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What is a Pay Stub?

A pay stub is an itemized record of an employee’scurrent pay. It includes all earnings for a specific pay period (hourly wagesor salary, overtime, tips and commissions) as well as all current andyear-to-date deductions, FICA tax, and income tax withholdings.

While most states do not require employers to providepay stubs to their employees, many institutions still request pay stubs asproof of income and stable employment.

A pay stub is a document fromthe employer that breaks down an employee’s pay for a specific pay period. Thepay stub reports:

  • The number of hoursthe employee worked
  • The gross wages thatthe employee was paid (before any deductions)
  • Federal, state, andlocal taxes withheld from gross pay
  • Other withholdings,such as the worker’s share of insurance premiums
  • Net pay

The employee should receive apay stub each pay period.

The pay stub information should match the data on each employee’s W-2 form, which individuals use to file their personal tax returns. To create a pay stub, the first step is to have each employee complete a Form W-4. Once you have a completed W-4, you’ll need to collect additional information for the pay stub.

Who Needs Pay Stubs?

Employers

Employers need to generate pay stubs, because somestates require firms to file and issue pay stubs. The total dollar amount ofall pay stubs should be compared to the wage expenses and other labor costs inyour accounting records.

Employees

For employees, the most important function of paystubs is record keeping.

  • Manyinstitutions require pay stubs as proof of income, even if employers are notrequired to provide them. Some entities require pay stubs as proof of incomewhen you’re applying for a loan or renting a home or apartment.
  • Thedetails about the employer and the worker’s salary prove employment and totalincome.
  • Paystubs show an employee’s income, taxes paid, and other contributions. As such,it’s useful for someone who is filing his or her tax returns.

Independent contractors, subcontractors

Contractors, bydefinition, are not employees and do not have taxes withheld from pay. Theseworkers receive 1099s at the end of the year, which verify income received froma client.

A pay stub can help the contractor verify that the dollar amount on the 1099 is correct. If Acme Manufacturing pays you $5,000 for contracting work in 2020, that dollar amount should be listed on the 1099, and on the year-end pay stub. If the amounts don’t agree, contract the client to resolve the problem.

Self-employed

As a self-employed person, you will still find paystub records extremely useful.

If you’re the owner of a single-member LLC, forexample, it’s important to keep track of all payments made from the LLC to yourpersonal bank account. You need to separate your business expenses frompersonal transactions, so that you can report the correct amount of businessprofit on your tax return.

Even if you are self-employed, many banks andinstitutions will still require pay stubs.

Here are some common types of jobs thatrequire and use pay stubs:

  • Corporations: Both small and large corporations of all types
  • Retailers
  • Tradespeople: Plumbers, carpenters, tree service firms, landscapers
  • Startup firms

Who Needs to Prove Income Using a Pay Stub?

Employees, contractors, and independent contractors need pay stubs as proof of income and stable employment. Here are some situations that require the information from a pay stub:

  • Home or car loan:
    The income reported on the pay stub supports your ability to repay a loan. If you’re leasing a vehicle, the car dealer will want proof of your income.
  • Rental property:
    Pay stub information helps a landlord confirm your ability to make rent payments.
  • Business loan:
    Contractors and self-employed workers may need business loans, such as a line of credit. The pay stub supports the loan application.
  • Disability:
    If you’re injured and need to file a claim for disability, the pay stub verifies the income you earned before you became disabled. If you file a lawsuit claiming a disability injury, the pay stub information will support your claim of lost income.
  • Applying for visas:
    In some cases, individuals who are applying for visa need pays stubs to verify income.

What Workers Need to Know About Paystubs?

A pay stub contains a large amount of information, and the amount of detail may cause confusion for workers. Here are four issues that each worker must understand:

  • Current period vs. year-to-date wages:
    The pay stub should clearly label wages as either for the current period of year-to-date. The worker must understand the dollar amount of wages paid now, and the amounts earned so far this year.
  • Gross wages vs. net wages:
    The dollars paid to the worker in a particular period are net wages. Gross wages, on the other hand, is the amount of compensation before any deductions. The worker should be able to take gross wages, subtract all withholdings, and calculate net wages.
  • Salary vs. hourly wages:
    Both of these topics are explained in detail below. Workers must understand if gross wages are calculated using an annual salary number, or based on hours worked in a given pay period.
  • Pay schedule, number of pay periods:
    A worker needs to know when payroll is processed, in order to create a personal budget and plan for bill payment. Total number of pay periods in a year depends on how often the worker is paid. For example, if you receive weekly payments – there are 52 pay periods in a year, bi-weekly is 26, semi-monthly is 24 and monthly is 12.

