A pay stub, also known as a pay slip, or a paycheck stub, is a statement that outlines the employees’ payment details for a period of time. Some states require them, some not — and they don’t always look the same.
Employers and employees alike need to know how pay stubs work, what they’re used for, and what each item on a pay stub means. Otherwise, employers risk non-compliance penalties, and employees could be taken advantage of and underpaid.
Fortunately, there’s nothing’s complicated about the pay stubs, but there are some details you might have missed. They are all included in this article:
- Pay stub definition
- What’s the purpose of a pay stub?
- What does a typical pay stub include?
- Which states require pay stubs to be issued to employees?
- What does a pay stub look like?
- Pay stubs FAQ (paychecks, paycheck changes, keeping the pay stubs)
What is a pay stub?
A pay stub is a document that shows the employee’s payroll information for a certain pay period. It is also known as a paycheck stub, payslip, or wage statement.
It contains everything regarding employee’s pay: total amount and net pay, pay rate, tax deductions (payroll taxes), employer, and employee information. Pay stubs are handled by the HR departments, and the employees should turn to them in case they wish to access them for any reason.
What are pay stubs used for?
For employers, keeping the pay stubs is recommended for tax purposes, and to prevent any future disputes with employees or in case of discrepancies with employee pay.
Workers also benefit from keeping the pay stubs — it helps them understand the taxes, deductions, contributions and assures them they’re paid properly for their work. There are several cases where people might need pay stubs:
- For housing purposes — if you’re seeking to rent an apartment or buy one, you’ll most probably need to prove that your income can withhold the regular payments (mortgage or rent).
- To get a loan — for the same reason as above, you’ll need to provide the pay stubs in order to loan money.
- Employment — some employers request to see pay stubs during the employment process, but this practice is widely considered unethical, exploitative, and a red flag. Some states (Massachusetts, New York, New Orleans, Philadelphia, Pittsburgh, etc) prohibit employers from asking these questions when hiring new employees.
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What information is included in a pay stub?
There is no federal law that requires employers to provide their employees with pay stubs — it’s up to the state laws.
These are the states that don’t demand that the employers issue pay stubs:
- South Dakota
However, according to the Fair Labor Standards Act (FLSA), employers still need to keep the payroll records for each employee, for at least 3 years. Information used to calculate the wages (timetables, work schedules, time cards, time-tracking software info, wage deductions, and additions) should be kept for 2 years, as the U.S. Department of Labor may request to inspect them.
These FLSA standards apply to employers who hire non-exempt employees and earn $500,000 per year (or more) or are engaged in interstate commerce.
For the rest of the states, issuing pay stubs is mandatory, but the requirements aren’t the same.
Pay stubs most commonly include these elements:
- Employer information — company name, address, contact, and Employer Identification Number (EIN)
- Employee information — full name, address, and Taxpayer Identification Number (TIN): Social Security Number (SSN) OR Individual Taxpayer Identification Number (ITIN)
- Hourly rate — how much are hourly employees owed per one hour of work; pay stub should also note if these rates differ during holidays
- Number of hours — total hours worked during the time period on the pay stub
- Overtime pay — how many hours overtime they have worked, and how much they’re owed for the overtime
- Bonuses/ rewards — any additional income employees receive needs to be noted on a pay stub
- Paid time off — the number of days off used, and pay for that time
- Gross wages — the total, pre-tax amount of money earned before various deductions are applied. When employers present the workers with the salary offer, what they mean is gross pay: yearly salary divided by pay period
- Deductions — parts of gross salary employers withhold for tax purposes (federal, state, local, Federal Insurance Contributions Act/ FICA taxes, Medicare, Social Security), benefits (health insurance, life insurance, disability insurance), 401k payments, retirement plans, wage garnishments (to pay off debts as a result of court order/ other legal action)
- Back pay/ back wages — back pay is a “debt” owed to the employee: when they’re not paid the full amount they have earned, back pay is a way for the employer to fix their mistake
- Net wages — this is what’s left after federal income tax, state income tax, local income taxes, and other payroll deductions and contributions are made. Pay stubs keep track of net pay for the noted period and for the whole year.
What does a pay stub look like?
Pay stubs come in two forms:
- If employees are paid with physical paychecks (also called paper checks), pay stubs are attached to those paychecks via perforation
- In case the employees are paid digitally, via a direct deposit to their bank account, they can access the pay stubs via their accounts, on the online payroll service they’ve agreed to use
Pay stub access
According to the FLSA, employers need to provide the employees with employment records typically noted in the pay stubs. However, as the federal law/ FLSA doesn’t require the pay stub, that information may come in a different format.
As we previously mentioned, some states have no requirements regarding the pay stubs; there are 2 types of those who do:
- Access states — in these states, the only thing important is that the employers provide the employees with some type of access to their pay stubs/ payroll details. It can be a physical copy, or electronic pay stub accessible via payroll software
- Access/ print states — like with the access states, employers can provide the employees with physical or electronic pay stubs, but they must be easily accessible and printable
While we’re at the state pay stub legislation, there’s another division to make:
- Opt-in states — pay stubs are provided in paper format by default unless the employee explicitly opts for an electronic pay stub
- Opt-out states — employers need to get the employees’ explicit consent before changing the pay stub format they provide and need to do as employees wish
Pay stubs and non-compliance
Local state laws determine the consequences of improper pay stub handling.
Taking New York for example: if employers don’t provide the employees with correct pay stubs, or fail to do it properly, employees are entitled to:
- up to $250 per violation
- up to $5,000 per employee
The most recent pay stub law is the New York Senate Bill S2328A, and as of January 1st, 2021 it allows the employees to pick electronic over paper pay stubs.
Pay stub FAQ
These are some of the most frequent questions people have regarding the pay stubs.
Is a pay stub the same as a paycheck?
Pay stub and paycheck are not the same.
A pay stub is a part of a paycheck that elaborates everything related to payment, while a paycheck only contains net salary, without any details.
What happens with my pay stubs after I switch jobs?
Of course, the employer information changes after you start working at another place.
Everything that has an impact on your salary changes as well, if it’s different from the previous workplace.
How long do I need to keep pay stubs?
Employees are generally advised to keep the paycheck stubs for a year, or until they compare them to their IRS Form W-2 and annual social security statement (and see that everything matches).
An electronic pay statement is easier to keep, in case people feel the need to hold it longer.