Running a small business comes with many responsibilities, and managing payroll is one of the most crucial tasks.
But when it comes to pay stubs, are you confident you’re providing your employees with all the essential information?
What is a pay stub?
A pay stub is a document given to an employee that outlines earnings, deductions, and net pay for a specific pay period. It typically includes gross wages, taxes withheld, benefits contributions, and final take-home pay. Employers provide pay stubs to show transparency and verify payment details.
Also known as payslips, pay statements, or wage statements, pay stubs aren’t just a piece of paper. They’re a record of earnings, deductions, and compliance that can protect your business and build trust with your team. You can generate a pay stub on your own using templates or ease the process with payroll software. Employees can receive their pay stubs electronically through direct deposit or in the mail on paper. Sounds difficult? Don’t worry.
In this guide, we’ll explain everything you need to know about creating and managing pay stubs and ensuring your business stays organized and compliant.
TL;DR: Pay stubs explained
- What is a pay stub: A pay stub is a document showing an employee’s earnings, deductions, and net pay for a specific pay period.
- Why is it important: Pay stubs provide proof of income, ensure transparency, and help employers comply with labor laws.
- What does it include: It lists gross wages, hours, taxes, deductions, employer contributions, PTO, and net pay.
- How to create one: Employers can use payroll software or templates to generate accurate, compliant pay stubs.
- What are state laws around pay stub requirements: Most states mandate pay stubs, with rules varying by category, access, access/print, opt-in, or opt-out, while a few have no requirements.
- How long should employers keep pay stubs: At least four years to meet IRS and FLSA recordkeeping requirements, or longer if state law requires.
- What’s the difference between a paycheck and a pay stub: A paycheck is the payment itself, while a pay stub explains how that payment was calculated.
Disclaimer: The article is purely for informational purposes only and does not constitute legal or tax advice. Pay stub requirements may change, and employers should consult with a qualified attorney, tax advisor, or their state’s Department of Labor to ensure compliance with applicable laws.
Pay stubs are important because they provide proof of income, track deductions, and verify employment. They help employees understand how their wages are calculated and confirm tax withholdings, insurance payments, and retirement contributions. Lenders and government agencies also use pay stubs to assess financial eligibility, and it is often a necessity under law in many states. Pay stubs improve:
- Transparency and trust: When employees or contractors receive a detailed pay stub, they can clearly see how their earnings are calculated, including deductions for taxes, benefits, and other withholdings. This transparency helps build trust and reduces the chances of payroll disputes.
- Legal compliance: While federal law doesn’t require employers to provide pay stubs, many states have specific regulations that mandate it. By issuing pay stubs, you ensure compliance with state laws and avoid potential penalties.
- Record keeping: Pay stubs serve as an official record for both you and your employees. They can be essential when resolving disputes, preparing for audits, or verifying employment history.
- Employee financial planning: Pay stubs give employees a clear breakdown of their earnings, helping them understand their finances better. This is especially important for budgeting, applying for loans, or filing taxes.
- Professionalism: Consistently providing pay stubs reflects well on your business. It shows that you take payroll seriously and are committed to running an organized and responsible operation.
What information should be included in a pay stub?
A pay stub is there to give employees information about the money they’ve earned for the most recent pay period, whether that be every week, two weeks, or a month. Totals are typically displayed both by that pay period and the year-to-date total.
Essential information includes
- Employer and employee details: Company name and address, employee name and address, employee ID or partial SSN.
- Pay period details: Start and end dates of the pay cycle, plus the actual pay date.
- Pay rates and hours worked: Regular, overtime, holiday, or double-time hours, with associated pay rates
- Gross wages: The total amount of wages earned before any deductions.
- Taxes withheld: The pay stub should specify the amount of money deducted from gross wages to pay federal and state taxes, which commonly consist of federal income tax, Federal Insurance Contribution Act (FICA) taxes (Medicare and Social Security), and state and local taxes, if applicable. Note that tax rates vary by state
- Deductions: Employees may contribute a percentage of their gross wages to health, dental, vision, or other insurance options provided by your company. The amount that the employee shares should be included on the pay stub. Any other deductions, like wage garnishment and union fees, are also included.
- Employer contributions: If an employer offers a retirement plan like a 401k or pension, an employee’s contributions to those accounts should also appear on a pay stub.
- Paid time off (PTO): If an employer offers the option for PTO, the total number of days taken by an employee should be listed on the pay stub so that employees can note how many days they have left without having to ask a manager or employee in HR.
- Net pay: After all deductions are taken, net pay represents the amount of money that the employee can actually see being added to their account, and the lines above explain that number.
Get your free pay stub template
We’ve gone over everything that needs to be included in a pay stub, but it can be difficult to visualize exactly how it’s all laid out. Luckily, G2 has a readymade template that is free for you to download and use immediately.
Alternatively, you can also use payroll software to generate pay stubs and take care of payroll tasks easily. To explore your options, check out the best payroll software on G2 and compare platforms based on real user reviews.
What are the pay stub requirements by state laws?
While federal law doesn’t require employers to issue pay stubs, most states do. Depending on where you live, the rules can look very different. States generally fall into one of five categories below.
1. States with no requirements
A small number of states have no laws mandating pay stubs at all. If you operate in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Ohio, South Dakota, or Tennessee, you aren’t legally required to provide them.
That said, many employers still do so as a best practice to maintain transparency and accurate records.
