Unless you're paid in cash under the table, or are a contractor, you are likely receiving a paycheck or having your pay deposited directly into a bank account. But the paycheck only tells you how much money you've received. How can you compare it to what you were told you would earn? That's why most employers that pay you, besides writing you a check, include a pay stub.
What Is a Pay Stub?
A pay stub, or paycheck stub, is a detailed outline of payment from an employer to an employee. If you receive a physical check, it is usually attached to the check with a perforated edge, which is how it got the name of 'pay stub,' like a ticket stub, or the portion you are left with for your records as a receipt. The check goes to your bank, the pay stub is for your records.
What Are Pay Stubs Used For?
A pay stub is helpful for seeing how much you've had withheld, or deducted, in taxes, or for any other reason, and to resolve discrepancies. If you have ever worked for a large corporation with its own payroll management, you are frequently reminded to check your pay stub for things like a contract-mandated salary increases, health insurance premium deductions, or any irregularities.
It also provides a record for employees, to assure them they were paid correctly, and as proof of income or employment for anyone applying for a loan or other form of credit.
Employees these days are not always paid by a physical check, however, and frequently even if they are, pay stubs - details of their payment each period - are also available with the company's payroll department or contractor. Pay stubs are available even if you have direct deposit of your pay into a bank.
The pay stub serves as an official record, and is used to end disputes with employees and, on occasion, auditors.
If an employee is fired, quits, or is furloughed, the employer may need to issue a final paycheck quickly. Having an ongoing record makes it easier for everyone.
What Is Shown on a Pay Stub?
The essential elements of a pay stub are a record of the hours worked, state and federal income taxes withheld, and wages earned.
Usually, employees can see not only the wages earned in the pay period covered by the check, but year-to-date information as well.
Other information frequently found on a pay stub includes:
- The employee's personal details, such as name, Social Security number and address
- The employer's name and address
- The pay period dates
- The rate of pay for the employee
- Earnings before taxes, employee contributions and deductions, or "gross earnings"
- Withholding for federal and, if applicable, state and local taxes, as well as an employee's share of Federal Insurance Contributions Act (FICA) tax.
- FICA tax is a payroll tax paid by both employees and employers to fund Social Security and Medicare, which are federal programs providing benefits for retirees, people with disabilities, and children of deceased workers.
- The FICA law requires employers to withhold a) 6.2% Social Security tax; b) 1.45% Medicare tax, and c) 0.9% Medicare surtax when an employee earns more than $200,000.
- An employee's specific contributions to retirement plans, such as 401(k) plans, or pensions, as well as health savings or other, similar account benefits, such as commuter programs or parking.
- An employee's accrued vacation, sick days, or paid time off
- Life or health insurance deductions
- The total amount an employee takes home in a paycheck after all withholding and deductions are accounted for, subtracted from gross earnings, normally referred to as net pay.
For hourly employees, unlike salaried, the pay stub should note the hours worked and the hourly rate of pay. For salaried employees, the default is usually 35 to 40 hours a week.
The pay stub should also include overtime, if the employee is eligible, and the rate and hours of any overtime worked.
Any bonus paid or earned would be listed under gross earnings.
Are Pay Stubs Required by Law?
While no federal law requires pay stubs to be provided to employees, the Fair Labor Standards Act does require employers to keep track of their employees' hours, and most states require employers to provide access to employee pay stubs.
According to USA Today's 'Classifieds' blog, states that don't require employers to provide employees with pay stubs include Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Ohio, South Dakota and Tennessee.
States requiring a pay statement detailing an employee's wage information include, alphabetically: Alaska, Arizona, Idaho, Illinois, Indiana, Kansas, Kentucky, Maryland, Michigan, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Utah, Virginia, West Virginia, Wisconsin, and Wyoming. However, these states don't require the information to be provided on paper. Employers can issue the information electronically, as long as the employee has the ability to access it.
In the following states, paycheck laws require employers to provide a physical, printed pay stub for every employee, or if the company wants to process all its payroll electronically, it has to make sure that employees have an option to print their pay stub on paper if they want it: California, Colorado, Connecticut, Iowa, Maine, Massachusetts, New Mexico, North Carolina, Texas, Vermont, and Washington.
In so-called 'Opt-Out' states, employers may provide digital-only pay stubs, but if an employee wants to opt-out of a paperless program, the employer must provide a physical copy of the pay stub to that employee. The states using the opt-out regulation include: Delaware, Minnesota, and Oregon.
Hawaii is the only 'Opt-In' state. This means an employer has to ask for an employee's consent before going paperless.
It's never too late - or too early - to plan and invest for the retirement you deserve. Get more information and a free trial subscription to TheStreet's Retirement Daily to learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? We've got answers.