Pay stubs, also known as wage statements or pay statements, serve as essential tools for employees to understand their earnings and for employers to address any disputes related to wages, hours, or taxes.
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What is a pay stub?
A pay stub is a paper or electronic document given each pay period. It summarizes an employee's gross pay, taxes, deductions, pay rate, and net pay from salary, hourly wages or commission. It may also include any employer contributions or garnishments and is typically issued with a paycheque.
What are pay stubs used for?
Employers and employees both may use pay stubs to ensure the accuracy of compensation. Furthermore, lenders frequently request pay stubs as evidence of income or employment prior to granting a loan.
Why are pay stubs important?
Pay stubs may be crucial for maintaining transparency between employers and employees. They serve as a clear record of compensation, including wages, bonuses, and deductions, which can help prevent misunderstandings related to pay.
What information does a pay stub have?
A pay stub provides essential information that may assist an employee in managing their income, planning and budgeting their expenses, and ensuring the accuracy of their payroll records. The following factors are generally included on a pay stub:
Gross wages
The method for calculating gross wages varies depending on the employee's payment structure. Gross pay for salaried employees is calculated by dividing their yearly salary by the number of pay periods in a year. Therefore, an individual earning an annual salary of $48,000 and receiving monthly payments would have a monthly gross pay of $4,000.
For employees who are paid by the hour, gross pay is determined by multiplying their hourly wage by the total hours worked in a pay period. For example, a part-time worker earning $12 per hour and working 35 hours in a week would receive a gross pay of $420. Additionally, any overtime worked should be included in this calculation, using the applicable overtime rates.
Deductions
Deductions are specific amounts subtracted from an employee's total gross wages. This can encompass taxes and contributions. On pay stubs, deductions are generally listed under the current deductions section, which shows the deductions taken from the current pay cycle, or deductions may appear in the year-to-date deductions section, which accumulates the total amounts deducted for each deduction category over the course of the year.
Contributions
Employer contributions, which can vary depending on the benefits provided, might be counted as part of an employee's total income and subject to applicable taxes.
Net pay
Net pay, also known as take-home pay, is the final amount an employee receives after all deductions are subtracted from their gross salary. This amount can be paid out via direct deposit or a cheque.
The total value of deductions would impact an employee’s net pay and it may be significantly lower compared to their gross pay. On the employee's pay stub, both the net pay for that pay period and the cumulative net pay for the year are shown.
Garnishments
Garnishments apply solely to employees mandated by a court or Provincial Agency to deduct a portion of their wages. The court may impose such requirements in instances such as child support or significant debt repayments.
Paid time off (PTO)
The pay stub can reflect any instances when employees received payment during periods of absence. This detail may be important for both employers and employees to prevent misunderstandings regarding the amount paid during off-time.
Pay period
The section on pay periods will highlight the start and end dates of the period, the total hours worked, and the date on which the employee is to be paid.
Pay rate
The pay rate is defined as the compensation received for hours worked, which may also include overtime pay.
Contact information
It can be important to include the contact details of the employer and the employee on pay stubs as this may facilitate precise payroll management. This could also include the names and addresses of both parties.
Are employers required to provide pay stubs?
According to the government of Canada, employers must provide their employees with information related to their employment. This includes pay stubs, which should be provided to employees within the first 30 days of their employment. Written employment stubs must be kept for 36 months after employment ends. Additionally, an employee can request copies of their statement at any time.
Best practices for pay stubs
Payroll errors can cause confusion and legal issues for employers. Therefore, it is important to follow best practices to ensure accurate and timely delivery of pay stubs. Here are some tips to help avoid these situations:
- Understand local requirements: Resources for provincial and territorial requirements for payroll can provide valuable information on pay stub requirements which may be helpful to stay compliant.
- Include all necessary information: As mentioned previously, the Canada Labour Code (CLC) requires pay statements to include specific information such as hours, rates of pay, deductions, pay period, etc.
- Ensure easy access to pay stubs: According to the CLC, employers should provide employees with electronic pay stubs. This makes it easy for employees to have access to them at any time. For instance, if an employee is applying for a loan, they may be able to access their pay stub without undue stress or having to go through the process of making a request to HR.
- Consider outsourcing payroll: Organizations may benefit from outsourcing payroll which include experts who help ensure the payroll is compliant with current regulations.
- Consider using payroll software: Implementing a payroll software solution may also help an organization meet pay stub requirements. ADP’s payroll solutions include pay stub delivery.
Next steps for streamlining your payroll process
No payroll process is fully executed without an appropriately structured pay stub. It is not only important for employees but is also a requirement by the law. To stay compliant with payroll regulations, organizations may consider implementing a payroll software solution or outsourcing payroll altogether. This may help mitigate compliance and legal issues and may also help employees always have access to their pay stubs, reducing the burden on HR to provide them every time payroll is processed.
Frequently asked questions
Is a pay stub the same as a pay statement?
A pay stub is the same as a pay statement. It can also be called a paycheque stub, pay slip, or wage statement.
How do I get pay stubs?
Employees who get printed paycheques can typically find their pay stubs attached to these cheques. Meanwhile, employees with electronic payment methods, like direct deposit, often have the option to view pay stubs through an online company portal or by making an official request to the HR department.
Why should employers provide a pay stub?
Providing pay stubs is generally required by law. It also helps employees maintain a record so any confusion regarding pay may be avoided.
What should employees do with their pay stubs?
Employees are encouraged to retain their pay stubs for a minimum of one year to ensure they can accurately verify the information on their annual tax statement when they are filing their personal income tax returns.
What should an employee do if they don't have pay stubs?
Employees who do not have their pay stubs and are looking to verify their income can ask their employer for copies.
What should an employee do if they lose their pay stub?
Pay slips hold sensitive data that might be targeted for identity theft. Therefore, it may be beneficial to an employee to keep their pay stubs secure and dispose of them properly. In case a duplicate of the pay stub is required, it can typically be obtained by contacting the HR or payroll department of the employer, though the exact procedure can differ from one employer to another.
How long should I keep employee pay stubs?
According to employer compliance laws in Canada, written employment statements must be kept for 36 months after employment ends.
This guide is intended to be used as a starting point in analyzing pay stubs and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
