What is a pay stub? Everything you need to include (2023)

Did you know that pay stubs, paycheck stubs, and pay slips are all the same? No matter what you call them, pay stubs and paychecks are the paper documents that employees receive that outline their salary details, including gross pay and net pay, as well as deductions.

Both employers and workers need a solid understanding of what information is on a pay stub—employers need to know how to make a pay stub, and workers need to track their own pay or even take out a mortgage or loan.

If you are interested in learning how pay stubs are created and what they include, this article is for you.

What does a pay stub mean?

Technically speaking, a pay stub is a statement that outlines information about an employee and their payment for a specific duration of time, otherwise known as a pay period. Some organizations provide physical paper copies of pay stubs, while others provide digital copies.

It’s important to note that pay stubs and paychecks are different. While the former is just a part of a paycheck that includes specific payment details, the latter references the employer’s payment to the employee. Let’s dive into the differences:

Pay stubs list the individual payments that add up to the total earnings listed on a paycheck (gross income) and the deductions that resulted in the final amount of money (net pay), taking into account the pay date, pay period, pay rate, and information about the employer and employee. Paychecks, on the other hand, inform employees of just their net pay.

Nowadays, barely any employers still hand out paper paychecks, instead using automated payroll platforms. Employees who receive direct deposit payments into their bank accounts access their pay stubs with either a physical or digital paycheck. Employers create pay stubs using direct deposits and share them with employees via email or a physical copy.

What information is on a pay stub? 5 Elements to include

Although pay stubs vary, they tend to include standard information. When creating a pay stub, there are a few essential details that businesses often consider including. So, what is on a pay stub?

General information

Necessary general information includes basic identifying information such as the name and address of the employer and employee, as well as the employee’s social security number.

Pay period and year-to-date

The pay stub also mentions which days the employee worked, how much they were paid each day, and their total hours. The “year-to-date” (YTD) value on a pay stub refers to the total amount the employee has earned so far that year.

Gross wages

Gross wages is a fancy term for the total pre-tax amount that an employee earns based on their pay rate before various deductions are applied. Gross earnings include several different forms of payment, detailed below.

• Regular wages
  These wages are what an employer pays during a payroll period at either an hourly rate or a fixed rate.
• Commissions
  Basically, how much an employee makes for completing a sale or service. Employers then add these comissions to the employee’s salary.
• Bonuses
  Employers distribute a bonus or extra pay that is added to employees’ wages, as a reward for performance. Bonuses are slightly different from incentives because they are not tied to a specific plan.
• Sick pay
  Also known as paid sick leave or paid sick days, sick pay refers to an employee’s earnings for time off when they are unable to work due to illness, injury, or disability. Sick pay is usually paid at the same rate as regular wages.
• Holiday pay
  Holiday pay is the allowance that workers receive during federally and organizationally recognized holidays. Depending on the employer, this compensation includes full pay; partial pay; a bonus; or, if the employee works on the holiday, additional hourly pay.
• Vacation pay
  Employees usually earn vacation pay based on how much they have worked prior to the vacation. Not all employers offer vacation pay.

Deductions

Pay stubs also reflect how much pay has been subtracted from an employee’s gross pay to result in their net pay. There are a few types of deductions to be aware of.

• Tax deductions
  Tax deductions include a number of payroll taxes, such as local income taxes, federal taxes, the FICA Tax, employment tax, and more. These tax withholdings are deducted from the gross earnings.
• Employee benefits deductions
  Employee benefits deductions include health insurance, life insurance, and other similar deductions.
• Voluntary deductions
  Pay that is withheld for employee benefits and other job-related expenses is considered voluntary. Voluntary deductions include retirement deductions that don’t always correlate to employer contributions.
• Involuntary deductions
  Involuntary deductions are typically tax or court-ordered deductions.

Net pay

The final piece of information that is commonly included on a pay stub is net pay, or the amount that an employee earns after federal income taxes, state income taxes, and Social Security payments are deducted from their gross pay.

Pay stubs for hourly-paid workers and non-exempt salaried employees include more details related to their gross wages and take-home pay, such as the hourly rate of pay, number of work hours, overtime, shift differential, and tips.

