Pay stub, pay slip, paycheck stub—they’re all words for the same thing. When employees receive their paychecks from you, the pay stub is what outlines the details of their pay each pay period.
While employers are not required by federal law to provide employees with a pay stub, many states have laws that require some form of a written pay statement. And even if you’re not in a state that requires business owners to create pay stubs, you’re still required by the Fair Labor Standards Act to keep track of the hours your employees work.
On a physical paycheck, a hard-copy pay stub is typically attached to the same piece of paper via perforation. If you pay your employees with direct deposit, their paychecks are electronically deposited into their bank accounts; they can then access their pay stubs via your online payroll system.
Pay stubs are a record of the salary details and wage information for employees and self-employed workers, such as independent contractors or freelancers. It’s important for you and your human resources team to know what’s included in them, as well as be aware of any state laws, current tax laws, and other requirements associated with pay stubs that are important for tax filing, generating Forms W-2 and 1099 for tax returns, or the like.
Why should I provide a pay stub?
As the employer, a pay stub is useful for tax purposes, and it can be used to resolve any discrepancies with employee pay.
For your employee, it provides a record of their earnings, helps them understand their taxes, contributions, and deductions, and allows them to ensure they were paid correctly. It can also serve as proof of income or employment for them, which is often required when applying for a loan or housing.
Because of this, you may want to consider making it as hassle-free as possible for your employees to access their pay stubs, even if it’s not a requirement in your state.
What information goes on a pay stub?
A pay stub typically includes the following:
Employee information, including name, social security number, and address
Employer information, including the employer’s name and address
The dates of the pay period
Employee pay rate
Gross earnings, or their earnings before taxes, employee contributions, and deductions are taken out
Taxes withheld, such as federal income tax, and if applicable, state or local taxes, plus the employee’s share of FICA tax (which includes Medicare taxes and Social Security taxes)
Employee contributions, such as to retirement plans or pensions
Deductions, such as for health insurance or life insurance
Net pay, which is the total amount the employee actually takes home in their paycheck after all taxes, contributions, and deductions are subtracted from gross earnings
From an employee’s point of view, the following sections are especially important:
Gross wages
This number reflects the amount you pay your employees before taxes, contributions, and other deductions. Under gross earnings for hourly employees, it should list the hourly rate and the number of hours they worked. For salaried workers, the default is 40 hours per week.
The pay stub should also indicate overtime pay, if applicable, and any overtime hours worked. If an employee received any bonuses, that would also appear under gross earnings. Note that some states also require additional information, such as accrued sick leave, to be included. Year-to-date (YTD) gross income on a pay stub reflects total earnings that have been paid out by any given pay period.
Deductions
As the name implies, a deduction is any amount of money that is taken out of an employee’s gross wages, such as taxes and contributions. It’s important to include these numbers on your pay stubs so your employees know how much is taken out of their checks every pay period.
Taxes
Taxes are one kind of deduction listed on employee pay stubs. Employees can expect to see FICA tax deductions removed from their paychecks, as well as federal and state income tax withholdings.
Contributions
Another kind of deduction taken out of employee paychecks, contributions are often directly related to the types of employee benefits you offer to your workforce. These deductions include insurance premiums and contributions to retirement or savings plans.
Note that if you offer employer contributions—such as 401(k) employer matches—they’re typically added to their gross wages instead.
Net pay
Once all the deductions above have been taken out of your employee paychecks, they’re left with their net pay (also called take-home pay). Depending on how much is deducted every pay period, your employees’ take-home pay may look a lot different from their gross pay. This is why it’s important to note every deduction taken on a pay stub.
Here’s a sample electronic pay stub, as well as a guide to reading a pay stub with all the details on it.
What requirements does my state have about providing pay stubs?
As mentioned earlier, federal labor law does not require you to generate pay stubs for your employees. However, many states have laws and regulations that do require you to supply them.
Let’s break down the three types of actions your state may require:
Do you live in a state with no requirements? If you’re in a state like Alabama and Florida, which haven’t created their own rules, you don’t have to provide any kind of paycheck stub
Do you live in an “access state”? States like Ohio and Texas require you to provide some type of stub, either electronic or paper
Do you live in an “access/print” state? States like Indiana and Kansas allow you to provide either an electronic or paper stub, but employees who get electronic stubs must have an easy way to print or access them
You also need to figure out whether you’re in an “opt-out” or “opt-in” state:
In opt-out states, businesses must get employees’ consent before changing the way they deliver paycheck stubs and must adhere to the previous method if an employee prefers
In opt-in states, employers must offer paper stubs unless an employee chooses to get the stub electronically
Check your state’s Department of Labor website to figure out what kind of state you live in and ensure you’re compliant with any applicable regulations.
How long should I keep employee pay stubs?
You should aim to keep your employee pay stubs and payroll records for at least four years.
The IRS requires employers to keep their employment tax records for at least four years after filing. Additionally, the Fair Labor Standards Act (FLSA) and the Age Discrimination in Employment Act (ADEA) both require employers to keep at least three years of employment records, while the Equal Employment Opportunity Commission (EEOC) mandates that all employment and personnel records be kept for at least one year.
Whether your workforce is mostly made up of salaried or hourly workers, it’s clear that you’ll need a way to calculate and store all of their payroll details. To streamline these record-keeping requirements for your small business, look for a payroll service provider or payroll software that keeps electronic copies of these documents on your behalf. Those user-friendly services or tools can provide pay stub templates or the best pay stub generators for you, and even perform auto-calculations as well as automatically file payroll taxes.
FAQ
Are there specific requirements for showing taxes and benefits on a pay stub for different states?
No, states typically do not have specific requirements for displaying taxes and benefits on a pay stub. The states that do require employers to provide pay stubs only specify what type of pay stub—electronic or paper pay stub—not which information should be included on the pay stub. That said, it’s usually standard practice for a pay stub to include the amount of taxes withheld for federal and state income taxes, plus FICA taxes. Most pay stubs also have indirect information about employee benefits. For example, their paid time off, their retirement contribution, bonuses, or premium contributions for health, dental, vision, or life insurance.
How do I handle errors or discrepancies on an employee’s pay stub?
If you or your employee spots a mistake on their pay stub, the best course of action is to address it right away. That starts with verifying the error or discrepancy. You may need to gather the employee’s old timesheets or previous pay stubs to understand what went wrong. Once you know exactly what happened and what the employee should have been paid, you need to reach out to let the employee know about the issue, apologize, and correct it. If you underpaid the employee, you may need to issue a manual payment right away or explain that you’ll make up for the underpayment on the next payroll cycle. If you accidentally overpaid the employee, you’ll need to withhold payment from their next payday.
Make sure you check with your state’s laws around payroll errors (states like California require employers to correct payroll mistakes within 30 days), and keep records of the errors and how you handled them.
How can I ensure payroll deductions are correctly listed on my employees’ pay stubs?
Correctly listing payroll deductions on your employees’ pay stubs comes down to having an airtight reconciliation process. Make sure you’re cross-checking your payroll against timesheets and other financial records at least once every pay period. To save time and cut down on potential manual errors, you can use a comprehensive payroll software like Gusto.
How do pay stubs help me track total labor costs and employee compensation?
Pay stubs help you track total labor costs and employee compensation because they serve as frequently updated itemized lists of everything that goes into paying an employee. Think: an employee’s gross pay, number of hours worked, federal and state tax withholdings, pre- and post-tax deductions (like a 401(k) or Roth IRA), employee benefit payments, and paid time off. You can review your pay stubs for a more accurate picture of what employees cost beyond their hourly wages or salaries.
