Payroll 101: Understanding The Pay Stub

Payroll 101: Understanding The Pay Stub

It is imperative for a business owner to know how to read a pay stub. The learning curve should help you understand what items to include in a pay stub, the meanings behind each item as well as the methods to catch potential payroll errors that may end up as costly mistakes. You will also need to know how to explain a pay stub as you may need to answer an employee’s inquiries about how they are being paid.

In addition to an employee’s basic information, pay stubs will also include an itemized account of their wages or salary as well as any other additions to their pay. It will also show any deductions or taxes from their pay.

Deductions and Taxes from Income and Gross Wages

Some of the prominent items that will be seen on pay stubs include deductions and taxes. These things are subtracted from an employee’s gross wages to calculate their take-home pay or net wages. The pay stub will display the current amount that’s deducted for a year-to-date paid column as well as a particular pay period.

Local, state and federal taxes are some of the deductions that can be found on a pay stub. The amount of deductible taxes will vary according to one’s location and income level, as some states don’t have the practice of collecting income tax from employees that are located in their state. When local or state taxes are required, they can be calculated by utilizing the right tax tables on payroll software which handles the arduous side of things for you.

Additions and Wages that are Shown on a Pay Stub

Below are some of items to look out for under this category:

  • Income: A pay stub shows all the incomes that are earned by an employee from all sources. Wages for a specific period of time for which an employee is being paid will be shown on a standard payroll.
  • Employees that work by the hour: The pay stub will reflect the number of hours worked as well as the gross wage amount and rate of pay.
  • Salaried workers: You will get to see the amount of pay that these workers are receiving for the time period they have worked.

Understanding the Pay Stub of an Employee

Nowadays, many companies pay their employees with an online payroll system but it is still important that you familiarize yourself with all of the line items that are included on a pay stub. The things you have learnt about a pay stub will come in handy when you need to prepare a manual paycheck for an employee who is quitting or has been fired.

It is also pertinent that you review past copes of employee pay stubs on an occasional basis as mistakes or errors may come to your attention. You will want to check again for items such as the hours worked and rate of pay. In some cases, a business owner may discover that certain deductions appeared to be unusually low which could be a sign of fraudulent activity.

Did you know that you can now print out your employees’ pay stubs or even allow them to access their pay stubs online? For more information about these cool features, contact TRAXPayroll today!