For those unfamiliar, a shift differential is how much an employee earns for working hours that exceed their typical schedule. For example, businesses pay employees who usually work from 9 AM to 5 PM a shift differential for working from 5 PM to 6 PM. This payment is usually higher than a regular wage.

How to make a professional-looking pay stub

Now that you know what information goes into a pay stub, you might wonder how to make one. Read on to learn key tips to help you generate professional-looking pay stubs quickly.

Right off the bat, remember that there are pay stub tools at your disposal to help you along the way. That’s right, most payroll software actually has built-in pay stub generators, also known as professional employer organization (PEO) services. These tools make the pay stub for you when payroll processing. All you have to do is enter information in each area of the pay stub and double-check that everything you enter is correct.

Remember, pay stubs are either printed or emailed to employees, so it’s up to you to choose which method of distribution is best for your workplace.

Here are a few pay stub examples of professional-looking pay stubs for your reference.

Are employers required to provide pay stubs?

The federal law around labor (Fair Labor Standards Act) does not require employers to generate pay stubs for their employees, but many state laws cover requirements and regulations regarding pay stubs. There are three types of categories that states fall into, depending on what form of pay statement they require—no requirements, access, and access/print.

States with no requirements have no state-level legislation, meaning employers don’t have to provide any pay stub. However, employers in these states are still required to track the number of hours for employees. Two examples of such states are Alabama and Florida.

On the other hand, access states like Ohio and Texas require employers to provide a pay stub that are either electronic or paper. Similarly, in access/print states, employers provide one or the other. The only difference is that employers who receive electronic stubs must have an easy way to access them, namely by printing them. Indiana and Kansas are both access/print states.

Once you have determined which of the three categories your state fits into, you must also determine whether your state is considered “opt-out” or “opt-in.” Opt-out states require businesses to seek employees’ approval before changing the physical paycheck delivery process. If just one employee prefers the current method, the employer must stick with it. Employers in opt-in states must offer paper pay stubs unless employees prefer to receive electronic copies.

If all of this information sounds overwhelming, don’t worry—there’s a simple way to check your state’s rules. Just head to your state’s Department of Labor website to find out which rules apply to you.

How can I improve the pay stub experience for employees? 4 Tips

These simple tricks help employers clarify pay stubs for employees to improve staff members’ experience.

1. Be transparent on how employee pay is calculated

Many salaried employees’ confusion around pay stubs stems from a lack of understanding of how their business calculates pay. One detail, in particular, is especially confusing. The hours on a pay stub reflect a one-year average which shorter months influence.

One way to counter confusion caused by calculating pay is by annotating pay stubs to pre-empt employees’ questions.

2.Clarify employer-paid benefits

Another block that employees commonly run into when trying to understand their pay stubs is documentation of compensation outside of regular wages, such as pensions and retirement plans. Including a line-item pay breakdown is one way employers avoid causing confusion, and with a skilled compensation manager, that’s a doable task.

3.Digitize your pay stubs with software

Providing electronic pay stubs is a tried-and-true strategy for helping employees better understand the document they receive each month. Employers have many options for formatting pay stubs due to the wide availability of payroll services. Adding explanatory notes and itemization has never been easier!

4.Include pay stubs orientation in onboarding processes

When onboarding new staff, employers typically walk them through how to log their hours but don’t always take the time to review their pay stubs. Anticipating your employees’ pay stub-related questions from day one is an essential way to provide them with more clarity, ease the overall learning curve that comes with onboarding, and demonstrate that your business is committed to full transparency regarding payment.

Business owners that customize their pay stubs using online tools, annotation, and itemization have an even easier time orienting new staff to their pay stubs.

The importance of pay stubs for employees

Why are pay stubs important? Pay stubs are important for record-keeping because they serve as chronological documentation of employees’ earnings and deductions, useful when your business is audited, asked to provide personal income tax verification, or making financial decisions. Pay stubs also represent proof of income and employment, which employees use when applying for loans and credits.

All in all, providing accurate pay stubs builds trust between employers and employees, creating a better environment in which to conduct business. That’s why it’s so important for employers to provide accurate pay statements and maintain up-to-date payroll information. Fortunately, pay stub software facilitates employee pay and record-keeping for prominent organizations by auto-generating pay stubs for employers.