How To Read A Paystub: A Resource For Employees

Direct deposit has become popular in the current generation for receiving their pay. So, nowadays, people don’t get checks. What they mostly get is paystubs. Now, some people do not take the time to read their paystubs. However, understanding how to read a paystub can assist in managing your income. You can confirm whether you have been paid correctly. Thus, you can manage your personal finances properly.

In this guide, you’ll learn how to read a paystub and find a pay stub example to help you understand better.

What Is a Paystub?

A paystub is also commonly known as a pay statement or paycheck stub. From the general definitions, it is a document that presents how your employer has been remunerating you for a specific period. It gives the figure of what has been earned. It also shows the net figure that remains after all the deductions have been made. The pay stubs are usually attached with the check if one gets paid via a check. The stubs are, however, electronically generated if the payment is through a bank transfer.

A paystub is important since it serves as a record. It also enables the management to keep track of employees’ payments. This prevents any form of mistakes with respect to pay and clears any misunderstandings that may arise.

How To Read a Paystub

Here are the steps on how to read a paystub:

Personal Information

This section includes the employer and employee names, the employer’s address, and the employee ID. The last four digits of the Social Security Number (SSN) are also found here. It also contains the pay period start and end dates and the pay date. For physical checks, there is a check number that links the stub to the payment. This is mainly used for record-keeping purposes. You should compare them occasionally, especially when there are changes in the record.

Gross Pay

Gross pay refers to the employee’s pay before the deductions have been made. For salaried employees, it is usually a flat rate. You get it by dividing the annual salary by the number of pay periods in a year. The calculation of gross pay for hourly employees is a bit different. It is done by multiplying the rate per hour by the number of hours worked. This section includes any other form of wages, like the amount earned as overtime. It also shows bonuses, shift differential allowances, and those that are determined later on. This section assists in avoiding incorrect billing, particularly in instances where there is a change in time or rates.

Taxes and Withholdings

Taxes and withholdings are compulsory deductions. Federal income tax can be calculated depending on income level, the status of a person, and W-4 allowances. Several states today operate with the policy of income taxation. However, some do not have this type of taxation. Some localities also have other taxes. There are also FICA taxes, which comprise Social Security and Medicare. It is important to know that some states require employees to contribute to disability insurance. Some also mandate participation in unemployment insurance. Other items included in this section are garnishments for child support or alimony prescribed by the court. They may also be a result of any failed loans. However, there are legal limits on how much they can deduct.

Voluntary Deductions

Voluntary deductions are divided into two categories. Pre-tax deductions and after-tax deductions. Pre-tax deductions are a way of reducing some income before tax rates are applied to them. These include health insurance and retirement savings. It also includes deposits to health or flexible spending plans. After-tax deductions include retirement contributions in Roth style. Union dues, contributions to charities, and extra insurance are also a part. This distinction helps to maximize benefits and minimize taxes.

Net Pay

Net pay, or take-home amount, is obtained by subtracting all these deductions from the gross pay. It is prominently displayed on the stub and is the amount credited to your account. Net pay is important as it shows how much money is available for managing expenditures. Deductions can sometimes account for as much as or even higher than 30% of the gross pay. Employees working on an hourly basis may experience more fluctuations in their net income. This is due to changes in hours worked, benefits costs, or one-time deductions.

YTD Totals

Year-to-date (YTD) information is based on cumulative totals from the beginning of the year to the specified time. YTD gross earnings show your progress toward achieving yearly income targets. YTD deductions track tax deductions and contributions to retirement accounts and other benefits. By comparing YTD federal and state tax, it is possible to adjust W-4 withholdings. This helps you manage tax liability for the rest of the year. YTD net pay reflects the total amount of take-home pay for a given year. This can be compared with expenses throughout the year. Some paystubs also include data on YTD paid time off usage and YTD time off accrual to plan future time off.

What Is a Pay Stub Example?

In the following example, we will make a paystub for an employee named Jane Smith. She has an annual salary of $60,000 but receives a paycheck every two weeks. This results in 26 paychecks per year.

Employee Information

Jane Smith

Employee ID: 12345

Pay Period: 02/15/2025 to 02/28/2025

Pay Date: 03/05/2025

Earnings

Regular Pay: $2,307.69 ($60,000 ÷ 26)

Overtime: $0.00

Gross Pay (Current): $2,307.69

Gross Pay (YTD): $9,230.76

Taxes

Federal Income Tax: $346.15

Social Security: $143.08

Medicare: $33.46

State Income Tax: $115.38

Total Taxes (Current): $638.07

Total Taxes (YTD): $2,552.28

Pre-Tax Deductions

Health Insurance: $150.00

401(k) Contribution (5%): $115.38

Total Pre-Tax Deductions (Current): $265.38

Total Pre-Tax Deductions (YTD): $1,061.52

After-Tax Deductions

Charitable Contribution: $25.00

Total After-Tax Deductions (Current): $25.00

Total After-Tax Deductions (YTD): $100.00

Net Pay

Current Pay Period: $1,379.24

YTD Net Pay: $5,516.96

Leave Balances

Vacation Hours: 40 hours

Sick Leave: 24 hours

This example illustrates that Jane’s gross salary of $2,307.69 every two weeks results in a net pay of $1,379.24. This is a difference of $928.45, or about 40% of her gross pay. However, it covers mandatory taxes and necessary elements like health insurance and pensions.

In Closing

Becoming familiar with how to read a paystub is an important life skill. It enables you to plan financially and verify that you are being paid correctly. Understanding the elements of the paystub helps in managing personal finances effectively. It is important to check your paystub every time you receive it, especially to look for discrepancies. You may need more information or clarification about any entries on the paystub. It is advisable to consult your human resources or payroll department in such cases.

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