You can create pay stubs manually or use payroll software so employees can track wages, taxes and deductions.
- A pay stub is a financial document that details how an employee’s money was distributed.
- Gross earnings, commissions, bonuses, taxes, and health insurance premiums are all included on a pay stub.
- Although you may manually produce a pay stub, payroll services greatly simplify the process.
- For company owners who want to learn more about pay stubs and how to make them, read this article.
It’s essential to provide pay stubs for each pay month if you have employees. Pay stubs are used to give employees with a summary of their pay, including deductions, as well as a receipt for the payment of wages and withholding taxes. Manually creating pay stubs might be time-consuming, but any reliable payroll software or service makes it simple.
What is a pay stub?
A pay stub is a financial document that details an employee’s compensation. Stubs display a worker’s total earnings for a certain pay period, including salaries, commissions, bonuses, and gratuities. Pay stubs also include itemized deductions for expenses like health insurance premiums and employer-sponsored retirement plans, as well as withholdings for taxes like Medicare and Social Security (FICA). How Many Pay Periods Are There in a Year? is a related article.
A pay stub functions as an employer’s payment receipt. It also serves as a record of the amount and reason for any deductions made from each employee’s paycheck. Historically, pay stubs were physically connected to employees’ paychecks, hence the name. For firms who utilize a paperless payroll or a payroll provider, pay stubs are now often given digitally and are accessible online for download as necessary.
Pay stubs are an integral aspect of payroll accounting and are regarded as a best practice in payroll accounting, even though companies are not compelled by federal law to provide employees one.
What is included in a pay stub?
Pay stubs provide an employee’s revenue breakdown for a certain pay period. They begin with the entire gross salary earned by an employee throughout the pay period. They also include notes for deductions made by employees for things like taxes, health insurance premiums, and retirement plans like 401(k) plans. [Discover the distinction between gross and net income.]
The following items can be found on a pay stub:
Gross earnings, whether determined by an annual salary, an hourly rate, or another arrangement, are the sums that an employee earned throughout the covered pay period. Should You Pay Employees an Hourly Wage or a Salary?
Commissions and bonuses:
Any additional payments made by the company to the employee (outside of reimbursements), such as commissions and bonuses, are also shown on the pay stub. Find out how to compute bonus taxes.
A pay stub also shows any federal, state, or local taxes taken from an employee’s paycheck, including Medicare and Social Security taxes (and itemized).
Health insurance premiums:
Any employee payments for health benefits are included as deductions from the employee’s gross salary if you provide health insurance to your employees.
Retirement plan contributions:
If the employee chooses to take these deductions, contributions to a 401(k), SIMPLE IRA, or another employer-sponsored plan are also counted.
Give stubs may include tips or incentives received from the employer, but they exclude tips that clients voluntarily pay.
Why are pay stubs important?
Because pay stubs act as an employer’s receipt for payment, they are a crucial component of the payroll processing process. They confirm that employee deductions for health insurance and retirement plan payments, as well as taxes, were made as necessary for a certain pay period. [To complete your paycheck, just adhere to these eight simple procedures.]
Income stubs are much more valuable to employees since they provide a breakdown of their pay, but they are only marginally important to employers. They serve as evidence of payment, which is crucial if the worker wishes to apply for a loan. The majority of lenders want one or two months’ worth of pay stubs when an employee applies for a mortgage.
Who should employers create pay stubs for?
Federal law does not force companies to produce pay stubs, but it is crucial to do so for every employee. If you pay yourself a salary as the firm owner, you need also make pay stubs for yourself. These pay stubs demonstrate the gross earnings and other deductions made, and they are essential if you or your workers wish to apply for a mortgage.
However, it’s crucial to understand that there is no such thing as a salary if you operate a business organized as an LLC taxed as a partnership. Pay stubs are usually not required since any money distributed to owners is seen as a profit distribution. Which LLC Taxes Does Your Business Need to File? is a related article.
How to make a pay stub for your employees
Using one of the top payroll software providers, accounting or payroll software, or a pay stub generator is the simplest method to create pay stubs for employees. Although it is conceivable, manually creating pay stubs is not actually essential. But here’s the procedure if you want to manually generate pay stubs for W-2 workers:
- The employee’s entire gross compensation for the pay period should be the first step.
- Add the withheld tax deductions (federal, state, and local if applicable, as well as FICA).
- Subtract the health insurance premiums that were paid by the employee.
- Subtract the retirement plan contributions made by the employee.
- Add any additional deductions (such as for other insurance coverages).
- Determine the employee’s net compensation, which is the sum that appears on their paycheck.
If you’re writing a physical check to an employee, attach the pay stub you created for them for a particular pay period to the check. Provide pay stubs digitally, if desired, via an online portal or email.
Using payroll software or a payroll service, which will automatically compute employee pay, withhold taxes, and calculate deductions, is simpler for small business owners than creating their own pay stubs. These choices also automatically generate pay stubs and make them accessible online via an employee portal.
Should you make your own pay stubs?
It is simple to create pay stubs for your employees by using the steps above, albeit it can be laborious and take some time. There are several pay stub generators and templates online if you wish to create your own pay stubs. By state and employee type, several templates are available for Word and Excel.
You must, however, keep up-to-date with employment tax rates, federal and state tax brackets and rates, and other regulations on withholding and deductions whether you produce pay stubs using a template or other tools. To precisely determine the itemized deductions and withholdings for each employee and to deliver appropriate net pay amounts, you’ll need all of this information. It’s typically simpler to employ specialized software or select a payroll service to conduct these activities due to the time needed.