How to Read a Pay Stub

Employers often have their own payroll taxes and contributions to pay. Instead, the employer pays the sums directly to the local tax authority or relevant fund. While some jurisdictions do require employers to provide their employees with pay stubs, others don’t. If you’re hiring international talent, you need to know what’s required by law in each country or state your employees work from. Employers and employees use pay statements to verify that compensation is accurate. In addition, lenders often ask to see pay stubs as proof of income or employment before approving a loan.

• Even if you are self-employed, many banks and
  institutions will still require pay stubs.
• Payroll taxes and other deductions (we’ll get to those later) reduce the employee’s earnings.
• Deductions are cash amounts taken out of the employee’s gross wages.
• It’s generally good practice for employees to save pay statements for at least one year.

If a state has different requirements than the federal government, employers must abide by whichever length of recordkeeping is greater. Most commonly, they include FICA taxes that go toward Medicare and Social Security, and federal and state income tax withholdings. Tax amounts tied to the employee’s Form W-4 might be changed at the employee’s request, especially if they’ve indicated additional withholdings.

How long should you keep pay stubs?

Paystubs are important because they lay out information about an employee’s wage during a certain period of time. They are useful to help avoid any confusion or disputes regarding pay as they clearly outline where percentages of the wage are being deducted and why. Depending on the locality, different requirements are expected to be met when it comes to paystubs, although generally the same kind of information should be included. This avoids any confusion as both parties are able to clearly see how the calculations have been made. Pay stubs may also be required as proof of earnings or employment in certain situations such as renting or buying a home.

To read it and understand how much income you are actually receiving, there are certain sections and tax laws to understand. Another critical use case for paycheck stubs is proof of income for loans. Banks and real estate agents often accept paycheck stubs as proof of income, allowing employees to rent and buy property or apply for a loan. Even if providing pay stubs isn’t a legal requirement, it’s still good practice to do so, and many employees will expect to receive one. Once you enter all the relevant information, the pay stub tool will create the pay stub for you. In this QuickBooks Payroll tutorial, @Hector Garcia CPA guides you through all you need to know about employee pay stubs.

Why should employers provide a pay stub?

Remember, pay stubs are important records of your income and serve as proof of income and employment. You should regularly review what is a pay stub your pay stubs to make sure you are being paid correctly. A pay stub includes information both employers and employees can use.

• Pay stubs are important record-keeping documents that benefit both you and your team members.
• A pay stub is a part of a paycheck that elaborates on the payment details, while a paycheck contains the actual payment owed to the employee.
• For instance, in some countries, holiday bonuses, or ‘13th month pay‘ are required by law and in others, holiday bonuses are discretionary.
• If you have paid too much tax, they will calculate the amount you are due and pay you a refund.
• Pay stubs typically include the amount per pay period and a year-to-date value.
• Choose from different pay stub designs, and then fill in the company, employee and salary details to create your pay stub in minutes.

As an employee, seeing your take home pay and what was taken out for tax purposes can be beneficial. You can use it as a guide when creating a budget to properly understand how much is coming in and where your money is going. https://www.bookstime.com/ Employers may also make deductions for things like insurance premiums or loans that the employee benefits from. Rippling, Gusto and OnPay are three of the best payroll processing service providers available to employers.

Company

These federal and state withholdings account for much of the difference between your gross income and net income. There may be other deductions as well, depending on the programs that you sign up for with your employer. It offers a record of your employee’s salary, assists them in understanding their taxes, contributions, and deductions, and allows them to verify that they were paid correctly. It can also be used as proof of income or work, which is frequently required when asking for a loan or other type of credit. If you use payroll software, you should be able to access your employees’ pay stubs online through the payroll system.

For instance, in some countries, holiday bonuses, or ‘13th month pay‘ are required by law and in others, holiday bonuses are discretionary. Companies must therefore understand that requirements for paychecks will vary depending on the country. Some companies generate their paystubs internally and some decide to outsource such payroll tasks to a third party such as an accountancy firm or specialist payroll firm. The main benefit of outsourcing payroll to a third party, apart from convenience, is to ensure legal compliance. This may be particularly beneficial for international companies that operate in different countries and therefore hire employees around the world.

Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Deductions are cash amounts taken out of the employee’s gross wages. They include taxes, contributions, and even allowances like meals.