8 Min. Read

What is a Pay Stub? Examples for Businesses

October 4, 2024

What is a Pay Stub? An Extensive Guide with Examples

If you’re new to payroll as an employer, making sure you calculate everything correctly might seem overwhelming at first. You’ve experienced payroll as an employee, but now you’re the one in control. You’re in charge of keeping up with changing tax laws, correctly classifying workers, and recordkeeping for compliance.

Many people new to payroll get confused about one major aspect of payroll — What, exactly, is a pay stub and how do you create one?

The good news is that many parts of payroll, including creating a pay stub, have been made a lot easier because of new software. It can be as simple as plugging in some numbers and the rest is calculated instantly for you.

You don’t have to be an accountant to easily understand how to create pay stubs. However, understanding the foundations can help you choose the best pay stub solution for your business today.

In this post, we’ll cover the essential basics about pay stubs so you can confidently make one on your own.

Here’s What We’ll Cover:

What is a Pay Stub?

Is a Pay Stub the Same as a Paycheck?

What Information Goes on a Pay Stub?

Why Should I Provide a Pay Stub to Employees and Contractors?

Know Your State Requirements for Providing Pay Stubs

How to Create a Pay Stub

Small Business Guide to Pay Stubs

More Resources on Small Business Accounting

What is a Pay Stub?

A pay stub, also known as a pay slip or paycheck stub, is essentially proof of a paycheck. It’s a document that an employee receives with their paycheck that states their personal information including gross pay and net pay, current pay rate, number of hours worked for the pay period, and any relevant deductions.

Is a Pay Stub the Same as a Paycheck?

No. A paycheck includes net pay and is what your employee would deposit at their bank if they had a paper check. A paycheck stub breaks down your employee’s gross wages. It shows them all the deductions that resulted in the net pay that shows up on the paychecks.

If your employee has direct deposit set up, the paycheck net pay would match the amount shown on the direct deposit.

If an employee feels like their net pay should be higher, you can have them look at the information on their pay stubs. This will allow them to see exactly how income taxes and deductions affect their gross earnings and result in their net pay.

What Information Goes on a Pay Stub?

A pay stub shows identifying information about your employee and details on their wages. Here are some examples of things you’ll find on their pay stubs.

1. Basic Employee Details:

Employee name, address, and social security number
Dates for the specific pay period and year
Pay date
Employer name and employer address

2. Employee Pay Breakdown:

Whether on salary or paid hourly
Pay rate
Number of hours worked per pay period and the year-to-date (YTD)
Gross wages, or gross pay, for specific pay period and year to date (Pay before deductions)
Pre-tax deductions for various employee benefits
Miscellaneous factors like sick leave, COVID-19-related leave, and overtime pay

3. Federal and State Taxes Withheld from Employee:

Federal income tax withholdings (for example, FICA taxes, Social Security, and Medicare)
State income tax withholdings
Year to date section for federal and state tax
Local taxes (for example, New York City has local taxes on top of state taxes)

4. Miscellaneous Deductions:

401k expenses, child support payments, and more

5. Other Information:

Taxes deducted from paychecks through their election on the W-4
Net pay (Gross pay minus deductions)
Voluntary deductions (for example, other retirement plans)
Health insurance and life insurance
Employer contributions

A pay stub example you see online will have varying information from the one you choose. The important thing is that the pay stub accurately shows major details like gross pay, major deductions, employer contributions, and net wages.

Why Should I Provide a Pay Stub to Employees and Contractors?

It’s a good practice to provide pay stubs since it’ll save you from many administrative headaches. For example, as an employer, a pay stub is an amazing tool for tax purposes when it’s time for you to submit your quarterly 941s and when it’s time to fill out your employee’s W-2 form. You won’t have to crunch numbers at the last second when you have pay stubs on record.

Also, in case your business gets an involuntary audit by the IRS, having these records will make a big difference. Staying compliant with the Fair Labor Standards Act also requires you to keep a record of employees’ hours worked and wages.

Providing pay stubs will also add to employees’ and contractors’ peace of mind. It adds an element of transparency about how their gross pay is being allocated. And pay stubs will be useful for workers who need to prove gross wages when buying a car or getting a credit card.

Depending on the state, providing your employee pay stubs is a necessary part of being compliant.

Know Your State Requirements for Providing Pay Stubs

Different states have different requirements for employees’ pay stubs. There are a few key things for employers to note.

States fall into three categories: No requirement, access, and access/print.

No Requirement States:

Employers aren’t obligated to provide employee pay stubs.

Alabama
Arkansas
Florida
Georgia
Louisiana
Mississippi
Ohio
South Dakota
Tennessee

Access States:

Employers have to provide a way for their employees to access their pay information. This can be in paper or digital format.

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
Wyoming

Access/ Print States:

Employers must provide a paper copy of paycheck stubs. If delivered digitally, they must ensure the employee has access to a printer.

California
Colorado
Connecticut
Iowa
Maine
Massachusetts
New Mexico
North Carolina
Texas
Vermont
Washington

A few states are also categorized further into the following: Opt-out or opt-in.

Opt-In States:

Employers must get consent from employees before changing away from paper paycheck stubs.

Hawaii

Opt-Out States:

If an employer changes to digital pay slips, they must make it easy for employees to opt out in favor of paper pay slips.

Delaware
Minnesota
Oregon

How to Create a Pay Stub

You have a few options when it comes to creating pay stubs. These options are:

Prepare it manually with pay stub templates
Choose a pay stub generator
Choose an online payroll service

Pay Stub Templates

Pay stub templates are the cheapest option but the most error-prone. However, these templates are readily available and easy to use even if you have zero accounting experience.

Pay Stub Generator

Using a generator is less error-prone than using templates but still requires manual effort. Pay stub generators help with important calculations. On top of that, they usually keep up with updates to requirements for local taxes and deductions too.

Generally, each stub is about $8, with the option to buy a bundle for a reduced cost.

If you choose to do pay stubs manually, be careful to ensure you’re calculating all wages and deductions correctly every pay period. Also, double-check that you’re classifying people correctly.

Data from state-level studies show that between 10% to 20% of employers misclassify workers as independent contractors. This could be costly because a contractor pays social security and Medicare taxes on their own. In contrast, an employer pays half of those taxes for employees.

Not only will you be responsible for owing back the wages, but you can also face IRS penalties.

Online Payroll Service

Adding more employees increases the complexity and risks of making pay stubs. This makes you more vulnerable to payroll errors like typos for critical information.

If you don’t want to spend hours doing accounting work every pay period, another option you have is to choose an online payroll service. This option allows you to stress less about compliance knowing you have the help of experts.

One of the benefits of choosing an online service is that employees simply need an email address to access their own portal. Here they can add direct deposit payroll information, print pay stubs, and access a past pay period.

This will automate a few things too. For example, if employees request a day off, it’ll automatically show up on their pay slip like magic.

Small Business Guide to Pay Stubs

Creating a pay stub is simple, but it can be time-consuming and prone to human error.

Pay stub generators can be a good solution early on. Still, you’ll want to consider leveraging payroll software as you scale. It’ll make logistics like creating pay stubs ridiculously easy.

Although FreshBooks isn’t payroll software, we seamlessly integrate with Gusto which is. This allows you to easily import payroll data into your FreshBooks account for more accurate books.

Discover more about the FreshBooks and Gusto integration.