Understanding Your Paycheck: 7 Key Tips to Reading Your Pay Stub Correctly

Getting paid is great, but understanding your paycheck is very important. Here are 7 key tips for reading your pay stub correctly.

There’s nothing quite like the celebration of payday. The end of the week rolls around, and you’ve been working like crazy. The sweet reward at the end of lots of hours is when you get handed your paycheck.

Some employers are even nice enough to deposit the money right into your bank account and then give you a pay stub. If the money goes right into your bank account, there are times when you probably barely look at your pay stub.

Understanding your paycheck and the information on the pay stub is kind of important to you. It tells you not only about what you are getting paid but also where the rest of your money is going, too.

Read on to learn about the information on your pay stub.

1- Employee Information

The first part of your pay stub will have the basic employer and employee information.

It will likely include the name of your employer, their address, and sometimes contact information for human resources. The payroll department or human resources often uses a free paystub generator to create paycheck stubs for their employees.

It will also include your full name (the name under which you pay taxes), address, social security number, and employee ID number.

2- Pay Period

The pay period tells you the period for which you are being paid. It will list the start day of the pay period and the end day of the pay period.

It’s worth noting, you rarely get a paycheck on the same day as when the pay period ends. If you get paid on Friday, May 8, for example, the pay period likely ended the week before.

Employers need to have enough time to gather hours of employees, calculate wages, and issue checks. For this reason, the pay period usually covers a time in the past beyond the current payday.

If you get paid an hourly rate, pay attention to this. It will show your hours from inside that pay period only.

3- Earnings

This might be the section you deem most important: your earnings. Earnings can be listed here in a few ways.

If you are a salaried employee, your earnings might show as your rate for the year. It might also show your earnings for that pay period.

As an hourly employee, your earnings will be listed by how much you make in an hour and then how much that equals based on the number of hours you worked.

There will be a box on the pay stub that lists your earnings for that pay period. This amount shown is not what you are bringing home. Your gross pay is the amount earned before all the things that need to be taken out of your pay.

Your net pay is the actual earnings you get after all of the deductions. So your gross pay vs. net pay is what you make and what you bring home.

4- Taxes

One of the things your employer must do is deduct the taxes you need to pay from your gross earnings. Your employer knows how much to deduct based on the information you provide on your W-4 form.

The employer must take out federal income tax. All employees pay social security and FICA. Employees pay 6.2% social security tax and the employer pays the same amount. Employees must also contribute taxes to Medicare.

Employees also must pay state and local taxes. Sometimes you must pay a city tax if you work inside a city limit, even if you don’t live within the area.

5- Deductions

There are a variety of other reasons why additional money is subtracted from your check.

As an employee, you might be responsible for paying part of your healthcare costs. You might see a line item on your pay stub where an amount has been deducted for health insurance, dental, and vision insurance.

Some employees opt to participate in a health savings account. This allows your employer to take money from your paycheck on your behalf before taxes. You can use this money for things like co-pays and deductibles.

If your employer doesn’t offer an HSA, they might offer a flex spending account, which is another reason they might make a deduction. The flex account allows employees to pay for child care, deductibles, and co-pays from the flex account from before-tax money.

If you have a pension or retirement plan like a 401K and have opted to participate, your employer would remove money from your account to pay into these accounts.

Some employees even have the option of signing up for charitable donations that can be taken right from their paycheck and would show up under a deduction on the pay stub.

6- Contributions

Contributions are often listed on a pay stub, too. The thing to note about contributions is that it is not money being subtracted from your gross pay. Contributions are the things your employer pays out on your behalf.

Your employer, for example, must pay 6.2% of social security.

Many employers do matching 401K contributions. So, they contribute a matching amount to what you pay.

The employer might also pay a portion of your health insurance.

7- Attendance

Not all pay stubs include attendance information but many do. This might include if you took sick time or vacation time.

Some pay stubs will show the available time you have earned. Then it will also show if you used any of it during that particular pay period.

Getting Paid and Understanding Your Paycheck

It’s silly to get paid and not know exactly where your hard-earned money goes. Understanding your paycheck and what all those boxes mean can help you to know where your money is going.

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