If your pay stub clearly addresses each of these issues, you’ll avoid confusion and get fewer questions from workers.

In addition, if the worker understands how to read a pay stub, the employee may be able to catch errors or potential fraud.

Say, for example, that you submit $1,200 in pay stub gross wages to the bank account, but the bank deposit indicates $1,050 in cash paid. You and the worker can quickly find the difference, so you can investigate.

The Risk of Fake Pay Stubs

Fake pay stubs can create a variety of problems for businesses. A dishonest person may create a fake pay stub to support income listed on a loan application.

As a potential lender, you can check the math on a pay stub, along with the document layout and fonts to determine if the document is real. The best evidence, however, is to call the company listed on the pay stub, and confirm if the individual is (or was) an employee.

You can avoid problems with issuing your own pay stubs by using FormPros software.

Information Posted to a Pay Stub

While state requirements forpay stubs can vary, pay stubs generally include this information:

  • Employer’s company details: business name, address.
  • Employee’s personal details: name, address, Social Security Number.
  • Payment cycle: The number of pay periods determines how much salary is paid on each payroll date. It also determines the start and ending days for computing hourly payroll.
  • Wages: Gross pay and net pay. Wages may be based on a salary, or calculated using an hourly rate of pay.
  • Hours worked, hourly rates of pay (straight time, overtime), if applicable
  • Tax withholdings: Federal, state, and possibly local amounts withheld for taxes.
  • Benefit withholdings: Amounts withheld for the employee’s share of insurance premiums, or funds to be invested in a retirement plan.

Here are additional details onsome important pay stub components:

Gross wages

Wages earned before any withholdings or deductions aresubtracted. Gross wages for a pay period amount are calculated in one of twoways:

  • Salariedemployees: (Annual salary / number of payperiods in a year)
  • Hourly employees: (Hours worked X pay rate per hour)

Gross wages may include additional compensation, includingsick pay, holiday pay, or bonuses.

Hours worked, pay rate

The hours worked total is particularly important fornon-exempt (hourly) workers. The pay stub should include regular hours (up to40 hours per week), and overtime hours.

The pay stub must detail all hours worked, and the rate ofpay earned for each hour. Some workers, including those covered by unioncontracts, must be paid a specific rate of pay for overtime or double-timehours.

Salaried workers may also see hours listed on their paystubs.

Tax deductions

Workers determine their federal income tax withholdings amountsby completing Form W-4, and each state has a tax withholding form.

FICA tax is collected to fund Social Security and Medicare.For 2020, the employee tax for Social Security is 6.2% on income earned up to$137,700. The Medicare tax rate is 1.45% on all wages, and high-incometaxpayers will pay an additional 0.9% tax for Medicare. The total employee FICAtax rate is 7.65% in 2020.

Employers also pay 7.65%, and the cost is deducted as a business expense. The employer’s payments are typically included on the pay stub.

Benefit deductions

Workers often pay a share of the insurance premiums forcompany-provided health insurance, and may contribute into a retirement plan,such as a 401(k) plan. 401(k) contributions are made with pre-tax dollars, andthe employer may add matching contributions.

Unemployment taxes

Unemployment programs are funded by the FUTA tax (federal)and the SUTA tax (state). These amounts are paid by the employer, but alsoreported on the pay stub.

Net pay

Net pay is the actual dollars paid to the worker, after alldeductions.

Here’s an example of calculating net pay:

Calculating Net Pay

Sally’s annual income is $60,000, and her employer processes payroll 26 times a year (every two weeks). Sally’s gross wages each pay period total ($60,000 / 26), or $2,308 per pay period.

Based on the allowances on her W-4, your company shouldwithhold 20% of her gross pay ($462) for federal taxes, and 5% ($115) for statetaxes. Sally also pays $50 each pay period for her share of the company healthinsurance plan.

Sally’s net pay is $2,308, less a total of $577 for taxes,and $50 for her health insurance premiums. Her net pay is $1,681.

