What Is a Pay Stub? Definition, What It Includes & Laws

Looking to know what a pay stub should include? You’re not alone; US founders, HR teams, and small businesses ask this every week. We’ll nail the basics of what is a pay stub, the essentials it shows (earnings, taxes, deductions, net pay), and pay slip vs pay stub, what’s different and where each term applies.

In this article, we’ll break down definition, contents, and legal requirements so you can explain it clearly and stay compliant. Let's take a closer look.

What is a Pay stub?[toc=What is a Pay Stub]

A pay stub is a document, also called a pay slip or paycheck stub that an employer issues each pay period that shows your gross pay, all deductions (taxes, benefits, garnishments), and your final net pay (take-home pay). It helps verify income, spot payroll errors, and is commonly required for things like rental applications, loans, or mortgages.

Pay Slips vs. Pay Stubs

Pay stubs and pay slips are similar documents and are often used interchangeably. The only difference is regional terminology. The document that lists earnings, deductions, and net pay is referred to as a pay stub in the U.S. and a pay slip in the UK. While the terms differ, both documents serve the same purpose, detailing an employee’s pay breakdown.

Pay Slips vs. Paychecks

A paycheck is the actual payment made to the employee, whether as a physical check or direct deposit. On the other hand, a pay slip or pay stub is the document detailing the breakdown of that payment, including gross pay, taxes, deductions, and net pay (take-home amount). Essentially, a paycheck is the money, and a pay slip/pay stub explains where it came from.

What information is on a Pay Stub?[toc=Components of Pay Stub]

Understanding what’s listed on a pay stub is crucial for both employees and employers to ensure accuracy and compliance. This includes gross wages, tax withholdings, benefits, and other deductions that impact take-home pay.

Based on our experience in helping companies with payroll and compliance solutions, here’s a breakdown of the key information you’ll typically find on a pay stub.

• Employee information, including name, social security number, and address
• Employer information, including company name and address
• The dates of the pay period (start and end dates)
• Employee pay rate, including regular, overtime, or other pay rates
• Gross earnings, or earnings before taxes, employee contributions, and deductions are taken out
• Taxes withheld, such as federal income tax, and if applicable, state or local income taxes, plus the employee’s share of FICA tax (including Medicare and Social Security taxes)
• Employee contributions, such as to retirement plans (e.g., 401(k)) or pensions
• Deductions, such as for health insurance, life insurance, or other employee benefits
• Net pay, which is the total amount the employee actually takes home in their paycheck after all taxes, contributions, and deductions are subtracted from gross earnings
• Year-to-date (YTD) information, a summary of your total gross wages, deductions, and net pay since the beginning of the year

Here we’ve elaborated and explained the key components of a pay stub:

Gross Earnings

Gross earnings refer to the total amount you’ve earned before any deductions are made. For hourly employees, this is calculated by multiplying your hourly rate by the number of hours worked in a specific pay period. For salaried employees, it’s their fixed pay.

This figure includes any overtime pay, bonuses, commissions, or other additional earnings, giving a complete picture of your gross pay before any deductions like taxes or benefits.

Taxes Withheld

Taxes withheld are amounts deducted from your paycheck for various taxes. This includes federal income tax, and if applicable, state or local taxes. You will also see your share of FICA taxes, which fund Social Security and Medicare.

These taxes paid are deducted automatically and support federal and state programs. Your pay stub should show the exact amount withheld, including federal taxes and any local taxes, which are all essential to keeping you compliant with federal law.

Employee Contributions

Employee contributions refer to deductions for savings or benefits like contributions to a 401(k), pension plan, or retirement plans. These are amounts taken directly out of your paycheck and help you build savings for the future.

In some cases, employer contributions (like matching 401(k) funds) are also included, boosting your retirement savings. These details are clearly reflected in pay stubs, making it easy to track contributions for your health insurance and retirement.

Deductions

Deductions are amounts taken out of your paycheck for various benefits, such as health insurance premiums, life insurance, or other employee benefits. Some deductions are pre-tax (like health insurance), while others are post-tax (like life insurance).

This breakdown is clearly shown on your payroll processing documents, such as pay stubs or payroll records, making it transparent and easy to track.

Net Pay

Net pay is the final amount you take home after all deductions, taxes, and employee contributions have been subtracted from your gross earnings. This is your take-home pay, the amount that ends up in your bank details or is direct deposit into your account.

Net Pay is the money you can spend or save, and it’s what you’ll see clearly listed on your pay stub.

Year-to-Date (YTD) Information

Year-to-date (YTD) information provides a summary of your total gross earnings, deductions, and net pay since the beginning of the year. This YTD info is crucial for understanding your overall financial situation and helps you track your progress toward tax filing.

It’s included on your payroll records and pay stubs, providing a cumulative total of what’s been earned, deducted, and paid out for each pay period.

Why are Pay Stubs important?[toc=Importance of Pay Stubs]

Pay stubs ensure transparency in payroll processing, serve as proof of income, and are essential for tax preparation and complying with legal requirements.

With our experience in helping companies with payroll management and compliance, here are the key reasons why pay stubs are important for both employees and employers.

• Proof of Income: Pay stubs are often required as proof of income when applying for an apartment, a loan, or a mortgage. They provide a clear breakdown of your earnings, including overtime, bonuses, and commissions.
• Payroll Verification: They allow you to easily verify that the information on your paycheck is accurate, helping identify any mistakes in hours worked or pay rates.
• Tax Preparation: Pay stubs are crucial for tax preparation, as they track your earnings and taxes paid throughout the year, ensuring you're ready for tax season.

Are employers required to give pay stubs?[toc=Considerations for Employers]

While there is no federal law that requires employers to issue pay slips, many individual states have their own rules. This can create challenges for businesses that operate across multiple states, as compliance requirements may differ from one jurisdiction to another.

One key area where state laws vary is how pay slips can be delivered. Some states have no specific regulations, allowing employers to choose whether to provide pay slips in paper or electronic format. Others have more defined rules, such as:

• Access/Print Requirements: Employees must be able to view and print their pay slips easily if they are delivered electronically.
• Opt-In States: In these states, paper pay slips are the default, and employers need the employee’s permission to switch to digital delivery.
• Opt-Out States: Electronic delivery is allowed by default, but employees can request paper copies if they prefer.

Understanding the laws in each state where you have employees is essential to ensure you remain compliant and avoid potential penalties.

Note: Under the Fair Labor Standards Act (FLSA), employers must keep payroll records for at least three years and maintain documentation showing how wages were determined for at least two years. If state laws impose a longer recordkeeping requirement than federal guidelines, employers must comply with the state’s extended period.

Conclusion

Payroll errors can create serious headaches, including costly mistakes, compliance issues, and a breakdown in employee trust. These challenges not only take time to resolve but can also hurt your business reputation and bottom line.

However, by following best practices for accurate pay slips and ensuring transparency in payroll, you can eliminate these issues and create a smooth, compliant payroll system. This will help you build trust with your employees and reduce the risk of costly errors.

Wisemonk is an Employer of Record (EOR) that simplifies payroll, ensures tax compliance, and keeps your business on track. Whether you need end-to-end payroll services or expert support for tax regulations and employee onboarding, we handle it all for you. Reach out to Wisemonk today to see how we can help streamline your payroll and ensure full compliance.