We often discuss the proper formats of various business documents. Proposals, executive summaries, letters, etc. All these are naturally vital to the success and health of the company. We thought we’d take a look at one document that is not often discussed – paystubs. An incorrectly formatted paystub can actually result in legal penalties that can hurt your business’s bottom line. Whether you have been paying your employees for years, or you are a start-up that is hiring employees for the first time, it’s vital to stay on top of proper payroll etiquette. To ensure that your company’s payroll doesn’t end up costing you more money, here are some tips on the information needed for a proper paystub format:
- Basic Information
First and foremost, your company’s paystub needs to include the company name and address. For each employee, the paystub needs to list their first and last name along with their social security number’s last four digits. Additionally, the paystub helps both the employer and the employees keep track of time by including the pay period start and end dates.
- Wages and Income
The paystub should list the rate at which the employee is paid. Whether the employee is salaried or is paid at an hourly rate, this information should be reflected. Moreover, the income of employees should be documented in two ways: Net and Gross income. Net income is the actual amount that said employee is taking home after all the deductions and taxes have been applied. Gross income, on the other hand, is the total amount the employer pays before the above-mentioned deductions are taken out.
- Taxes Withheld
Simply put, tax deductions are money that is set aside from the gross income to be paid to the government. Depending on where the business is located, there may be federal, state, and local taxes that are withheld from that gross income. Additionally, a certain percentage is also set aside for Social Security and Medicare. This deduction is listed as FICA on the paystub. Currently, that percentage is 7.65%. This contribution is shared by the employer and employee, meaning both parties pay towards this.
- Further Deduction.
In addition to various taxes, there are other deductions that will be listed by a payroll company in a correctly- formatted paystub. These can be pension plans, 401k or Roth IRAs, or an employer-sponsored health insurance plan. There can also be deductions for disability insurance or even wage garnishments caused by tax debt or penalties.
YTD, or Year to Date refers to the period of time that begins on the first day of the fiscal or calendar year, up to the current date (the date of the paystub. It is displayed for both Gross and Net incomes on each paystub to help the employer and employee keep track of monies paid out since the beginning of the year. In addition to the income, YTD should also track all deductions that may apply.
Of course, many businesses opt for hiring a third party to help with paystubs or use an online paystub maker. However, like with any part of your business, it is important to have basic knowledge of every aspect of your daily operations, including the correct information required on your paystub.
Further reading: We mentioned 401 (k) plans and Roth IRAs as part of deduction possibilities. If you want to educate yourself on retirement investment, we strongly recommend you do so. A good place to start is the IRS’s own website here.