Whether you are self-employed or you work for someone else, nothing is more exciting than receiving that paycheck at the end of the week, month, or two weeks. If you run a small business with several employees, preparing payslips is probably part of your payroll routine even if you have a dedicated team that handles wages and other HR issues.
Also known as paystubs, salary statements, or paycheck stubs, payslips are incredibly essential to business organizations and employed individuals. Read on to learn how a pay stub works, and how you can go about making one.
What is a Pay Stub?
A paystub is simply a document outlining the details of one’s earnings once they receive a paycheck for work done for a specific time duration. This is why they are also called paycheck stubs or wage slips. As an employee, they help you keep track of your earnings and deductions so you can better manage your finances. Moreover, they are often required by lenders as proof of income when applying for a personal loan, credit card, or mortgage.
If you’re a business owner, the government may or may not require you to provide payslips to your employees. Having a reliable way to prepare and provide these documents to your employees can make it easier for you to manage your finances. Preparing for the tax season becomes a breeze, plus it somewhat helps keep your employees motivated.
Pay stubs are often attached to physical paychecks by perforation. They can also be accessed online if you use a digital payroll system in your business. Self-employed individuals can also create pay stubs for themselves.
How to Generate Your Own Pay Stubs
There are several ways to create pay stubs. Among these, using an online pay stub generator is perhaps the best and easiest method. At a small fee, you can generate pay stubs online even with minimal expertise in accounting. The Formpros paystub generator is often recommended by many for the various perks it provides. For instance, it offers several useful features, including auto-complete and automated calculations to make the entire process easy. Users also find it cheaper than hiring an accountant or using other tools, plus privacy and security are guaranteed.
Alternatively, you can use a spreadsheet program to create pay stubs. You may also download templates online and prepare your wage stubs manually. The major caveat in these alternative methods is that they tend to be more tedious and time-consuming. Generating your own pay stubs can be advantageous, even more than using payroll and accounting tools like Sage and Xero.
How to Read Your Pay Stub
Pay stubs may look a little different in formatting and appearance depending on various factors, including your state and your employer’s payroll service. However, the contents are often more or less similar. While the slip will display plenty of information about your earnings, here are some of the key things to focus on when reading a pay stub.
- Pay date/period – Indicates the period you’re being paid and the date of payment
- Pay rate – The amount you are paid hourly or monthly, including rates for overtime work where applicable
- Hours worked – The number of hours you have worked for that pay period
- Gross salary – The raw figure of your total earnings before deductions or adjustments are made
- Deductions – These include amounts deducted pretax or after-tax from your gross earnings. They may include social security, insurance, and so forth.
- Taxes – the various taxes deducted from the taxable wages, including income tax, medicare, and social security tax, among others.
- Taxable wages – The available amount after pretax deductions are made
- Net Pay – This is the money you take home after all deductions and adjustments have been made from your paycheck.
Figuring Out Your Net Income
If you’re a business owner and you pay yourself, the net income is perhaps the most important element when making a pay stub. To establish your net income, you need to figure out your gross earnings and the deductions you need to make, as well as the taxes you are subject to. The net income is basically what remains after pretax deductions, taxation, and after-tax deductions are made.
The process should be easy if you’re using a reliable pay stub generator because the formulas are automated. All you need is to enter the respective amounts and the program does the calculations for you.
Figuring Out Your Taxes
You can also use pay stubs to plan for the tax season and make tax filing easier. All you need is to visit the IRS Tax Guide if you’re an employer or self-employed. The document should guide you on the kind of taxes you should pay and how much you should set aside as per the federal and your state’s laws.
In a nutshell, pay stubs come with plenty of advantages. They are actually a legal requirement for employers in some states. Self-employed individuals can also benefit from them as reliable tools to prove income. The above guide covers the nitty-gritty of how paystubs work and how to create them.