premiums.

Net Pay

An employee’s net pay, which is also known as net income or take home pay, is defined as the total amount that is left after subtracting all the necessary deductions from the gross income. The amount of the net pay is reflected on the pay stub for the pay period and year-to-date net pay. After getting the total net pay, the employer should either deposit the amount directly into the employee’s bank account or write it on the employee’s paycheck.

Sample Pay Stub Templates that You Can Download and Use as References

Having a good pay stub template can bring a lot of benefits in your company. Of course, aside from ease and convenience, it can ensure security and accuracy of the payment that you will make for the wages and salaries of your employees. Check the following templates that are provided below. Download and edit the template to match the structure of your business and use it as a tool to boost the human resources management in your company.

Editable Free Pay Check Stub Template PDF Format

Free Download Company Pay Stub Template DOC

Blank USA Pay Stub Template PDF Printable Download

Simple Pay Stub Template

E-Pay Stub Template

Sample Pay Stub for a Monthly Paid Employee

Wells Fargo Bank Payroll Check Template PDF

Editable Company Payroll Invoice Template PDF Download

Blank Payroll Check Template

Employee Payroll Record Template

Although a business owner or entrepreneur does not receive a pay stub like their employees, it is still extremely necessary to understand all the essential information that is found on the pay stub. Having a clear understanding of the elements of a pay stub can be very helpful in resolving any monetary issues for you and your business that is why you need to be a master when creating and interpreting all in the details listed on an employee’s pay stub as it makes the payroll process a lot more accurate, easier, and smoother.

Reviewing the pay stubs can also definitely prevent mistakes on the employee’s payroll. Keep in mind that even the smallest mistake can be extremely costly on your business financially. Make sure to examine for correct pay rates, the exact number of workers, and the total amount that is earned by the employee. It can bring any potential payroll errors to your attentions in case the total payroll amount is unusually high or low. In this way, you can prevent the errors immediately and avoid any penalties that will be imposed by the IRS and potential conflict with your employees.

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