Last year, Allison quit her desk job and opened a bakery in Tempe. Her small business took off and now she needs to hire 2 full-time employees. There’s one big problem—she doesn’t have access to a pay stub generator and doesn’t know what information to include on a pay stub. If you’re like Allison, you need to learn how to convert your employees’ hourly rate into a pay stub. To do so, follow our how-to guide to issuing pay stubs and make sure you get it right the first time.

What’s a pay stub?

Paychecks and pay stubs have changed a lot over the last 50 years. The name “paycheck stub” came about because it was a receipt that remained after detaching your paycheck. But today employers often use direct deposit to insert funds into their employees’ bank accounts. Pay stubs are now electronic.So, what is a pay stub in today’s digital world? A pay stub is a record of an employees’ hours worked, state and federal income taxes paid, and wages earned. Typically, employees can see both the wages they’ve earned that pay period and the amount they’ve made to date.

Pay stub components

A pay stub shows employees how much they’ve earned for their most recent pay period and/or the year overall. Amounts are typically listed 2 ways—per pay period (usually weekly, bi-weekly, or monthly) and year-to-date (cumulative). Pay stubs also list other categories—usually money withheld from gross pay. Employers often withhold funds for federal, state, and local taxes, health insurance, and Social Security. These categories should all list the amount withheld from the most recent pay period and for the year. In all cases, each of these totals, contributions, or deductions should be listed as its own line item. Below are some of the most common line items you’ll find on a pay stub:

• Gross wages: The most essential part of a pay stub—the amount an employee earned before tax deductions and other withholdings.
• Hours worked: Calculate the number of hours worked by the employee for the specific pay period and year-to-date. This number is straightforward for employees who work 40 hours per week but will likely fluctuate for hourly employees.
• Taxes: The amount of money an employee has paid toward their federal taxes and state taxes. Tax deductions are mandatory, but an employee can opt for additional withholdings. An employee would indicate this when completing their Form W-4.
• Deductions: Besides taxes, an employee can also contribute a percentage of their gross wages to health insurance or a Flexible Spending Account. Unlike taxes, these are voluntary deductions.
• Employer contributions: As an employer, you make specific contributions on behalf of your employee(s). These elections may include the employer portion of the Federal Insurance Contributions Act (FICA) tax or contributions to 401(k) or retirement accounts. Many employers match a percentage of their employees’ contributions to their retirement plans. If an employee elects to donate 3% of their pay to their 401(k), the employer would deposit 3% as well. Because the employer’s 3% doesn’t come from the employee’s paycheck, it’s critical that the employee can see the contributions made on the pay stub.
• Accrued vacation, sick days, or paid time off: If you offer your employees vacation or sick time (sometimes referred to as paid time off or PTO) you should indicate these accruals on a pay stub. Doing so allows employees to quickly reference how much PTO they have left without needing to contact the human resources department. If your small business doesn’t have a human resources department, you’re likely the individual responsible for answering these questions. Providing the information on your employee’s pay stub takes one more thing off your plate.
• Net pay: Once all taxes and other deductions are listed, there should be a line item for net pay. This is the amount of the paycheck or direct deposit that an employee “takes home” after all deductions, contributions, and taxes.
• Additional components of employee pay stubs: Common information such as the employee’s and employer’s names should be included. You should also include the pay period dates and the paycheck issue date. There is no need to include highly sensitive information on a pay stub, such as an employee’s Social Security number or bank account number.

Why are pay stubs important?

As payroll processes become more and more automated, you may wonder why a pay stub is necessary. A pay stub is critical because it serves as an official record. Referring to a pay stub is the quickest way to end disputes with either employees or auditors.Accurate payroll record keeping ensures that your company is paying your employees. It also helps demonstrate that you have deducted the required taxes and fees. Additionally, in the case that you fire an employee or someone quits, you may need to quickly issue them a final paycheck. Having an accurate, ongoing record of their wages and deductions will make it easier to determine what you owe.Hiring employees means your small business is booming but it also comes with new responsibilities. If you track and report the elements of a pay stub you can:

• Maintain accurate accounts
• Pay your employees correctly
• Manage federal and state deductions

The more precise your record keeping, the better equipped you’ll be to avoid any unwelcome surprises.

