How to make sense of your pay stub | personal finance

Every once in a while, Jenny Redes gets a call from an employee who recently discovered her pay stub. They usually have questions about what all the numbers mean, and the HR professional says that’s understandable.

“It’s a lot of information,” says Redes, a Society for Human Resource Management-certified professional and human resources manager with manufacturer Custom Profile in Walker, Michigan.

Deciphering your pay stub is an important skill that ensures you are adequately compensated and have the information you need to create a budget. Read on for a rundown of everything you can find on your pay stub and what it means.

Does my employer have to provide a pay stub?

First of all, it should be noted that there is no federal law that requires pay stubs to be distributed to employees. “It depends on what state you’re in,” says Erica Fine, director of human resources at the law firm Shutts & Bowen LLP in Miami.

In a handful of states, such as Ohio and Georgia, there is no requirement for employers to provide workers with pay stubs or pay stubs. However, the vast majority of states require employers to provide employees with access to a pay stub, either electronically or as a hard copy. Eleven states require written or paper payment statements to be provided.

To determine the legal requirements in your area, check with your state department of labor or its equivalent agency.

Main components of a proof of payment

Regardless of its format, your statement may contain a combination of information required by state law and voluntary details provided by your employer. Here’s a look at the most common information provided on pay stubs.

Not surprisingly, wages are a key piece of information found on pay stubs. Workers can find their hourly rate or salary along with details of their gross, taxable and net wages. Pay statements may include both pay period and performance details to date.

While everything on your pay stub deserves your attention, take special care when reviewing salary information. “One of the most common errors that can occur with the payroll process is when an employee is paid at a higher or lower pay rate than normal,” says Tim Speiss, a partner in the personal wealth advisor practice. of the accounting firm EisnerAmper LLP. .

Tax withholdings are another pillar in payment declarations. For most employees, these will include federal, state, and local income taxes, as well as the FICA tax for Medicare and Social Security.

It is not uncommon for young employees to see mention of state health insurance on your pay stub and do a double take, according to Fine. “They…say I don’t need Medicare,” he explains. However, Medicare and Social Security taxes are paid into the program to support those currently receiving benefits.

Workers should also be aware that they may not pay taxes on everything they earn. “Taxable income is not the same as gross salary,” says Redes. That’s because some deductions, like contributions to traditional 401(k) accounts, are made with pre-tax dollars. “(It can) be very confusing,” says Redes.

When reviewing your pay stub, confirm that the correct amounts are being withheld at each level. Pay special attention to local income tax if your business has multiple locations, but a local tax only applies in certain areas.

Many companies want their workers to know how much they pay on behalf of employees for benefits like insurance and retirement contributions. These expenses may be listed as separate line items. Workers can also find details like their available paid time off.

Pay stubs may also reflect deductions for items such as parking passes, voluntary insurance benefits, and contributions to retirement plans and health savings accounts.

For the most part, these deductions can’t be taken unless you’ve authorized them, says Fine. This means that if you do not recognize a certain expense, it is time to call the human resources department to confirm what it is for and if you accepted it.

Other items on your pay stub may be unique to your employer.

“There are things that we put in ours that are important to our employees,” says Redes. That includes things like an employee’s hire date and their attendance points. These items are not required by law, but companies include them because they are details that many workers want to track.

Why you should review your pay stub

As long as the amount deposited into your bank account each pay period seems correct, you may be wondering why you need to review your statement. HR and finance experts say there are at least three reasons to do so.

The first is to confirm that your pay rate, tax withholdings, and deductions are correct. “Mistakes happen,” says Redes. And quickly identifying and correcting those errors is much easier than trying to fix a problem that has been left pending, like withholding the wrong amount of tax for months.

Then looking at your pay stub provides a way to better understand how government decisions, such as those related to fiscal policy and mandatory benefits, affect workers. “When (you) go out and vote, these decisions can have a direct impact on (you),” says Fine.

Finally, the information on the payment receipts can be vital for an adequate budget. Without the information on your pay stub, you can make the mistake of planning expenses based on your hourly wage or base salary. “This is not really the amount you have to live with,” says Fine. Instead, a significant amount of your income may be diverted to taxes and other deductions.

Plus, your pay stub offers information that may be important to your long-term financial stability, says Speiss. He encourages people to consider how much they are setting aside for necessities like retirement and discuss with an investment advisor how to make the most of this money.

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