What Is a Pay Stub?

What Is a Pay Stub (Statement)?

A pay stub is a document provided by employers to show an employee’s earnings for a particular period of time. The earnings on the pay stub appear as gross pay alongside deductions such as taxes, Social Security, Medicare, health isurance, 401(k), i.e. deductions going towards retirement, and more. Finally, it shows the net pay after all deductions. Also, the pay stub often mentions the employee’s position within the company along with some personal information, pay dates, year-to-date earnings, and a summary of deductions.

As a rule, a pay stub incudes the following information: 

• Employee’s name, address, ID, and job title.
• Company name and address.
• Pay period: start and end dates.
• Pay date: paycheck’s date.
• Gross wage: total earnings before deductions.
• Deductions: federal, state, and local taxes, Social Security, Medicare, and other withholdings.
• Net pay: take-home pay.
• Year-to-date (YTD) Totals: cumulative earnings and deductions.
• Hours at work: total regular time and overtime.
• Pay rate: hourly rate or fixed salary.

A pay stub acts as a pay statement, salary statement, or an earnings statement. What role do pay stubs play? Most importantly, they clearly show how much an employee makes and ensure transparency and compliance with labor laws on the part of the employer.

Are Employers Required to Provide a Pay Stub?

Each country, state, or region has its own requirements regarding the pay stub provision. Though the US federal law does not require employers to produce pay stubs, each state has its own rules in that regard. In some states, businesses must produce written or electronic stubs with a breakdown of the period’s earnings and deductions. Other states are less specific or have no particular regulations regarding pay stubs.

In states where such rules exist, delinquent businesses may face penalties. There is, however, a clear upside for compliant companies as those who supply their employees with pay stubs are better protected against possible pay-related lawsuits since pay stubs ensure transparency in employer-employee relations. 

How Are Pay Stubs Created?

Depending on the company size and the level of automation of work processes, employers can generate pay stubs differently. Those businesses that rely on payroll or other automated management systems have all the components – gross wages, tax withholdings, various deductions, and net pay – that go into the pay stub calculated automatically. In order to make such calculations as accurate as possible, the wage software normally accounts for inputs from various time-tracking tools to reflect regular work hours, overtime, and other factors affecting the pay.

Smaller businesses or those companies that do not use automated payroll systems, rely on popular spreadsheet software like Moscrosoft Excel to generate pay stubs manually. In this case, all relevant employee information, including earnings and deductions, is entered by hand. For lack of other, more up-to-date tools they cannot afford or consider uneconomical, small companies have no choice but to rely on rather time-consuming and labor-intensive procedures, running the risk of making human errors. 

However, businesses always have the option of outsourcing the payroll number-crunching routine to a third party. These service providers usually handle the entire payroll cycle, from data generation to pay stubs distribution. Those businesses that are not willing to process their payroll themselves, are better off delegating it to professional contractors as they are better equipped to account for the intricacies of applicable laws and regulations. Quite often, such service providers make electronic pay stubs available through an online portal.