Most people are satisfied once their salaries or wages arrive in their bank accounts. However, keeping track of other critical data for tax purposes is important, too. One powerful tool that enables employees to do this is a check stub. Keep reading to learn more about check stubs and the data they offer.
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The check stubs, or pay stubs, paycheck stubs, or pay slips you give your employees are documents you provide to them.
A pay stub is a document that an employee receives each payday. It displays their total earnings and deductions for items like taxes. Pay stubs display earnings from salary, hourly pay, or commission. The document also includes the following details:
- How much an employee was paid during a specified payroll period (a week, month, year)
- The employee’s withdrawals or deductions, typically, taxes and premiums for insurance the company offers
- Payments made by the company during the year
Some employers refer to check stubs as pay slips, paycheck stubs, or pay stubs.
The pay stub was traditionally a paper record related to a physical check or included in a wages envelope. Most businesses now prefer electronic pay stubs. Typically, employees get their check stubs via email. Employers may also print them out. In some instances, employees have access to a company website where they may download this document.
In simple words, a check stub shows how the salary is calculated. Thus, the document includes more detailed information about the salary or wage. Let’s check more detailed information that most people find on their check stubs:
- Company name and address
- The employee’s home address and name
- Gross income (earnings before all withholdings)
- Hourly rate, if applicable
- Hours the employee worked per calculated period
- Deductions and withholdings, including tax withholdings, employee benefits, insurance (life or health), and other voluntary or involuntary deductions
- Net income for the calculated period
In other words, the check stub offers information on an employee’s gross and net income. The first figure is always bigger than the second. However, employees can see how much taxes they pay and what benefits they’re entitled to. For instance, if a monthly sum goes from an employee’s paycheck to health insurance, they can demand coverage for their expenses in case of illness or injury.
Why would an employee need this data? There are a few reasons. First, employees see and understand how much they earn before and after deductions and premiums. Second, they understand their yearly income. This is helpful because everyone has to file tax returns at the end of each fiscal year.
Moreover, check stubs can help employees receive a loan or apply for a mortgage. Banks and other financial institutions typically require clients to prove their income to see what conditions they can offer. A pay stub offers detailed information on an employee’s income.
Now let’s figure out what a paycheck offers. A paycheck is a check that a company provides to employees as monetary compensation for their work and effort. It is a paper check that has all the required payment data. The employee must subsequently cash a paycheck. Simply put, it’s a document that an employee can cash out to get their salary. Typically, an employee’s salary is stated on the employment contract as a standard.
It can also change based on how much work an individual has completed in a certain time frame. A paycheck is not digital. Instead, an employer physically distributes or delivers it to employees.
However, with more and more businesses transitioning to digital payment methods, receiving a salary via a physical paycheck has become an old-fashioned option. Today, most employees receive direct deposits to their bank accounts. Or they get electronic paychecks that they cash out or deposit to their accounts. Nonetheless, it is estimated that around four percent of employees in the United States still receive physical paychecks.
Understanding Deductions and Withholdings
It is necessary to read a check stub to comprehend the deductions and other information about a paycheck. Certain deductions are common for all employees, and it is important to understand their function to interpret everything correctly.
The most typical reduction is the government tax, followed by state and local taxes. Medicare and Social Security are both deductions for US employees, and they depend on an employee’s income. Insurance payments, profit sharing, union dues, unemployment insurance, and other withholdings may also appear on the check stub.
For instance, one of the less common withholdings is child support due to a court order. Suppose the employee recently had a divorce and now has to pay child support for his children. An employer must deduct a specific sum stated by the court order from that employee’s salary.
What can we say about the differences between paychecks and check stubs? The simplest explanation is that a paycheck is a document you use to convert into cash for your actual salary for a specific period. The check stub is the calculation that explains the paycheck.
Here’s a simple example. Suppose you received a monthly paycheck that indicates you received $3,000 for your work. You can go to a bank and cash out the paycheck to receive $3,000.
However, you receive another document with your paycheck, a check stub. This document shows that your gross wage for that month was $3,500. However, you didn’t receive $3,500 because of deductions. The check stub shows what deductions and taxes reduced your wage to $3,000.
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To sum up, a check stub is a document that explains how employees are paid by their employers. Check stubs and paychecks are different documents. People can cash out their paychecks, but pay stubs serve a different function. Employees may use the check stub to apply for a loan or mortgage. Review your check stub to determine how your employer or company calculates compensation and salary.
The easiest option for company owners is to use automated software that calculates and generates check stubs. Many convenient services are relatively inexpensive.
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