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If you have spent any time around an accounting team that handles business operations and payments to employees, then you will have heard a lot about pay stubs. Most jobs will have given you a paystub of your own every month, but aside from being a breakdown of your pay, their use is not always clear.
Why Are Paystubs So Important?
A pay stub can be an incredibly valuable tool for any business, and they are often required by law – but the exact laws change from state to state. Regardless of which business is giving them out, paystubs are both a finance and HR issue, and they can be used in a number of different ways.
Here are a few reasons why pay stubs are so important and the other uses that they might have
Paystubs are a core part of a business’ payroll system, acting as both an accounting record and a way of calculating the net income of each employee. Most pay stubs help a business work out how much tax each employee has to pay and are often used to keep official records of each payment.
There could be hundreds of employees within a payroll system, each of which has a specific gross income – the amount that they are paid for their work. However, tax and other financial contributions or deductions can quickly start to influence this, leading to a different net income instead.
Thanks to this, there can be countless different calculations that impact the overall earnings of each employee, from taxes and sick pay to overtime and employee benefits. All of these have their own specific impact on the employee’s earnings and can sometimes vary between different job roles.
A paystub is effectively a spreadsheet, breaking down each change to an employee’s pay while also making the calculations clear. This does not just help the accounting team make these calculations but can also allow employees to check their own payment records and look for errors to dispute.
Paystubs act like finance records, keeping track of every single payment that employees have received during normal business operations. This is not just important for tax reasons but can also be a legal requirement and can help a business avoid all sorts of legal issues in the future.
It is important that all businesses keep these records indefinitely (if possible) since they might need to be referred to if something goes wrong in the short term. For example, an employee may notice that they have been underpaid, something that can only really be rectified by looking at the paystubs.
This helps the most in situations where an employee’s tax is calculated poorly or where they do not have things like overtime and added pay calculated well. On top of that, there can be cases where an employer needs to check these records to make sure that they did not pay an employee too much.
The information included in pay stubs can often be useful for future legal or payment issues and can be valuable even as a standalone reference for both employers and employees. Most states require that you present them to employees directly, but not all – so check your local laws on the matter.
A lot of states have their own laws on pay stubs that can be important for a business to follow, even if they do not change much on the business end of the system. This generally changes how employees are meant to receive the pay stub, or if they do at all.
In some states, employees can be given either a digital or physical pay stub, although they can ask for a specific option if they really need it (such as not being able to access digital pay stubs easily at home). Employers have to respect these requirements but can choose a standard way to hand out stubs.
In other states, the law is similar, except employers have to offer a way for employees to print digital pay stubs in-office. This means that there needs to be at least one printer that can let employees print out stubs and take them home if they need them.
There are also certain laws on the consent involved in switching different pay stub types, such as moving from physical to digital. Most notable, however, is that some states do not require employers to present employees with pay stubs unless they specifically ask for each one.
In all states, there is a legal requirement to have pay stubs generated and kept as records, even in the states where employees are not presented with them as standard. This means that getting paystubs set up in a new company is an extremely important early-stage step.
Finally, there is the fact that pay stubs are necessary for most major payments. Without them, it is not easy to be sure that you are paying your employees the right amount, which can lead to major HR and accounting problems as well as legal trouble if it is not corrected.
Pay stubs are essentially an easy way of figuring out how much each employee is owed without having to do the same calculations over and over again each time, instead of relying on partially-automated spreadsheets or generators to do the hardest parts of the work.
For example, using an online generator to make a paystub free of charge requires barely any effort compared to making them from scratch, speeding up the process, and helping to reduce the chance of human error. This can benefit both a small business and a large company extremely well.
Legally, pay stubs are created alongside the payments themselves. Even if employees do not get them, they are the equivalent of a receipt for the payment that they have earned, one that gets filed away for later use in case that payment has to be double-checked or properly managed.
No matter what kind of business you run or whether employees are wage-based or salaried, paystubs are perhaps the most important part of the payroll aside from the payroll system itself. Without them, no payments can easily be made, and tax has to be worked out individually for each employee.
Thank you for reading!