According to the BLS, 73.3 million workers above the age of 16 in the U.S. were paid at hourly rates in 2020. If you’re a small business owner, then you probably have hourly workers in your employ. At the end of each pay period, how do your employees receive their paychecks from you?
Whether your employees receive a check or a direct deposit, if all they see is the net pay, you can expect them to ask questions. How did you get to this number?
That’s where a pay stub can help. A single number is meaningless without context, but a check stub can provide that context. It assures your employees that they’re getting proper compensation for the hours they worked.
What information should you include on a payment stub? Below are the recommended items.
Company and Employee Details
A paycheck stub or wage slip starts with the basic information on both the employer and employee. It should include your company name, address, contact numbers, and any relevant license numbers. What needs to be on the pay stub regarding the employee are the name, address, telephone number, and sometimes the Social Security number.
Pay Date, Pay Period, and Pay Rate
The payslip should specify the pay date (the actual date that the worker gets paid) and the length of time it covers, which is the pay period. The pay rate is the regular hourly rate for hourly employees or the salary amount due for the pay period for salaried employees.
The Gross Pay Is the Meat of the Pay Stub
The gross pay is what’s owed to the employee before you take out any taxes or deductions.
To calculate the gross wages for hourly workers, you just multiply the hourly pay rate by the number of hours worked in the pay period. For employees with salaries, the gross pay is their annual salary divided by the number of pay periods in the year.
The check stub should also reflect any overtime or double-time pay for eligible workers.
Taxes and Deductions
We all know this is coming. So that the reduction in pay doesn’t blindside your employees, you should include a breakdown of all the deductions in the pay stub. Here are some of the typical deductions:
- income tax deductions (including federal tax, state and local taxes, Social Security, etc.)
- employee benefits deductions (health insurance, retirement plans)
- voluntary deductions (for example, donations to charitable institutions)
- involuntary deductions such as child support
If you’re using a check stub maker, then most items on this list will be abbreviated on the pay stub (e.g. YTD, FICA). You can refer them to the stub generator’s website to help them make sense of the different deduction codes.
The Net Pay Is the Bacon
Finally, we’ve arrived at the net pay or the take-home pay. It’s the amount of money remaining from the gross income after taking out all the taxes and deductions. This is how much “bacon” they’ll be bringing home on payday.
Providing Insight to Employees
A pay stub contains valuable information that your employees will appreciate. It helps them understand their wages, taxes, and deductions and placates their worries of not being paid correctly.
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