What Is A Paystub?
A paystub is a proof of income that illustrates an individual’s payroll information for a specific period. Paystub is an important document as it contains a detailed break-up of the payment received for a certain time. This document is generally received by the employee from the employer.
Paystubs help employers keep track of the salary being paid to an employee. It essentially includes Information like the gross pay and net pay, pay rate, all the tax deductions, employer contributions to health & other employee benefits, and employee & employer details. They are known as a paystub or pay stubs as well.
In organizations, the HR department is responsible for creating paystubs and many also use payroll software to create paystubs. Let us understand detailed answers to questions like what are paystubs and what does a paystub look like.
What Information Goes on a Paystub?
The information that goes on a paystub is as under:
- Employee information- name, address, and social security number
- Employer information- name, and address
- Pay period of the employee
- Employee pay rate, including overtime
- Gross earnings- before the deductions
- Break up of taxes – federal income tax, local or state taxes, and also the employee’s share of FICA EE tax
- Employee contributions, such as family insurance, retirement, or pension plans
- The Net pay, the final amount that an employee takes home after the taxes, contributions, and, deductions are deducted from the gross pay
A paystub is an important piece of document from the employee’s point of view also. The sections included in the paystub are useful for payroll taxes.
This is the total amount the employee is eligible to get for the specified time one has worked before the deductions are subtracted. In gross wages, if an employee is billed on an hourly basis, then the paystub should reflect the hourly rate and the number of hours put in at work. The salaried employees have a default number of hours they spend per week.
Overtime & Bonuses
If the employee has worked overtime for that week or is eligible for any bonus that should also reflect in the paystub. Also to keep in mind here is that some states expect the accrued sick leaves to appear in this tab.
These deductions are crucial. This section includes the state and federal tax deductions. They also include FICA tax deductions like the Medicare and Social Security taxes.
Employees are also expected to contribute to various kinds of employee benefits. These could include various types of insurance and retirement and savings plans.
After getting to know what paystub is let us see who needs it the most.
Who needs a Paystub?
The beneficiaries for paystubs vary depending on the need – ranging from proof of income to managing expenses to the filing of taxes. Let us take a look at this closely based on different categories:
Everyone at some point in their life has to produce proof of income. Paystubs are the best type of proof of income. Whether you are a contractor, a freelancer, or an entrepreneur one needs to have a paystub handy. It is even more crucial for these individuals as they do not make a steady income.
Employers need to keep a track of the expenses they are making towards salaries and other contributions. These records are important to analyze if one is running a profitable business. Keeping these records also ensures that there is no discord between the employee and the employer over erroneous payments.
Employees need paystubs or a pay stub to show proof of income, income verification, and for tax filing purposes. In the event, that the employer fails to provide the W2, an employee can refer to their paystub and file the taxes with the data on it.
Top-notch software programs are prevalent in every possible sector to make mundane tasks easier. By using paystub generator software the task of making paystubs becomes simple.
What is included in the Employee Paystub?
A paystub holds importance as a document. It gets difficult to decipher all the acronyms on the paystub for a specific pay period. As a working individual or a business owner, it is crucial to know how to read a paystub and also understand its elements.
The key factors of a paystub are as under:
This section has information about both employer and employee. This will have the company name, address, employee information, payday date; bank account details, etc mentioned here.
Gross salary is the total amount that the employee is entitled to before the deductions. This total sum is also stated on the contract of the employee. Gross salary is the base income on which taxation and other deductions are calculated by the company.
One may come across the word FIT on the paystub. What is fit on paystub? Federal taxes are calculated based on the information filled out by the employee in the form W-4 at the time of the beginning of the employment. An amount gets reallocated from the current income for paying federal taxes.
Every state has its own rules when it comes to state taxes. The taxes will apply as per the location of the company. The tariff is set by the state government and the employer has to make sure that it is deducted from the gross income.
