What is Pay Stub?
A pay stub, also known as a payslip, is the official document an employer gives to an employee with their paycheck. It breaks down the employee’s total earnings and all deductions for a specific pay period. This document is the key to understanding “take-home pay.”
While a paycheck is the actual payment, the pay stub is the itemized receipt that explains how that payment amount was calculated.
Key Components of a Pay Stub
A pay stub provides a clear record of an employee’s compensation. While formats vary, they must all contain specific details:
- Gross Pay: The total amount of money the employee earned before any deductions. This includes regular wages, overtime, and any bonuses.
- Deductions: All amounts subtracted from the gross pay. This category is split into:
- Statutory Deductions: Mandated by law, such as income taxes (federal, state, local), Social Security, and Medicare (FICA).
- Voluntary Deductions: Benefits the employee has opted into, like health insurance premiums, 401(k) or pension contributions, and life insurance.
- Net Pay: The final “take-home” amount paid to the employee after all deductions are subtracted.
- Year-to-Date (YTD): A running total of all earnings and deductions for the current calendar year.
Why Are Pay Stubs Important?
Pay stubs are an essential document for both employees and employers.
For employees, they:
- Verify the accuracy of their pay and deductions.
- Serve as proof of income for loan applications (mortgage, auto) or rental agreements.
- Are required for filing personal income taxes.
For employers, they:
- Provide a legal record of payment.
- Demonstrate compliance with labor laws regarding minimum wage and overtime.
Practical Example of a Pay Stub
An employee’s monthly pay stub shows $5,000 in gross pay. It then clearly lists all deductions:
- Federal Tax: -$700
- State Tax: -$250
- Social Security: -$310
- Health Insurance: -$200
The pay stub then shows a final net pay of $3,540.
From Pay Stubs to Payroll Compliance
Creating accurate and compliant pay stubs for every employee is a critical legal responsibility. Calculating complex tax withholdings, managing benefit deductions, and ensuring payroll accuracy is a time-consuming challenge for any business.
Errors in this process can lead to employee disputes, tax penalties, and significant administrative burdens.
TopSource’s managed Payroll Services remove this burden completely. We handle every calculation, tax filing, and deduction, ensuring your team is paid accurately and on time, every time.
- Want to learn more about payroll requirements? Read our blog: The Top 5 Payroll Challenges for Small Businesses.
- Ready to automate your payroll? Contact us for a free consultation