Every business owner knows that paying employees is a very important part of owning and operating a small business. The concept of paying employees is quite simple; after all, you are simply writing them a check to compensate them for their time and effort.

However, paying employees is a little more complicated than that. Employees expect to not only get a check at the end of a week or pay period, but they also want to receive pay stubs to help them to stay informed of their taxes, deductions, and cumulative pay.

Some small business owners get nervous when they realize that they will have to issue pay stubs along with checks. There’s no reason for concern. Read on to learn all about the basics of pay stubs and what you’ll need to include on yours.

Elements of Pay Stubs

When you hire employees, you have become an employer, and all employers must do payroll. Paying your employees does not simply mean you whip out your checkbook and write them a check. To properly pay the people who work for you, you’ll have to pay them through your company’s payroll.

The Basics

Every pay stub you create should list your employee’s name, address, and the dates of the pay period. This is crucial so they do not get mixed up during distribution, and so both you and the employee know the time period for which it covers.

Hours Worked

You will also want to list the number of hours your employee worked during the specific pay period. This way, he or she can compare these hours to his or her income to ensure that the payment is correct.

Gross Pay and Net Pay

Gross pay shows what the employee earned before any deductions. Employers should include tips, commissions, and bonuses in this calculation. You can easily determine this figure by multiplying the hours worked by the employee’s hourly rate.

Net pay, on the other hand, is the employee’s take-home pay. This is the total that the employee is paid after taxes and other deductions are taken out.

Taxes and Withholding

As an employer, you are responsible for making sure that the correct taxes are paid and withheld each pay period. There are a number of payroll taxes you need to know about, keep in mind, and list on your pay stubs.

First, when an employee works, he or she needs to pay federal, state, and local income taxes. As the employer, you will also have to send the money accrued to the proper level of government. These taxes are a percentage of the employee’s income and are determined by how much he or she earns.

Second, FICA taxes include social security and Medicare taxes your employee pays so he or she can reap the benefits later on in life. Employers split these taxes with their employees.

Finally, employers pay taxes to help fund unemployment insurance for people who are out of work. The rate of this tax varies from state to state.

Fake Pay Stubs?

Can you make fake pay stubs? Can your employees? Short answer: yes. However, using a fake pay stub to get a loan on a home or car is illegal and is a form of fraud.

When creating pay stubs for your employees, be consistent, and make them difficult to forge. If a loan officer calls you about a faked pay stub, be honest; it’s not your fault, and telling the truth can keep you out of trouble.

Pay Stubs Are Simple

As you can see, creating pay stubs for your employees is simple. You need to include all of the above information for the sake of your employees and yourself. This way, both parties can stay informed and organized when it comes to payroll.

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