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Why You Need To Keep Your Pay Stubs
An employee's pay stub holds key financial information. It shows their earnings, taxes, and total deductions. Most of the time, this document gets ignored without people paying attention to it.
If you’re wondering whether you need to keep your pay stubs, the answer is pretty simple: yes, you do. Your pay stub is useful in multiple ways, and as an employee, you need to pay attention to it.
By the end of this article, you will understand why a pay stub is important to you as an employee. It addresses common concerns about pay stubs and for how long you should keep them.
What Is in a Pay Stub?
A pay stub typically includes an outline of your pay information. As an employer or an employee, you need correct details about your gross and net pay. Here is a list of what is usually contained in a pay stub:
Employee information: includes your first and last name, address and social security number
Employer information: includes company name and physical address
Total wages: This is the amount an employee usually earns or their total gross pay. It also includes all compensation they earned before any employee contributions and deductions or tax withholdings.
Hours the employee worked and pay rate
Dates of the pay period
Tax withholdings, including for Social Security, Medicare, or federal income tax
Retirement plans contributions
Deductions withheld for life or health insurance
Net pay: involves the total amount that the employee takes after all taxes, contributions, and deductions are removed from gross pay
How to Access Your Pay Stub
To access your pay stub it heavily depends on your employment status:
Employees: Most employers usually give their employees electronic pay stubs. This is given online, through a portal or payroll system. What you just need to do is to create an account. Then, you can log in and access your pay stub easily. Some other employees, however, receive physical paper pay stubs, which come with their paychecks.
Independent contractors/Freelancers: As an independent contractor or a freelancer, your clients may not give you pay stubs. Then, it is up to you to create pay stubs of what you earn and all taxes withheld. It can, therefore, serve as one of your proof of income documents.
Why Is It Important To Keep Your Pay Stubs?
Pay stubs are important for you as an employee. With a pay stub, you can verify and track what you earn when necessary. In cases where you need proof of income documents, for example, applying for a loan or mortgage, it can be extremely useful. Applying for these usually requires that you provide evidence of your employment and salary. This is to make sure that you're able to pay back the loan. You might be asked to provide your recent pay stub or a previous one, depending on the situation.
Pay stubs also come in handy when you're filing your taxes. At your place of work, your employer provides you with your W-2 form once the tax year closes. W-2 contains how much you're being paid and how much is being withheld for your taxes. In a case where you need to file a tax return, you'll need your pay stub. It helps to compare the figures to determine how much refund you'll get or how much taxes you owe the government.
Also, in order to catch any discrepancies early enough, it is important to keep your pay stub. These discrepancies can be errors that could cost you your time and your money. For example, miscalculations and incorrect tax withholdings are common mistakes that happen quite often. Reviewing your pay stub makes it much easier to avoid these.
Finally, independent contractors or self-employed individuals will need to create their personal pay stubs. This is because independent contractors or self-employed individuals do not receive pay stubs from any employer. They are responsible for calculating and paying their taxes. Therefore, creating pay stubs for clients or personal records is important for keeping accurate records. It also helps in financial stability and tax compliance.
How Long Should You Keep Your Pay Stubs?
The general rule is that you should keep your pay stubs for a minimum of one year. This should be at least until it has been confirmed that your W-2 is accurate. You are expected to keep your pay stub for this period, depending on what you intend to use it for.
On the other hand, some employees keep theirs for much longer. This is if there is a legal issue to resolve or they're applying for a loan or mortgage. They would then need to keep their pay stub for two years, if not longer.
It is, however, advisable for taxpayers to keep their pay stubs for at least three years. The IRS has mandated that pay stubs be kept for three years from the date they had their tax return filed.
For independent contractors, self-employed individuals and freelancers, it can be a different case. They mostly use their pay stubs to calculate their taxes quarterly and a proof of income document. Thus, they are required to keep their pay stub for three to six years.
Organizing and Disposing of Pay Stubs
While it's time to dispose of your pay stubs, the best thing is to do it the right way. It is also best to know how to organize your pay stub properly. To do so, there are different methods to adopt for your pay stub storage. This is to ensure it is well-organized and then properly disposed of when it's needed.
Methods of Organization
Digital Storage: This is a way of storing your pay stubs digitally. This method of managing your pay stub storage involves scanning your pay stub and saving them online. You can save it on Cloud Storage, like Google Drive, OneDrive, or DropBox, where it is safe and easily available. You could also save your pay stub on your computer by simply creating a folder for it. Payroll services also offer a secure way to access and save digital copies of your pay stub.
Physical Storage: You might prefer to keep hard copies of your pay stub; this means that you have to be extremely organized. This pay stub storage requires you to store them in a file folder and label them year by year. Place them from recent to oldest to make it easy for you. Store the pay stub (including your important documents) in a waterproof safe in case of an unexpected disaster.
Methods of Disposal
Timing for Disposal: As already mentioned, you can dispose of your pay stub if you no longer need it. After you have reconciled it with your pay stub, you can dispose of it after a year. In the case of IRS audits, keep them for up to three years and keep them indefinitely in case of a legal dispute.
Secure Disposal Methods: A pay stub usually includes your sensitive and personal information. See some secure disposal methods you should definitely take note of:
Shredding: Make sure you shred your pay stubs instead of throwing them directly into the trash.
Burning: This is an effective method of disposal. Find a safe place to burn your document.
Permanently delete files: If you have your pay stub online, make sure you delete them permanently and empty the recycle bin as well.
Best Practices for Easy Pay Stub Management
Below are a few pay stub management practices you can follow:
Set a routine to check, organize and update your pay stub regularly.
Protect your digital and physical from unauthorized access or potential theft.
Review your pay stubs before you dispose of them. This is to make sure you don't throw away what is important.
Final Thoughts
Having a pay stub and keeping them organized is a sure way to keep your finances in check. It ensures good financial management, which helps you to plan your budget and make great decisions. Your pay stub has to be accurate and detailed without missing any information related to your job. Understand how this works, and it will automatically become easy.
Keeping your pay stubs has become easy, as we have the perfect online tool for you! Our pay stub generator makes it easy to create all employee pay stubs and be on top of your earnings. It provides a personalized, detailed and accurate document just for you. Get started with our pay stub generator now.
