Let’s set the record straight, a paystub and payslip are the same. Both are the details of the pay dispensed to each employee each month, or the relevant pay period. A written account of a pay statement is imperative for both the employer and employee. Although this may not be a legal responsibility, it is recommended since many states suggest employers keep a written record of the remuneration they give to their employees.
In this blog, we will be talking about paystub, its importance, the presence of legal obligations or the absence thereof, look at some sample pay stubs, and more. Consider this a complete guide to all your queries about the paystub.
What is a Paystub?
As mentioned earlier, a paystub is also known as a payslip. Suppose one goes by the pay stub definition. In that case, it is a periodic record of how much an organization pays to an employee, the deductions therein, and the net take home pay. How to give a pay stub to an employee? It can be either electronic or even via emails. Another way of doing it is via the organization’s intranet. If yours is a traditional organization, you can even hand out printed slips with every month’s payout.
How does a pay stub look? Here are the major components of a paystub:
- Employer information
- Employee information
- Pay period (dates)
- Employee pay break-up
- Gross pay (including savings and exemptions)
- Deductions (tax and others)
- Net take-home salary
The next time someone asks; what information is available on a paycheck stub, you know what to answer.
In case the employees work on an hourly basis, or if the state laws require the organization to record work details accordingly, the paystub is necessary to have a record of the number of hours worked per week. Then, depending upon the laws and the organization’s policy, overtime and bonus are also considered.
How to Read a Paystub?
While you may be dispensing paystubs, you should also know every component thoroughly to explain the same to the employees when they are in doubt.
Please take a look at this free pay stub template that we have sourced. Let us explain the marked spaces, so you get a better insight into the document.
- The beginning and the end of the payroll period, along with the actual date when the payment has been made
- The home address of the employee
- The job details
- The employee’s status of Federal and State filing
- Current and year-to-date hours (if applicable) and earnings of the employee
- Employee’s current and year-to-date Federal and State taxes held
- Deductions before tax
- Deductions after tax
- Benefits paid by the employer. Please note that these are not employee deductions.
It is also important to know the different types of deductions because that is the pay stub section where most employees are curious. They wish to understand why the net pay is lower than the gross pay. The simple reason is deductions. These are mostly the federal and state taxes, along with Social Security and Medicare. The rest of the deductions include insurance, retirement saving plans, health savings account, and the likes.
The employer needs to know the pay stub through and through so that the employee can rely on the former in the face of any confusion.
What are the Legal Obligations for Having a Paystub?
Mostly, there are no federal laws to give pay stub to the employees. However, numerous states do have their laws that may differ slightly from the above statement. It all depends on which state you live.
For instance, if you live in a state with its own set of rules, you do not need to provide any pay stub. However, you also have to determine whether you live in an access state or an access/print state. In case you live in the former, you have to give a pay stub, either on paper or in an electronic format. On the other hand, if you live in the latter, the emphasis is on the print, and so the employees who get an electronic paystub must have easy access to a printer.
Another thing to keep in mind is whether yours is an opt-in state or an opt-out one. In the former’s case, unless the employees physically choose an electronic paystub, the employers must provide paper pay stub. On the other hand, in an opt-out state, the organization must take the employee’s consent if it chooses to change the way the paystubs are dispensed. Also, if the employee chooses the previous method, the organization must adhere to the choice.
It is also important to keep a tab on the state’s laws and regulations regarding the pay stub. On the safer side, it’s good to have a record of employee salaries. It is beneficial for the organization when it comes to maintaining financial and payroll records and the employees for whom a pay stub or payslip acts as an important document in various facets of life.
Why is Paystub Important?
One word: documentation. Paystub or payslips serve as a paper trail. It is extremely important to maintain proper documentation, especially when it comes to managing money. For the organizations, having paystubs in place means that they do not have to worry about any legal repercussions and any financial implications, owing to transparent documentation. For the employees, having consistent pay stub information at hand infuses trust and good ethics, both towards the company and for oneself as they can utilize the documents wherever they require them.
Here are a few of the many reasons why paystubs are important:
- It serves as a visible paper trail that is important for tax purpose
- A pay stub helps resolve discrepancies, if any, in payroll
- It helps in accounting procedures
For the employees, a pay stub serves as an important document for many reasons. For instance, if they wish to avail credit or loan of any sorts, payslips or paystubs serve as proof of stable income. Further, pay stub also is proof of previous employment, in the event of them switching their jobs.
All in all, a pay stub is an extremely important document, both for the employer and the employee. Paystub recording is a convenient practice, even if not legally binding.
Free Pay Stub Template
Paystubs are fairly easy to create, once you know the components, not only by name but also in detail. Even then, if you think you need assistance in creating a pay stub for your organization, let us help you there.
Following are some of the templates that you can use to create a paystub for your organization.
Pay Stub Template Free #1
Pay Stub Template Free #2
Pay Stub Template Free #3
How Long Should you Keep Paystubs?
To quote a precise answer; for four years. This stems from the IRS requirement. Accordingly, employers are required to “keep records of employment taxes for at least four years after filing the [fourth] quarter for the year.” Further, as per the Fair Labor Standards Act and Age Discrimination in Employment Act, the pay stub records should at least be with the employer for three years, if not more. Also, there should be at least two years worth of records to show wage rates, job evaluations, merit systems, and security systems. There is a basis for explaining different wages for different employees. This also ensures that there are no unfair wage practices in the organization, such as disparity based on the employee’s age or sex.
Do you Need a Paystub?
Yes, you do. A pay stub is not just a legal obligation; it is an important document to have, both from an employee and an employer’s perspective. A record of all the salaries dispensed ensures uniformity and non-discrepancy in the organization. Also, it establishes trust between the employer and employee because the latter knows where every component of their hard-earned money is going.
Does your organization have a paystub? What format does it use? Do let us know @HarmonizeHQ.