FICA & EE taxes
FICA stands for Federal Insurance Contributions Act and EE stands for employee’s Medicare withholding. But what is FICA EE on paystub? FICA is deducted from every paycheck of the employee and so are the medical withholdings.
Sick leaves & holidays
An employee is entitled to a certain number of paid vacations and sick leaves. The used and accumulated leaves need to be mentioned on the company paystub. It is a record of how many leaves the employee is eligible for. This also prevents from any disputes happening on the same topic.
Local government taxes
It is in the best interest of the employee and the employer to stay updated with the local tax laws. This will ensure that one does not end up paying extra in taxes to the government. Certain states like New York, Colorado, and California impose a tax on employees.
There are many benefits that employees enjoy. Employees and employers both contribute to these benefits monetarily. The more benefits the employee enjoys, the more loyal he is supposed to be to the job and the company he works for. Benefits could be dental, vision, health insurance, retirement savings plan, etc.
Employee back pay
Back pay means any payment that the employee is yet to receive from the employer for the work done in the past. There may be reasons known to both the employee and the employer as to why the payment was withheld. Mentioning it on the paystub is a way to ensure a written record of it and avoid any disputes.
One may wonder what is imputed income on paystub. In simple terms, imputed income is the non-monetary benefits an employee is entitled to. It could be a company car or a gym membership. The employee may not have to contribute to these benefits, but in some states this part of the employee’s benefits is taxable.
The Internal Revenue Service (IRS) has made life insurance exempt from taxation till $50,000. Then what is imputed life on a pay stub? When an employee is paying for life insurance more than $50,000 then it becomes taxable and comes under the imputed income category. The value for the same is calculated from the government’s “Uniform Period Table1”
Another small but important term that one comes across on the paystub is GTL. What is GTL on paystub? GTL means Group Term Life. This is generally a part of the employee benefits package. An employee may have to pay taxes depending on the total coverage amount like the imputed life. It is crucial to cross-check limits with the IRS before finalizing the tax deductions.
This is the final amount that the employee receives in hand. It is the take-home pay after all the deductions and taxes are calculated and subtracted from the gross pay.
How long should an employee keep Paystubs?
As trivial as a paystub may mean to an employee or business, it is a document that should be preserved for a certain period. A lot of people are quick to discard or delete this data. There is a systematic way for businesses and employees to deal with paystub documents. Read on further to know how long one should retain their pay stubs and when to dispose of them.
Below mentioned are some crucial reasons why one must store their paystubs:
An employee has to ideally pay the taxes with the help of the form W2 form provided by the employer. Under any unforeseen circumstances if the employer fails to provide the form, then one can refer to the paystubs while filing taxes. They will prove as a reference point.
Proof of income
It has been mentioned time and again that an individual needs to produce documents for proof of income and a paystub are an excellent piece of paper to produce. The paystubs assist self-employed and salaried individuals to make large purchases like a vehicle or house.
It happens so often that there might be conflict about the number of hours put in at work, the calculation of wages, pending leaves, and so on. A paystub is like that sheet of paper that clears doubts in one single glance. Paystubs leave no room for the employee and the employer to dispute these matters.
Businesses and employees need to hold proof of income. They should hold it at least for a period validity of one year. However, paystubs are key to assisting employees to square their form W2 and the contributions made to social security. The best time to discard the paystubs is once tax returns have been filed successfully for that financial year.
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Managing global payments should be an easy task and not a tough one. With Multiplier, you can get help with payroll, tax calculations, and pay stub generation. Our software is globally compliant and simplifies payroll for employees and employers in over 120 currencies. This aids in seamless remote management of an international team by hiring employees, administering teams, and overseeing salaries across the globe.
Multiplier helps companies spend less time on the administrative aspects of employee payroll and more time creating growth strategies. This helps companies focus on attracting and retaining top talent across the globe.
Does it look like your business could benefit from payroll software? Book a demo to see what Multiplier can do for you.