We all love payday, but may not have a solid grasp of all the specifics listed on the paycheque. At first glance there seems to be a lot of different numbers and titles; which can be confusing when you aren’t sure about what they mean.

Pay stubs are written pay statements that show each employee’s paycheque details for each pay period. Pay stubs are also called paycheque stubs, wage statements, or payslips. If your business provides physical paycheques, typically, the pay stub is attached or included with the cheque. If your business uses direct deposit, employees may have to access their pay stubs via an online portal.

What is a Paycheque?

A paycheque is issued by an employer and given as payment to an employee for services rendered. An employee’s paycheque might be delivered on paper, as with traditional cheques, or it could be received through direct deposit. Once the employee receives a physical cheque, they then cash it with their bank to get the funds.

If the employee chooses to have the paycheque directly deposited into their bank account, their pay shows up automatically on pay day. A paycheque is typically issued every two weeks, although some employers issue paycheques weekly or monthly.

When processing payroll it is important to understand what each number means on the paycheque. Not only is it important for remittance reasons, but for taxes as well. An average paycheque will take into account the following:

• Pay period
• Pay date
• SIN
• Pay rate
• No. of hours
• Gross pay
• Year to date
• Deductions:
• Federal income tax
• Provincial income tax
• Canadian Pension Plan
• Employment Insurance
• Net pay

Why are Pay Stubs Important?

Pay stubs are important for a number of reasons: visibility, accountability, and payroll compliance, to name a few. Employees should be able to see the kinds of withholdings and deductions their employers take out of their gross pay. And having it all laid out on the page can help employees and employers avoid unnecessary confusion or confrontation.

What Information is on a Pay Stub?

Pay stubs vary depending on state employment laws and industry requirements. For instance, New York requires food service businesses to include a breakdown of tips and wages earned on each pay stub. If the employer provides a uniform or meals, those must also be included as “allowances” or “credits.”

Here are other common items you might expect to see on a pay stub:

• Employee details
• Dates covered
• Gross wages
• Net wages
• Hours worked
• Rates paid
• Deductions
• Year to Date

Gross wages

Gross wages are the full amount an employer pays before deductions. This pay often includes more than the employee’s regular wages. Overtime pay and additional income, such as paid time off, bonuses, and payroll advances, are also included under gross wages.

Gross wages are calculated differently for salaried and hourly employees. To calculate an hourly employee’s gross wages for one pay period, multiply their hourly pay rate by their number of hours worked. To calculate a salaried employee’s gross pay for a single pay period, divide their annual salary by the number of pay periods in the year.

Typically, pay stubs for hourly workers show the number of hours the employee worked. Salaried employees’ pay stubs may also show the number of hours they recorded working if they track their time. If the employee works over 40 hours in a week and is eligible for overtime pay, those hours should be on their pay stub.

Deductions

Deductions are cash amounts taken out of the employee’s gross wages. They include taxes, contributions, and even allowances like meals.

Typically, on pay stubs, deductions are shown in two places: deductions current and deductions year to date. Current deductions are deductions being taken out of the current pay period. Year-to-date deductions are totals for each type of deduction. For instance, income taxes are taken out for each pay period. So the pay stub would show an amount being deducted for that pay period and the total amount deducted for the year so far.

Taxes

Taxes are often listed as deductions on employee pay stubs. Most commonly, they include taxes that go toward EI and CPP and federal and provincial income tax deductions. Tax amounts tied to the employee’s Form TD1 might be changed at the employee’s request, especially if they’ve indicated additional withholdings. The CRA sets tax rates.

Federal Income Tax: Calculate the amount of federal income tax to deduct from your earnings. The tax system in Canada is ‘progressive’. This means that the more income earned, the higher percentage of income will go toward taxes.

Provincial Income Tax: You will also calculate the amount of provincial income tax to deduct from employee earnings. This amount will be lower than the federal tax and is different in each province.

Canada Pension Plan (CPP): For those 18 years old and over, it is mandatory for a . 4.95% deduction from gross earnings over $3,500 until the maximum annual pensionable earnings is reached. Find the most recent maximum contribution here.

Employment Insurance (EI): 1.78% is deducted from gross earnings until the maximum contribution is reached. Find the maximum annual insurable earning here.

Unsure of how much you have to deduct from your employees paycheque? Try our payroll calculator for an accurate result every time.

Contributions

Contributions are another kind of deduction. But if the contribution comes from the employer, it may be included in the employee’s gross wages. For instance, say an employee contributes 3% of every paycheque to a RRSP, and their employer matches that contribution. The employee’s contribution would be a deduction from their paycheque, while the employer’s contribution would be listed as part of the employee’s gross wages.

Contributions will vary depending on the benefit opportunities offered by the employer. For instance, an employee might request that a small percentage of their paycheque be put toward an employee stock purchase plan (ESPP). They might make contributions to a pension or have a small sum taken out of each paycheque as a nonprofit donation.

Net pay

Net pay is the amount left over after deductions have been taken out of the employee’s gross pay. Net pay is often called take-home pay. It’s the amount the employee receives when they are paid, either by direct deposit or a paper cheque.

Depending on the size of the deductions, an employee’s net pay may be significantly lower than their gross pay. On the employee’s pay stub, net pay is recorded both for the pay period and cumulatively for the year.

Year to date

Year to date is used on pay stubs to keep track of the amount of something since the first day of the year or the first day the employee started working in the year. Many pay stubs will keep a running total of your employees’ earnings and deductions for the year. For example, if an employee’s YTD earning on March 1st is $9,000, that means from January 1st to March 1st, they have earned a total of $9,000.

Pay Stub Examples

If your business is small and doesn’t offer many benefits, your employees’ pay stubs are going to look pretty simple. Here’s what a simple pay stub might look like:

How Long Should You Keep Pay Stubs?

Employers should hold on to copies of employee pay stubs or other payroll records for at least six years. That’s because the CRA requires employers to “keep records of employment taxes for at least six years after filing the [fourth] quarter for the year.” Most reliable payroll services provide the ability to hold payroll records.

If your employment tax records are kept in another place, you would still want to hold on to pay stubs and payroll records for at least six years.

All of the information you’re required to keep may go beyond what’s included in an employee’s pay stub. Still, it’s good to have a record of each payroll period and paycheque, should that information be called into question.

Do You Have to Give Your Employees a Pay Stub?

Yes, it is required by law to give your employees a paystub every pay period.

Why Do Employees Need Pay Stubs?

There are several reasons an employee might need pay stubs. So it’s a good idea to provide them, even if your province does not require it. Here are some examples:

• To rent or buy a house
• To buy a car
• To get a credit card
• To apply for a loan
• To file a tax return if the employer has not issued a T4

QuickBooks Online streamlines the payroll process by letting you pay your employees right from the QuickBooks app. It also automates payroll tasks so you save time and can focus more attention on running your business. Try QuickBook Online today.

Disclaimer

Money movement services are provided by Intuit Canada Payments Inc.

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