What is a paycheck stub? If you’re new to the business, this is a question you’ve likely encountered. Click here for a detailed answer!
Did you change jobs that now pay you via paycheck? Will you now receive pay stubs or paycheck stubs at your new job?
Because of the effects of the COVID-19 crisis in the economy, many have become unemployed now. Some have no choice but to get new jobs, so they can survive this crisis. A recent survey says 49% of Americans expect to live paycheck to paycheck this year.
So what is a paycheck stub? How do they work? Keep reading to learn about using a paycheck stub and how to read it.
1. What is a Paycheck Stub?
First, let’s address an important question: what is a paycheck stub?
A pay stub or paycheck stub is the part of the paycheck that contains the details about an employee’s pay. It lists down the wages earned in a pay period, taxes, and other deductions. It contains a summary of how your total earnings got distributed.
A typical paycheck stub has three sections. The first section shows your total earnings from the pay period, including overtime. It will include the hours worked and pay rate as well.
The next part includes taxes, deductions, and contributions. If you have benefits like health insurance, you can also see them here. The deductions are taxes and deductions after tax like disability insurance.
It also includes withholding, which refers to the money your employer needs to take out of your paycheck on your behalf. That includes state and federal income taxes, Social Security, and worker’s comp.
The final part has your net pay or the amount of money you take home after all those deductions.
2. How Does a Paycheck Stub Work?
You may want to understand how a paycheck stub works. For the first and most important reason, you or your employer can use it to settle issues with employee pay.
If you get paid with a paper check, it’ll often come with a paycheck stub. If your employer pays you via direct deposit to your bank account, you get an online copy of your pay stub online.
You can use it to understand the deductions made to your wages too. You can also use it to compute what you earn per pay period. When it’s time to fill out the W-2 form for your taxes, you can also use your paycheck stub.
3. Why you Need a Paycheck Stub
There are many reasons why you need a paycheck stub and more why you need to learn how to read one. Have you ever doubted the computation of your pay? If you have, you only need to look at your pay stub to see how the payroll department did it.
Pay stubs verify your employment and salary history. You’ll need to have a copy of your most recent pay stub when you apply for a loan. Banks and lenders will ask you to bring proof of employment, and that’s often your latest pay stub.
It’s also useful if you want to change new jobs but are unsure about the new salary offered to you. You may enter an interview for a new job and get asked how much you expect to earn. Use your last pay stub as a basis of how much you were earning before.
Note that it’s illegal in some states for employers to ask for the prior salary of candidates in job interviews.
Make it a habit to keep your paycheck stubs. You can use it to confirm the deductions in your paychecks or verify your salary.
4. What are Common Wage Deductions?
Some wage deductions you’ll see on your paycheck stub may include:
- Federal income taxes
- State income taxes
- Social Security
- Health savings accounts
- Retirement savings plans
- Flexible spending accounts
The federal government takes a portion of your income from every paycheck. This is your withholding tax, which gets managed by the IRS. Depending on where you live, your state may not need to collect state income tax.
Every working American also needs to give a part of their paycheck to Social Security. The federal government also obliges all working US citizens to contribute to Medicare. If you have a 401K plan or other retirement savings plans, a part of your salary goes to your retirement account.
These are only some of the deductions to your wage. These deductions from your gross pay are automatic. These deductions often come in codes on your paycheck stub.
You need to know how to check and compute these deductions to know if you’re getting and contributing the right amount.
5. How and Where to Get a Copy of your Paycheck Stub
You can use a copy of your paycheck stub for a credit application or as a verification of your employment. If you don’t have any copies of your paycheck stub with you, you can get one from your employer. You can also use the company’s website or a payroll service site your company uses.
If you can’t find it, ask the Human Resources or Payroll Resources department. They may provide copies of your paycheck stubs or give you login access to the site. If it’s a small business, and it doesn’t have a website, talk to your employer.
If you’re a first-time business owner, you can create one or use a paycheck stub template. If you have a pay stub from work you’ve done before, you can imitate their layout or use it as a basis for your template. The important thing is that it shows the vital information we discussed earlier on it.
Get to Know How a Paycheck Stub Works
What is a paycheck stub? We hope we provided the answers you seek and that you picked up something useful from this guide. We also hope you understand the information on your paycheck stub better now.
Do you have more questions about your paycheck stub? Are there other concerns you have about how you can bring up discrepancies with a paystub? Check out our other guides for more answers.