Do you provide your employees with pay stubs? If not, it’s time to re-evaluate your policy on whether or not to create a pay stub. With the right software, a pay stub’s surprisingly easy to make.
But what if your state doesn’t require including a pay stub with your worker’s checks? Does that render them useless? Nope.
Pay stubs allow you and your employees to keep track of when they’ve been paid and how much. They also come in handy for your records. Read on to learn how to create pay stubs quickly and easily.
Why Pay Stubs Matter
Ultimately, you and your employees need pay stubs to prove your earnings. Pay stubs also show deductions that you take and contributions that you’ve made towards taxes. Besides tax information, they include important information about Medicare contributions, social security, and pension funds.
They are important when you or your employees want to prove your earnings. In fact, interested parties will ask for pay stubs when you:
- rent a house
- request credit
- apply for a mortgage or loan
Creating and keeping pay stubs also helps you when it comes to dealing with the IRS. They keep records of all of your withholdings and deductions for each pay period. And they cover your back if and when you’re ever in a dispute with an employee.
Start with Gross Income
Start by creating an Excel spreadsheet where you store all of your employee’s wage information. Then, grab a calculator. You’ll need to begin with your every employee’s gross pay.
For salaried employees, this is as simple as dividing their annual salary by the number of paydays per year. For employees paid at an hourly rate, multiply how many hours they’ve worked by their hourly pay rate. (Don’t forget to factor in unpaid time off and overtime.)
Next, you need to calculate deductions. To compute Federal, State, and Local taxes, you can look up rates on the IRS tax tables. Not all areas charge local taxes, so double check with a local authority to be sure.
As you calculate deductions, pay attention to a couple of things. Amounts differ based on marital status and whether or not the employee reports as head of household.
Compute FICA Tax Withholdings
For FICA tax withholdings for Medicare and social security, multiply each employee’s gross pay by 1.4 percent for Medicare. For social security, multiply by 6.2 percent. As an employer, you must match these amounts.
Finally, make deductions for any life insurance or 401(k) plan you’ve set up for your employees.
The premiums are deductible before taxes except for Roth 401(k)s. If you have any employees with a wage garnishment in effect, deduct this after taxation, too.
Figure Out Net Pay
Once you’ve figured out gross pay and removed all necessary deductions, the amount you’re left with is each employee’s net pay. Net pay is the amount that appears on each employee’s paycheck.
Now that you have all of the right numbers, it’s time to create pay stubs. This process is as easy as finding a good check stub maker.
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