Written by Reginald Chan on June 7, 2021

Understanding the Purpose of a Pay Stub

Pay stubs show how much you’ve earned and how much is being deducted from your salary. They include all sorts of information that can validate your identity and your income. In this article, you will learn everything you need to know about a pay stub, also known as a payslip, as well as everything that a pay stub can be used for. 

What Is A Pay Stub?

Pay stubs are, quite simply, documents that show your salary. However, they include far more accurate and detailed information than a simple bank transfer or statement. Most employees are paid via bank transfer - over 91% in the US - but many still receive a physical pay stub. 

In the past, most Americans were paid via a physical paycheck, which they then had to take to a bank to pay into their account. In those days, the paycheck pretty much always came with a printed payslip. Since the dawn of electronic banking, however, fewer and fewer companies provide pay stubs.

Who Is Responsible For My Pay Stub?

As mentioned, it is the responsibility of an employer to ensure their staff receive the right pay and, in some cases, a physical pay stub. However, it is only a legal requirement in 11 states. In 26 others, it is a legal requirement for employees to be able to access online records to show their pay is accurate, while in the rest there are actually no laws regarding pay stubs. So, depending on where you are, there may be no legal requirement at all for your boss to share a physical or digital pay stub with you.

Self Generate Pay Stubs

If your employer does not generate pay stubs for you, there is an alternative. You can generate a pay stub yourself using an online service. These services allow you to enter various details including your state, salary, and net pay to generate a new pay stub. This can come in really handy for various reasons - many of which will be discussed shortly. 

Alternatively, most employers’ accounting teams will be able to create a payslip for you. Though, as mentioned, that is not always an easy task. If they feel they have no responsibility to do so, it may be far quicker for you to use an online generator instead. 

Information On Pay Stub

A pay stub includes a lot of information, all of which is designed to show that you are being paid the right amount as well as being deducted the right amounts. Firstly, a payslip needs to include all the right personal details for yourself. This includes your name, address, employee number, and a few other details to verify your identity.

Secondly, a pay stub must show everything you have earned. This includes base salary, hours worked, and any overtime. This section also needs to show if you have lost any of your salaries due to sickness or absence. 

Finally, a payslip has to include any deductions being taken from your account to show your net pay. These deductions can be salary sacrifice schemes such as pensions or benefits, while also showing your tax payments and any employee insurance contributions. At the end of all of this data, you will be able to see your net pay for each pay period as well as your overall yearly gross and net pay.

Pay And Taxes

Your payslip must show your taxes, both federal and state. Federal tax changes depending on which tax bracket you fall into. At the low end, you will pay around 10% of your income as federal tax, increasing incrementally up to 37% depending on your income. A pay stub is a great way to double-check that you are paying the right amount in both this and state tax. 

State and local taxes are worked out differently depending on where you live. Many have brackets, too, just like federal taxes do. But, the amounts massively vary depending on your state. Some local areas have local taxes, which are usually smaller amounts to help pay for certain local services.

Other Deductions Shown

There will be other deductions on your payslip aside from taxes. Some of the most common ones include pension payments and payments to certain benefits such as medical or insurance. Once again, getting a physical or digital copy of your payslip allows you to be able to check that your deductions are fair and accurate and that all your earnings are going where you expect them to be going.

Pay Stubs As Proof Of Income

One of the most valuable uses of a payslip as an individual is proof of income. There are a wide variety of situations where this could be important, from buying or renting a home to applying for a loan. All sorts of lenders could ask for proof of income. A pay stub is the most definitive and obvious way that you can show your quoted income is valid and truthful.

Some of the most common needs for proof of income are housing, car leases, or finance applications. A landlord, for example, is highly likely to request proof of income before they allow you to rent their property. A car dealership, too, is more than likely to require adequate proof of income to show you can afford to keep up with payments on your chosen vehicle. 

Pay Stubs For Unemployment

There is one final, more unfortunate use for a pay stub. Often, you may receive a final pay stub at the end of any employment. This could detail your final pay and deductions and show that you are no longer employed. These can be essential when claiming unemployment benefits, should you need them. Either way, getting that final pay stub is important, as you can triple-check that you have paid the right taxes during your employment term.

As you can see, pay stubs are more important than many give them credit for. In fact, it’s crazy to think that they aren’t important. Knowing that you are being paid the right amount and, in turn, paying the right amount out of your payslip are very important things. If you have any doubts, get a copy of your pay stub ASAP.

Article written by Reginald Chan
A meticulous entrepreneur by nature and a serial entrepreneur. Founded a few awesome startups including Marketing Lancers, WP Maven and TheMarketingHuddle.com. Reginald is a sought-after success coach, digital marketing consultant and TEDx speaker from Asia. Currently, he teaches others how to make money online for free.

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