It is true that technology has revolutionized every sector of the world’s economy, and the employment sector isn’t either let out. In the old days, after the completion of the working period, employees were paid using the simple checkbooks. However, as time evolved and technology takes its way, things began to change. The demand for more advanced and better methods of payment increased in the employment sector. More and more employees begun to demand proof of their pay, including how much tax and other deductions they are charged. Therefore, employers say it good to introduce pay stubs in order to improve the accuracy of payment.
A pay stub, also known as a paycheck, refers to a document given to an employee by the employer and includes the amount that the employee is paid in every pay period. Also, a pay stub clearly indicates the taxes and deductions an employee is subjected to at the end of the payment period. Other than that, the document goes ahead to include the actual amount that each employee takes home after the total taxes and deductions have been accounted for, i.e., the net pay.
Usually, the pay stubs can either be given in the electronic or printed form. The choice greatly varies from one state to the other.
Pay Stubs Purpose
A pay stub/paycheck often contains critical information that is useful not only to employees but to their employers as well. For employees, they use the paystub to confirm and ascertain their income. Through reviewing the stay stubs, employees make sure that they are paid correctly and as expected. Plus, they understand their deductions well hence preventing any doubts or misunderstandings from happening.
On the other side, employers also use the pay stubs to solve any disagreements that may occur with employees’ pay. For instance, if an employee raises a complaint about his/her pay, an employer can simply refer to their pay stubs so as to seek a clear resolution. As if that’s not enough, a pay stub can also be used during tax time to fill out the W-2 form.
What Information is Included in a Paystub?
Oftentimes, a pay stub typically includes the following information:
Gross pay refers to the total income that an employee is expected to get before any deductions. Some of the most common deductions an employee is likely to be charged include taxes, retirement contributions, social security, and medical insurance, to mention a few. So as to bring this home, gross pay is the amount an employee negotiates for during the job interview. Usually, the gross pay is calculated by dividing the annual salary by the number of pay periods within that year.
Taxes, deductions, and contributions
If you’ve just been employed and are excited by the gross pay, know that you got it wrong. Wait till your deductions have been made before you put a smile on your face. Usually, employees don’t take home their gross pay. Depending on the state and the region you work, a pay stub will always highlight all the taxes and other deductions with which you are entitled to pay.
When it comes to taxes, there are usually different types that are deducted from the gross pay. These include the federal tax, state tax, local income tax, and the FICA tax. Each of these tax does have a separate column in the pay stub.
Also, there are benefits and other deductions that an employer may be entitled to pay. These may include insurance premiums, retirement contribution plans, loan repayments, mortgage payments, charity contributions, garnishments, and back pays, among others. Back pays refer to the amount an employee owes an organization.
Lastly, on deductions is employer contributions. These are the contributions you make as an employer. These may include the amount you contribute towards employee labor protection organizations, savings, among others. Also, you may contribute to other benefits, such as the Federal Insurance Contribution Act (FICA). FICA usually accounts for an employee’s social security as well as Medicare plans.
Net pay is the amount an employer is left with after all the deductions have been accounted for. In other words, it’s the amount an employee gets in his or her bank account. In a pay stub, you can find both the current net pay and the previous one included.
If you weigh out on a job offer, you can always calculate your net pay and get an estimate of the amount you will be taking home each payday.
When is Pay Stub Required?
A pay stub might be necessary under the following situations:
When securing a house or getting a loan
If you want to buy a house, rent an apartment, or planning to apply for a loan, a pay stub might help you out. In some cases, you will be requested to provide a copy of your recent pay stubs. Most financiers use the stubs to validate and to prove that your income is sufficient to either support the applied loan or buy a property.
When verifying employment or payment history
A pay stub can also provide proof of your employment or past payment history. In some interviews, potential employers may ask for your past payment history as part of the hiring process. Therefore, you will have to print your pay stubs and present to them.
When ensuring your payment is done properly
A pay stub can be used to clear any doubts regarding your payment. It’s therefore recommended that an employee gets into the habit of reviewing their pay stubs each time they get paid. This is particularly important when you are starting a new job. Through the pay stubs, you’ll get to know what deductions apply to you.
Free Pay Stub Templates
Pay stubs are becoming increasingly more important not only to employers but to employees alike. A pay stub often comes with lots of benefits. First, they provide proof of payment from employers at the end of each payday. Also, they help solve out any misunderstandings that may occur between the employer and the employee. Lastly, they can be used to process loans, but properties or rent an apartment. Due to this, it is recommended that each employer provide their employees with pay stubs to improve efficiency in payment.