Blogs

A pay stub is a payment record issued by the employer that contains gross wages, mandatory taxes, voluntary deductions, contributions, and net pay.

What Is a Pay Stub? | Paystub Engine

Egon Tiderman
March 08, 2020

When employees receive paychecks from their employers, it's typically accompanied by a pay stub — an outline of all payroll details for an employee during a specific pay period.

Issuing a pay stub is not required by federal law. However, most states have laws requiring employers to provide some type of payment statement. Understanding pay stubs is vital for both employers and employees because it facilitates transparency and avoids confusion.

Defining a Pay Stub

The concept of payroll has existed for millennia, and some form of pay stub has been issued whenever people received payment for their work.

A pay stub, also known as a paycheck stub or payslip, is traditionally a piece of paper that contains an itemized list of payroll information. These days, a pay stub is often issued electronically, and some companies use payroll software to expedite the process.

Most U.S. states require employers to issue some type of pay stub to their employees. Even if your state doesn't require employers to provide pay stubs, businesses still have to track every employee's working hours. According to the Fair Labor Standards Act (FLSA) from 1938, employees have the right to a minimum wage, and some record needs to reflect that.

What's Included on a Pay Stub?

The first time an employee gets a pay stub, it might be challenging to navigate through all the details. The stub contains a lot of information, but it's meant to be as concise as possible. To better understand why pay stubs contain specific data, let's cover each section separately.

General Information

This section must include employee details such as name, address, and social security number. It contains the employer's information, including the company name and address.

Also in this section are the employee pay rate and dates for the pay period. The length of a pay period varies depending on the state laws and decisions made by the employer. It should clearly be stated whether the employee gets their salary weekly, bi-weekly, semi-monthly, or monthly.

Gross Earnings

Another way to view gross wages is as a starting point for the employee's salary. It's the exact sum of money the employer owes to their employee before taxes and deductions. Gross earnings must include nontaxable income such as disability wages, partnership income, and damage awards. 

The total amount of gross earnings depends on whether the employee is salaried or paid by the hour. The information about the gross salary is then typically divided into two columns — current gross wage and gross annual wage. For hourly workers, the gross earnings section must contain a total number of hours worked. Details such as overtime and double-time must be noted as well.

Employee Taxes

The gross earnings are not the amount the employee takes home. Payroll taxes are the first reductions on the total earnings. The term "payroll taxes" encompasses several different types of taxes, and they're all itemized on the pay stub. This includes:

  • Federal income tax
  • State income tax
  • Local income tax
  • State unemployment tax (where applicable)
  • Social Security and Medicare tax
  • Other state and local taxes

Deductions

Payroll taxes are mandatory deductions. However, when we talk about pay stub deductions, it mostly refers to voluntary payroll deductions.

An employee can opt to participate in various benefits offered by their employer, such as health insurance premiums and retirement plans. If the employee chooses to partake in these benefits, the pay stub must indicate each deduction. Other deductions might include life insurance premiums or job-related expenses like union dues, uniforms, and meals.

Employer Contributions

The employee pay stub also needs to show any contributions made by the employer, such as health insurance, Health Savings Account (HSA), and 401K contributions. Employees are also welcomed to invest portions of their salary in the 401K.

Employer Taxes

It's not only the employee that is required to pay the payroll taxes — employers must pay them as well. These taxes are listed in a separate section on the pay stub. The employer is obligated to pay:

  • Federal Unemployment Taxes (FUTA)
  • State Unemployment Taxes (SUTA)
  • Their portion of the Federal Insurance Contributions Act (FICA)

Employers should also check for other state-level taxes they should be paying and correctly list them on the employee's pay stub.

Net Pay

The take-home pay or net pay is the amount left after all the payroll taxes and deductions are subtracted from the gross salary. The income the employee receives in their bank account is the net pay. 

The pay stub should indicate the difference between the gross and net salary to avoid any confusion. Of all the relevant information a pay stub contains, a clearly noted difference between gross salary and take-home salary is one of the most important.

Are Employers Legally Required to Issue Pay Stubs?

No federal law mandates employers to issue pay stubs, but most states have some version of this law. Some states require that the employer only provide access to the pay stub. Others allow employers to choose whether they will issue a printed pay stub or do so digitally.

Several states don't have any requirements when it comes to pay stubs. If you live in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Ohio, South Dakota, or Tennessee, employers are not required to issue a pay stub in any form. However, the FLSA still applies, and employers must develop a system to track an employee's work hours.

Why Do We Need Pay Stubs?

While a pay stub is not the only way to track all the information about a person's employment, it's the most widely used by far. A pay stub is a useful and valuable document for both employer and employee. It records every tax payment, deduction, and contribution while providing an accurate net pay sum the employee can use in their own budget.

In addition, the employer can check the pay stub every time the employee reports a discrepancy or a problem of any kind. It's important to point out that pay stub information can be changed. An employee might ask their employer to let them pay the taxes or deductions personally. On the other hand, the employee can't change any information on the pay stub without consulting the employer first.

The Importance of a Pay Stub

At first glance, the pay stub is just a piece of paper with numbers on it. Or an email the employer sends each week or month. But the pay stub is so much more than that.

A collection of pay stubs tell an entire payroll history and proves that every tax and deduction was paid. Fortunately, issuing pay stubs is mostly an automated process these days, though not exclusively.

Employees should keep their pay stubs safe should they ever need to use them. However, if they are misplaced, they can always ask the employer to reissue a pay stub when necessary.

If you need to create a pay stub quickly and not miss a single detail, Paystub Engine is ready to help. You can have your own custom pay stub in as little as two minutes.