The pay stub must include all of this information for the current payroll period and year-to-date. The pay stubs you generate may also include unemployment tax payments. Hourly workers need detail on their total hours worked, and any hours that are paid as overtime wages.

State Requirements for Pay Stubs

The federal government does not have a pay stub law that allstates must follow. However, the Fair Labor Standards Act requires employers to“keep employeetime and pay records”. Your state’s Department of Labor website determines thepay stub rules for your state.

First, you must verify is an opt-out or opt-in state:

Opt-out States

Before a business changes theway it delivers pay stub information, it must get the employee’s consent. Ifthe worker doesn’t consent to the change, the business must stick to the oldmethod. Here are most of the opt-out states:

Alabama, Arkansas, Florida, Georgia, Louisiana,Mississippi, Ohio, South Dakota, and Tennessee

Opt-in States:

The business must offer a paper version of the pay stub. If the employee chooses to receive pay stubs electronically, the paper version is not required. Here are most of the opt-out states:

California, Colorado, Connecticut, Iowa, Maine, Massachusetts, New Mexico, North Carolina, Texas, Vermont, and Washington.

Complex States:

Finally, these states have more complex rules than simplyopt-out or opt-in. Each state’s rules are unique:

Delaware, Hawaii, Minnesota, and Oregon.

I Need A Program That Make Check Stubs For A

Next, determine therequirements for your specific state:

  • No requirements: Some states have not created statewide rules for pay stub. As a result, employers are not required to provide a pay stub.
  • Access states: These states require you to provide some form of a pay stub, either an electronic or paper version.
  • Access/ print states: In these states, you can provide either an electronic or paper version. However, your employees must have a convenient way to print the pay stub, or to access it online.

If you operate in multiple states, you may have to meet several different requirements.

What Are Some Common Mistakes When Creating Pay Stubs?

Supplying incomplete or inaccurate information.

Many people make the mistake of taking pay stubs for granted. As such, a lot of them end up not putting the correct or complete information on the stub. Businesses don’t list payment dates or the pay period, or don’t include full contact details for the employer or the worker. This approach will cause trouble when computing taxes later on.

Mistake in the computations.

This is a tricky one, because there is actually quite a bit of computation that goes into making a pay stub. For example, incorrectly stating total hours worked during a pay period can result in a mistake in the year-to-date balances. Many users often put 40 hours worked on a bi-weekly pay stub while they actually meant to put down 80 hours. For this reason, it’s always better to use an automated pay stub generator. Automation reduces that likelihood that there will be a mistake in the computation.

Throwing it away.

Need

Some people don’t pay attention to their pay stubs and throw it away without so much as a quick read through. Try to keep you pay stubs at least until the end of the tax year. These will help you verify if your employer has been making the correct payments on your behalf. Also, you may need to show your pay stubs when you apply for a loan or a try to rent a new apartment.

How Do I Create Pay Stubs Online?

Many employers are replacing payroll companies and accountant services with FormPros pay stub generator. Employees and contractors can also take advantage of this user friendly system to create pay stubs to verify employment. Formpros.com pay stub generator can instantly create your check stubs online today.

To start, you’ll need somebasic contact information for both the employer and the employee. Then ourintuitive form will ask you some simple questions about employee’s salary, aswell as current pay date and pay period. If you have chosen our advancedtemplate, you will be able to enter additional earned income, such as overtime,tips, holiday pay, and sick pay.

I Need A Program That Make Check Stubs Free

The entire process of creating a pay stub online will take you just a few minutes. Our intuitive form will even help you auto-calculate amounts that should be withheld for federal and state income taxes, FICA, Medicare, and Social Security Taxes. The form will calculate all gross, net, and year-to-date balances for the current pay period. Rest assured that your information is kept private and secure.

Why Use Form Pros Pay Stub Generator?

Our pay stub generator is afast and easy way to create pay stubs online. The process is fully automatedand user friendly. All calculations of deductions and income tax withholdingsare based on current tax laws and requirements, which we keep up to date withevery new tax year.

I Need A Program That Make Check Stubs Online

Our intuitive pay stub generator lets you instantly and efficiently create pay stub records for a fraction of the cost that you would normally pay an accountant or a payroll company.

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