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Small Business Payroll 101: The Power of the Employee Pay Stub

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pay stubWith electronic banking, direct deposits, pay with your phone options, virtual bookkeeping, and a decreasing need for anything made of paper, technology is changing nearly every aspect of the world. More and more employees are opting to have their paychecks directly deposited into their account and are using online banking to pay their bills. Their account numbers fluctuate tremendously between paydays, all without a piece of paper ever being passed through their hands. Gone are the days of a paper paycheck and pay stub being handed to you on your way out the door on Friday, and here to stay are the days of electronic everything.

It’s no surprise then that younger employees hardly glance at their pay stub, let alone understand what it means. However, the employee pay stub always has and always will provide a tremendous amount of valuable information.

Most pay stubs cover basically the same information, regardless of the company you work for. The pay stubs Mazuma issues are no different.

Here’s a quick rundown of all those big IRS-looking terms that show up on each and every pay stub:

Gross Pay is the total amount of money you earned before deductions are taken from your check. Usually, this number will not be the same number as the amount of your paycheck.

Net Pay is the amount of money you take home after Uncle Sam takes his cut, you’ve made your Social Security and Medicare contributions, and other withholdings are taken from your check. This will be the same amount that is deposited into your bank.

Social Security Taxes withheld contributes to your coverage for the Social Security system. After you have paid into the system for years and then retire, you are entitled to receive monthly payments. The Social Security rate is 6.20% for 2015. For example, if your gross is $1,000, $62 will be withheld for Social Security.

Medicare Taxes are similar to Social Security taxes and are mandatory. The rate of Medicare withholdings is 1.45%, and all employers contribute another 1.45% on behalf of the employee. When an employee becomes eligible for Social Security, they are also eligible for Medicare coverage for their medical expenses.

Federal Income Taxes are determined by the information you provided on your W-4 when you were first hired. This amount is what you owe to the Federal government when it is time to file income taxes and is taken incrementally from each paycheck.

State Income Taxes varies from state to state, and some employees are not required to pay state tax. This amount is also deducted from your paycheck in the same way Federal taxes are to cover the amount of taxes you owe to the state come tax season.

Leave Time includes vacation days, PTO (paid time off), or sick days. Most employers include how many hours have been used to date and how many hours remain for the year.

Insurance Deductions are taken from your paycheck depending on the type of health and/or life insurance your company offers. This deduction varies based on the type of plan the employee enrolled in upon hiring.

Retirement Contributions such as 401K or 403B show the amount contributed to either of these accounts.

Expense Reimbursements are included if the employee has used their own money for a company expense, or if they are being reimbursed for travel (gas, hotels, etc.)

You may also find these common abbreviations on your paystubs:

YTD: Year-to-Date

FT or FWT: Federal Tax Withheld

ST or SWT: State Tax Withheld

SS or SSWT: Social Security Tax Withheld

MST or Med: Medicare Tax Withheld

If you still have questions or if you’re confused about something on your pay stub, contact your Human Resources department for assistance. Understanding contributions, taxes, and withholdings listed on a pay stub contributes to good money management skills and financial independence.

 

Visit more posts in our Payroll 101 series:

What is Payroll?

The 1099-Misc Explained

Setting Your Own Salary as a Business Owner

The W-2 Explained

How Often Should You Pay Employees?

What are the Costs Associated with Payroll?

5 of the Best Benefits to Offer Employees

 

Ben Sutton

Ben Sutton

Ben Sutton is the founder of Mazuma USA, an accounting firm providing tax, bookkeeping and payroll services to small businesses. Since founding Mazuma, Ben has established himself as an expert in the small business world. He’s still driven by that same desire to provide accounting help to all small businesses – from photographers, bloggers and creatives to lawyers, doctors, and dentists, everyone needs affordable accounting help. Ben is a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants. But Ben considers his greatest achievement and credential to be his happy wife and four children.

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