What Is a Pay Stub?
Everyone likes getting paid, but what is a pay stub exactly? Find out all about pay stubs here in this easy-to-read guide.
Depending on your payroll schedule, you may hand out paychecks once a month or once a week. Bi-weekly payments sometimes end up with an extra pay period in a year.
No matter how often you conduct payroll, you should be keeping good records. You’ll need to produce a pay stub for each employee during each pay period throughout the year.
What is a pay stub? This guide has all the answers you’re looking for.
What is a Pay Stub?
A pay stub is a statement of earnings provided to your employee. It’s sometimes called a payslip.
A pay stub captures more information than just how much you paid an employee, though. It also includes key information about the hours they worked, their rate of pay, and other payments issued.
That could include tips, bonuses, commissions, and more. If you pay for moving costs for a new employee, their pay stub will capture that information.
It also records information about other deductions, such as UK National Insurance. You’ll also need to include deductions for child maintenance, pension plans, and student loan repayments.
If you’re running payroll for an international office, you’ll need to pay attention to rules about pay stubs and deductions in those locations. For example, in the United States, you need to deduct Social Insurance and Medicare payments, along with tax. A pay stub would include those deductions.
Rules may also vary by state in the US. For example, some states don’t require you to issue a pay stub. Others will allow you to issue a pay stub either on paper or electronically.
In some states, you must give employees a paper copy of their pay stub.
Creating Pay Stubs for Your Employees
Making up pay stubs may seem like an extra step that you or your HR team won’t have time for. Payroll is already time-intensive enough.
There’s some good news. Creating pay stubs can be quite simple. There are many different programs you can use to create pay stubs quickly and easily.
In the UK, employers can register for the government-run PAYE. This system helps you calculate deductions and remit them to the government.
Employers do not need to register for PAYE in certain circumstances. If none of your employees makes more than £118 a week, you won’t need to use PAYE.
You are still required to keep good payroll records. You may want to invest in another program to help you with creating pay stubs for your employees.
International companies will also find other payroll and pay stub generating software useful. PAYE is designed for UK companies paying employees in the UK. If you’re trying to pay your American employees, you’ll want to use a different paycheck stub template.
Why Pay Stubs Are Important
Issuing pay stubs for your employees is part of good payroll record-keeping. Even in US states where you don’t need to give employees a pay stub, it’s still recommended to provide one.
A pay stub is a record that lets both you and the employee keep track of their earnings and payments. It also lets you and the employee track deductions and contributions to pensions.
Good records make it much easier to keep track of your own payroll remittances. You can also use them to track employees’ hours worked, co-payments to benefits, and pension plan contributions you need to match.
Pay stubs also make it easier for your business at tax time. With good records in hand, it’s much easier for you to calculate an employee’s earnings, the tax they’ve already paid, and other deductions.
Consequences of Poor Records
Record-keeping may not seem all that important for your business. For many business owners, record-keeping falls near the bottom of their to-do lists.
Poor record-keeping does have consequences, though. Here in the UK, you must keep records for three years after the end of the tax year they relate to. HMRC can ask to see these records, to ensure you’re paying the correct amounts.
If you don’t keep good or full records, you may face a penalty. HMRC will estimate how much you owe and assess a penalty.
In short, good record-keeping could help your business save time and money by avoiding penalties and an audit.
Why Employees Need Pay Stubs
Employees are encouraged to keep their pay stubs for a year or so. The pay stub provides them with a record of their earnings, as well as other information. These details are useful for them in preparing personal income tax filings.
A pay stub can also be used to dispute payment. It is possible that an employer makes a mistake in paying you. They might incorrectly calculate hours worked or deducting too much from your paycheck.
It also allows employees to ensure their employers are making proper deductions.
How to Read a Pay Stub
The information included on a pay stub may change from place to place. A pay stub issued to a worker in California will not have the same information as one given to a worker in Maryland.
Pay stubs for your American employees may look quite different than those for your UK-based team. Generally, the pay stub will include employee information like name, address, and occupation.
It will also include information about your business. Then it will list earnings, including hours worked and hourly wage. Tax and other deductions will be taken from the gross earnings.
The net earnings are what the employee is paid. Year-to-date amounts are also recorded.
Simplify Records for Your Business
You asked, “What is a pay stub?” and now you know. You also understand why they’re so important to good record-keeping for both businesses and employees.
Keeping payroll running smoothly is just one of the challenges businesses face. If you’re looking for more advice, you’re in the right place. Our extensive article library can help you manage almost any aspect of your business, so you can keep growing.