2. Access states
In most states, employers must make pay stubs available in some form, paper or electronic. This group includes Alaska, Arizona, Idaho, Illinois, Indiana, Kansas, Kentucky, Maryland, Michigan, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Utah, Virginia, West Virginia, Wisconsin, and Wyoming.
The key is that employees must be able to clearly see their earnings, deductions, and hours worked.
3. Access/print states
Some states allow electronic pay stubs but add an important caveat: employees must also be able to access or print them easily. If you’re in California, Colorado, Connecticut, Iowa, Maine, Massachusetts, New Mexico, North Carolina, Texas, Vermont, or Washington, you’ll need to ensure your digital payroll system includes a straightforward way for employees to download or print their pay statements.
4. Opt-out states
In certain states, employers can default to electronic pay stubs but must give employees the option to “opt out” and request paper instead. This applies in Delaware, Minnesota, and Oregon, where employee choice is built into the law.
5. Opt-in states
Finally, a few states flip the rule: paper pay stubs are the default, and employees must actively consent to receive electronic versions instead. Currently, Hawaii is the only opt-in state.
Since pay stub laws can change, check your state’s Department of Labor website to confirm the latest requirements.
How long should employers keep pay stubs?
Beyond showing employees their earnings, pay stubs are part of the payroll records employers are legally required to keep. Federal and state laws require businesses to retain payroll documentation for a set period of time:
- IRS requirements: Employment tax records must be kept for at least four years after the date the fourth-quarter taxes are filed for the year.
- Fair Labor Standards Act (FLSA): Employers must keep general payroll records for three years, and retain any supporting documents used to calculate wages (such as timecards, piece-rate records, or work schedules) for two years.
- State laws: If your state has a longer retention requirement, employers must follow the stricter standard, federal or state, whichever is greater.
As a best practice, retain payroll records, including pay stubs, for at least four years to ensure compliance with IRS rules and the FLSA, while also meeting any state-specific requirements.
Payroll software can automatically generate, store, and organize pay stubs in compliance with IRS, FLSA, and state laws. This not only reduces the risk of non-compliance but also makes it easier for employers and employees to access records when needed.
What’s the difference between a paycheck and a pay stub?
People often confuse “paycheck” and “pay stub.” But they refer to different aspects of the payroll process:
- Paycheck: This is the actual payment an employee receives for their work, either as a physical check or through direct deposit. A paycheck represents the total earnings after all deductions, allowing employees to access their net pay.
- Pay stub: This is a detailed breakdown of an employee’s earnings and deductions for a specific pay period. It shows information like gross pay, taxes, benefits, and net pay. Even if payment is made via direct deposit, employees typically receive a pay stub to understand how their earnings were calculated.
In summary, a paycheck is the payment itself, while a pay stub is a record that explains the details behind the payment. Both are essential for transparency and record-keeping
Frequently asked questions (FAQ) on pay stub
1. What is a pay stub?
A. A pay stub, also known as a paycheck stub or pay slip, is a document that provides detailed information about an employee’s earnings and deductions for a specific pay period. It includes details like gross income, taxes withheld, and net pay.
2. What should be included on a pay stub?
A standard pay stub usually includes:
- Employee information (name, address, partial SSN or employee ID)
- Employer information (name, address)
- Pay period start and end dates
- Gross earnings before deductions
- Hours worked and pay rates (regular, overtime, double time)
- Taxes withheld (federal, state, local, and FICA)
- Benefit deductions (insurance, retirement contributions, union dues, garnishments)
- Employer contributions (matching retirement, employer-paid benefits, employer taxes)
- Net pay (take-home pay after deductions)
- Year-to-date totals
3. Is it mandatory to give employees pay stubs?
Not under federal law. However, most states require employers to provide pay stubs in some form, either printed or electronic. A few states have no specific requirements, but even there, issuing pay stubs is considered a best practice.
4. Do all states require pay stubs?
No. States fall into different categories: some require printed or electronic stubs, some require electronic stubs to be printable, and some allow employees to opt in or out of electronic delivery. A handful of states, like Alabama and Florida, have no pay stub requirements at all.
5. What’s the difference between a pay stub and a paycheck?
A paycheck is the payment an employee receives, either by direct deposit or paper check. A pay stub is the accompanying statement that explains how the paycheck was calculated, showing gross pay, deductions, and net pay.
6. How do I read or understand a pay stub?
Start with gross wages, then review the breakdown of deductions such as taxes, insurance, and retirement contributions. The final line shows net pay—the actual amount deposited in your account or issued on your paycheck. Many stubs also include year-to-date totals to help track earnings over time.
7. Can you create a pay stub yourself?
Yes. Employers can create pay stubs using payroll software, accounting tools, or templates. However, to ensure compliance with state requirements, it’s best to use a payroll platform that automatically generates legally compliant pay stubs. Employees should not create their own pay stubs, except for personal recordkeeping.
8. What deductions appear on a pay stub?
Common deductions include federal and state income taxes, Social Security and Medicare (FICA), health, dental, or vision insurance premiums, retirement contributions, union dues, and court-ordered wage garnishments.
Yay for payday!
Managing payroll is a critical part of running a successful small business, and providing clear, accurate pay stubs is a key component of that process. Whether you’re new to payroll or looking to streamline your process, use the pay stub template and simplify the task. By prioritizing proper documentation, you’re not just avoiding potential issues but also fostering a more professional and trustworthy workplace.
Want more? Learn about the best practices for payroll management with this free G2 guide.
This article was originally published in 2019 and has been updated with new information.