Issuing a pay stub

Pay stubs have migrated online because businesses and employees prefer direct deposit. Today’s online systems make payroll services effortless. If you’re using a program like QuickBooks, most pay stubs are auto-generated with the data already available in the system. This makes it easy for small business owners to run payroll with the click of a button.QuickBooks Payroll also makes it easy to generate a pay stub for an employee’s records—they can log into an online portal and access their pay stubs anytime. Come tax season, online payroll software also automatically generates W-2 forms (all employees need a Form W-2 to file their taxes).

The U.S. has some of the most versatile payday systems in the world. This means that states decide when, where, and how employees get paid. In many European and Asian countries, it’s normal to receive a paycheck once a month (in some cases, on a fixed day) whereas in other parts of the world, pay frequency depends on whether a worker has a white collar or blue collar job.

Whatever day it lands on, payday is a day workers look forward to most. But just how important is that paycheck to American employees? We were determined to find out. In an independent survey, QuickBooks Payroll asked 1,000 employees over the age of 18 from American businesses of all sizes what they do when they get paid, how it makes them feel, how quickly they spend their earnings, and more. Respondents said payday makes them feel better than their birthday or significant U.S. holidays. Below you’ll find a breakdown of our research.

Most people get paid on Friday

It’s no surprise that Fridays are popular—they end the 5-day workweek and kick off the weekend. But did you know that over 53% of employees also get paid on Friday? Most people get paid every other week (44% reported this) and only 10% receive a paycheck once a month.

Which day of the week do you get paid?

Smaller companies are more likely to pay employees weekly (39%) rather than every other week (33%). About 1 in 5 employees are paid twice a month. A similar proportion said payday falls on different days every pay period.

How often do you get paid?

1 in 4 employees have received a paycheck with errors

Paycheck errors are not a thing of the past—1 in 4 employees say they’ve received a paycheck with errors. How much do those errors cost a business? That’s hard to say. But 1 in 6 of our respondents said a single inaccurate paycheck would make them quit their job.

How often do employees receive late or inaccurate paychecks?

How many late/inaccurate paychecks would make you quit your job?

What’s more concerning is that 4 out of 5 respondents said they are not saving enough money for retirement, and half could only live on savings for less than a month if they were to lose their job.

Are American workers saving for retirement?

If you lost your job today, how long could you live on your savings?

Most employees say they’re confident they could find a new job with the same pay and benefits

We wanted to learn more about the workforce’s confidence levels when it came to their income and the job market. Overall, confidence in the job market seems to be high, with 82% saying they could find another job with the same pay and benefits if they were fired. Not only that, expectations for their income improving were high as well.

If you lost your job today, how confident are you in finding another job with the same pay/benefits?

Over half (70%) of employees surveyed were confident that their employers would give them a raise this year. But confidence levels varied by company size. We found that among employees of very small businesses, confidence in the job market is generally lower, with only 38% expecting a raise this year. Meanwhile, only 26% of those working for companies with 100 employees or more said they’re not confident in the raise department.

How confident are you that your employer will give you a raise this year?

When it comes to money as a motivator, people were split. Less than half (43%) said not getting a raise would not negatively impact their productivity, and 33% said it would actually motivate them to work harder. A quarter of respondents, however, said they’d start looking for another job if a raise wasn’t on its way.

If your employer does not give you a raise, what will you do?

Tax reform has benefited some, but not all

According to the responses, employees feel recent tax reform has a more positive than negative effect on take-home pay. Over a quarter (31%) said they have more money due to tax reform, while 18% say they have less. About 35% said they’ve seen no difference, and 16% reported they’re unsure, which suggests there’s confusion around the impact of the Trump Administration’s Tax Reform.

What impact have this year’s tax reforms had on your take-home pay?

Payday is important to American employees regardless of how a paycheck is spent or an employee’s confidence in the economy, taxes, or their ability to get a new job. But a great deal of timeliness and accuracy is required on the employer’s behalf to maintain employees’ enthusiasm. Due to varying financial circumstances and the fact that payday is of high importance to most employees, getting it right is critical for retention, morale, and the welfare of a team.

*Methodology: QuickBooks Payroll surveyed 1,000 employees from businesses of all sizes throughout the U.S. in July 2018. The sample was selected by Pollfish. QuickBooks Payroll welcomes the re-use of this data under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original source is cited with attribution to https://quickbooks.intuit.com/payroll/.