The world of technology continues to evolve and with it comes innovations in the way we approach traditional practices.

There was a time when companies paid the employees in the form of paper checks. Then came along the ability to have their pay deposited directly into their bank accounts. For employees without bank accounts, new technology introduced payroll debit cards.

As a result, companies built employee portals. This is an online tool for employees to download their pay stubs and other documents.

Reading a pay stub may seem elementary for those who have experienced paper checks. However, there is a new generation that may not ever see their pay stub.

Understanding a pay stub isn’t as difficult as you may think.

Keep reading for a simple guide on how to read a pay stub

Reading a Pay Stub is About Understanding the Abbreviations and Codes

Many small businesses are following corporate standards and going paperless. Employees need to have access to their pay stubs for various reasons.

The process doesn’t have to be difficult or costly. Companies can choose a free pay stub template and customize it with their own codes and abbreviations.

Employee portals have a legend that is easy to access and explains the meaning of each code or abbreviation. There is standard terminology throughout payroll systems so there is no need to reinvent the wheel.

Let’s look at a few.

Pay Codes

Most employees are more concerned about the pay than anything else. When it comes to the amount you actually earn these codes will give you the information.

Rate of Pay

The rate of pay or hourly rate is the amount your employer has agreed to pay you per hour. On your first paycheck, verify this amount is correct and mirrors what you were offered during the hiring process.

The only time this amount will change is when the employee is offered an increase in pay.

Overtime Pay

If an employee has approved hours beyond their 40-hour workweek, there will be an amount in this category. Overtime pay is one and a half times an hourly employee’s regular rate of pay. For example, if an employee earns $15 per hour, their overtime rate will be $22.50.

Salary

Employees considered exempt, are paid a salary instead of hourly pay. A salary is an annual amount divided equally over the company’s regular pay periods. The amount paid remains the same regardless of the number of hours worked during the pay period.

A salaried employee typically holds a managerial position.

Gross Pay

Understanding a paycheck when you know the different verbiage that can be used is helpful. For example, gross pay can also be listed as gross earning or gross wages. This is the amount of your paycheck before any deductions are taken out.

For salaried employees, this amount will be the same every pay period. Hourly employees may see a fluctuation based on the number of hours worked or if they have overtime pay.

Net Pay

Net pay is the money you actually take home after all deductions are made. These deductions range from taxes to benefits such as health insurance.

Year-to-Date or YTD

In the field listed as year-to-date or YTD is the accumulative totals of your gross pay and net pay. This amount will increase each pay period by the amount of the current pay period. At the end of the year, this total will reflect your annual income and the amount you will use when filing your taxes.

Payroll Taxes

Understanding a pay stub column for taxes will help you better understand your tax liabilities. Depending on the state where you live, your pay stub will include deductions state taxes. Everyone is subject to federal taxes for wages earned.

FICA

FICA stands for Federal Insurance Contributions Act. These are federal taxes that fund social security, Medicaid, and Medicare.

The tax is a set amount of 15.3%. The amount is equally between employers and employees, with each paying 7.65% of the employee’s gross pay.

FED

Fed or federal is your federal withholding taxes bases on the information provided by the employee on their W-4. The employer uses the total number of deductions listed on the W-4 to determine the percentage to withhold for taxes.

It is important to understand your total tax liability when it’s time to file your taxes. If you fill your employer is taking too little or too much in federal withholdings, you may want to adjust your deductions.

ST

ST stands for state taxes. This code will only appear if you live in a state that withholds state taxes. Currently, there are approximately 40 states that have this tax. It works the same as federal tax withholdings.

It may appear as ST, SI, or these initials with or without your state’s abbreviation.

FUTA

Federal Unemployment Taxes is money employers pay into the state’s unemployment system. These are monies paid to unemployed workers that have lost their jobs due to no fault of their own.

Benefits Codes

Not all employers can afford to offer their employees benefits. This is common when it comes to small businesses. If you receive benefits, here are a few examples.

401(K) or Retirement

This is the amount you are contributing to the company’s retirement plan. Sometimes the amount will also include employer contributions.

HFSA / DFSA

FSA stands for a Flexible Spending Account. There are two types, healthcare, and dependent care. Employees can put aside pre-tax dollars to fund these accounts.

Check Your Pay Stubs Regularly

Reading a pay stub on a regular basis ensures you are having the right deductions take out. You do not want to get to the end of the year and learn your deductions are off and you owe more on your taxes than you expected. Or worse, you haven’t contributed as much to your 401K as you intended.

We hope you found this article useful and answered your questions about pay stubs. To receive more great information, subscribe to our newsletter and get notified when we post new articles.

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