Pay stubs are important record-keeping documents that benefit both you and your team members. However, the rules, regulations, and customs surrounding pay stubs differ from country to country - and even state to state. This can introduce a lot of administrative and human resources challenges if you’re hiring globally.
In this guide, we demystify pay stubs and answer your most common questions, including:
- Do you really need to provide pay stubs for your employees?
- What’s the definition of “pay stub”?
- What are they used for?
- What do paycheck stubs look like, and how do you read them?
- How can you pay global team members compliantly with ease?
Do You Need to Give Your Employees Pay Stubs?
It’s complicated. While some jurisdictions do require employers to provide their employees with pay stubs, others don’t. If you’re hiring international talent, you need to know what’s required by law in each country or state your employees work from.
For example, there’s no federal law mandating the use of pay stubs in the US, but certain states require them. In the UK, payslips are obligatory for all employers. If you don’t comply with local laws and regulations, you may incur fines or legal action.
Even if providing pay stubs isn’t a legal requirement, it’s still good practice to do so, and many employees will expect to receive one.
Pay Stub Meaning
So, what are pay stubs? A pay stub is a document that accompanies an employee’s paycheck every pay period. Also known as a “payslip,” “wage statement,” or “paycheck stub,” these documents, whether physical or virtual, contain important information about an employee’s pay.
Pay stubs itemize employees’ wages earned for a particular pay period, which could be weekly, monthly, or another duration specified within the employment contract. It also shows accumulated earnings and deductions for the tax year. A pay stub includes payroll information such as hours worked, gross wages, deductions, employer contributions, and net pay. Some jurisdictions may require further information.
Human resources and payroll staff are usually responsible for managing pay stubs each pay cycle. However, some companies opt to outsource payroll to a trusted third party for ease. This is a popular option for smaller businesses or companies that hire team members worldwide.
What Are Pay Stubs Used For?
Pay stubs and payslips are used to provide employees with an accurate record of their hours and wages. This allows them to track everything related to their pay and ensure the amount they’ve received, and paid in tax, is correct.
Payslips can also be useful for preventing and resolving disputes between the employee and the employer about pay.
Another critical use case for paycheck stubs is proof of income for loans. Banks and real estate agents often accept paycheck stubs as proof of income, allowing employees to rent and buy property or apply for a loan.
Giving easy access to pay stubs, even if there’s no legal obligation to do so, supports employees in both their professional and personal life.
What Does a Pay Stub Look Like?
Pay stubs can look very different from country to country as each jurisdiction has unique requirements of what information they should include.
Nowadays, many employers opt for direct deposit, generating and distributing pay stubs online through their chosen payroll software. An electronic pay stubs - or an “e-pay stub” - is easy to store securely and access on-demand.
However, some employers still use physical paychecks, in which case, paper pay stubs are typically attached via perforation. It’s important for both the employer and employee to keep paper pay stubs and copies safe for future reference.
To give you an idea of what one might look like, here’s a pay stub example from the US:
How to Read a Pay Stub
At first glance, pay stubs can seem very complicated. However, once you understand certain payroll terms, such as “gross wages,” “net pay,” and “employer contributions,” they become much easier to read. Let us break it down for you.
Gross Wages
“Gross wages” refers to an employee’s full pay before taxes and other payroll deductions.
To calculate a salaried worker’s gross pay, divide their annual salary by the number of pay periods in the year and add on any other compensation they’ve received for that period (e.g., commissions, allowances, overtime pay, etc.).
For an hourly employee, simply multiply their hourly pay rate by the number of hours worked during the pay period.
Employee Taxes & Deductions
Many jurisdictions require employees to pay taxes and contributions, such as federal income tax, state income tax, national insurance, and unemployment tax. The employer is often responsible for calculating, withholding, and transferring the correct amounts of employee tax to the local tax authority.
Employers may also deduct taxes for things like insurance premiums or loans that the employee benefits from.
You should itemize taxes and deductions on employees’ pay stubs so they can see exactly what they’ve paid for a given pay period and year to date.
Employer Taxes & Contributions
Employers often have their own payroll taxes and contributions to pay. However, these aren’t deducted from an employee’s gross pay. Instead, the employer pays the sums directly to the local tax authority or relevant fund.
Here are some examples of employer taxes and contributions:
- National insurance
- Social security
- Health insurance premiums
- Health savings account (HSA), if applicable
- 401(k) plans
- Unemployment tax
Net Pay
An employee’s net pay is also called their “take-home pay” because that’s the amount of money they actually receive in each paycheck.
You can calculate net pay by subtracting all the relevant taxes and deductions from the employee’s gross pay. Net pay is the amount of money an employer should transfer to an employee each pay period.
Pay Stub FAQs
Now we’ve covered what a pay stub is and how to read one, let’s answer some of your most frequently asked questions.
How Do You Make a Pay Stub?
You can use special payroll software to generate professional-looking paycheck stubs for your employees. There are many free tools available, as well as premium packages.
Once you select a pay stub generator, simply enter all the relevant information, and the software will create a pay stub template for you. You can then print off or email these pay stubs to your employees.
How Do You Calculate YTD Income from a Pay Stub?
You can find year-to-date (YTD) income on an employee’s pay stub by looking at the gross wages section. If you’d like to calculate the YTD income of all your employees combined, simply sum up the year-to-date income as listed on their payslips.
How Do You Calculate AGI from a Pay Stub?
If you’d like to calculate adjusted gross income (AGI) from an employee’s pay stub, subtract the total amount of deductions from their gross wages. The AGI is an employee’s total taxable income.
How Do You Access a Pay Stub?
If you use payroll software, you should be able to access your employees’ pay stubs online through the payroll system.
If you’re an employee, you can usually access pay stubs via email or through your company’s payroll portal if they have one. For security purposes, pay stubs may be password-protected. In some cases, you may receive a paper pay stub instead.
It’s worth noting, in some jurisdictions, employers are required to keep their employees’ pay stubs on record for a certain period.
