If you’re an owner of one of the over 30 million small businesses estimated in the U.S., there’s a good chance you have employees to manage and pay. However, payroll management is time-consuming, and you have to know exactly how to handle it to avoid legal issues with not paying your staff properly.
Whether you’ve recently hired employees or plan to do so soon, you need to know what to put on each employee’s pay stub along with your options for creating and distributing them. You also have to consider legal requirements that go beyond just paying the proper rate.
Read on for a complete paycheck stub guide to answer your common questions.
What’s the Purpose of a Pay Stub?
When considering the importance of issuing a payroll check stub to each worker, know that it serves as important documentation.
Your employee reads their paycheck stub to know exactly how many hours they worked for that period. They can also see how much money they earned, how much in bonuses or other incentives they received, and what deductions came out of their pay. Further, they can see their total compensation for the current year on the stub.
Along with providing information, a paycheck stub has uses for when your workers need to prove their income. For example, they may need to show a current paystub for a loan application or to qualify for benefits. So, accuracy is especially important.
At the same time, paystubs also help you prove you paid your workers properly. Having them in your records can help you avoid problems if an auditor or the government has questions.
What Are the Laws About Making Paystubs?
Whether you legally have to issue a paycheck stub to each employee will depend on the laws where your business operates. However, know that general payroll keeping is a federal requirement for all businesses.
Some states like Alaska don’t require them, but unions can request them. Further, you may have to issue pay stubs if you use direct deposit to pay workers.
Other states like Colorado not only require paystub for private workers but also designate what all you have to include on it. The contents can depend on the type of worker.
Government workers or small companies with just a few employees may not need to issue a payroll check stub.
What Usually Goes On a Paystub?
While states may require specific items, a pay stub template can provide a good guideline for common items.
Generally, the top of a paystub will show your company’s name and address on the left. The top-right side may show the employee’s stub number or have a title such as “earnings statement” to identify it. The employee’s name and contact details may also appear here.
The next section usually shows gross earnings for the period and year to date. This may get broken down into hours or be a flat salary amount. The pay rate also appears here.
After the wages usually comes a section for withheld taxes. This gets broken down by line item to include things like federal, Social Security, Medicare, state, and any city tax. This may show both the employer’s and employee’s portions.
Other deductions and contributions should appear in another section. For example, this may show contributions made to retirement accounts and premiums for health and dental insurance. If an employee has their wages garnished for something like child support payments, that also would appear.
The following section may show the worker’s use of the company’s vacation time, sick leave, and any other paid time off. Along with time accrued and used, this also usually shows the remaining balances.
Lastly, a paycheck stub usually provides an overall summary of all the above to calculate the employee’s net pay. This starts with gross earnings and subtracts the taxes, contributions, and other deductions. Any reimbursements or bonuses get added in to give the check amount.
How Do You Make a Paystub?
Luckily, you don’t have to worry about creating a paystub by hand and performing all the calculations on your own. Technology such as payroll programs or a free paystub generator tool will help save you time and reduce accuracy issues.
If you use an online payroll service or have software installed, you can usually get a paystub instantly upon request. You can even automate the process so that they’re printed or made electronically available to employees once payment is due. Often, such tools will integrate with your company’s time tracker to do all the work for you.
Comprehensive payroll tools though can come with some downsides. You usually have to pay a subscription fee that may seem too high if you don’t have a ton of employees. You also have to consider the setup time needed.
If you only have a few employees or just don’t want to pay for expensive payroll software, you can find easy-to-use websites where you can create pay stubs. While these do require a bit more work, you may find them simpler and cheaper for your small business.
Such websites usually provide a paystub maker in the form of templates to select. You then enter information that goes on the paystub, like your company’s and employee’s information.
You’ll usually need to enter things like hours worked, pay rate, deductions, and contributions manually. However, the paystub template maker may be able to calculate taxes automatically based on those numbers. Further, the tool should compute the net pay for you.
Now You Know All About Paystubs
With this pay stub guide in hand, you now know why you need to issue this important document to employees and what you need to include. You also know a few options for making paystubs, and you may need to do some further consideration to decide which is right for you.
If you just hired your first employee and need to issue payment, a paystub maker can offer the fastest method. But if you expect to have a larger staff, paying extra for payroll software can be worth it.
If you need more payroll advice for small businesses, our blog has other helpful content. Be sure to go check out some of our other business posts.