Why Use an Online Paystub Generator?
Automation is the best tool a business owner can use to save time. Processing payroll may be your most complicated business task, and automating the system can make a huge difference.
Read on to learn about pay stubs, the information needed to create a pay stub, and to see an example pay calculation. You’ll read about why spreadsheets are a bad idea, and how the FormPros online pay stub generator can save you time.
What is a Pay Stub?
A pay stub lists all of the key information related to an employee’s pay.
When you review a pay stub, it’s important to note the difference between current (current pay period) and year-to-date (YTD) amounts. Both are important, and the YTD balances help the employer and the worker understand if the amounts are correct.
The pay stub provides information on wages, tax withholdings, and benefit withholdings.
The rules regarding pay stubs vary by state. Some states require employers to provide pay information to workers, while other states do not. Businesses should confirm the requirements in each state where they employ workers.
Employees should keep their most recent pay stubs as proof of income. If an individual applies for a loan, the pay stub confirms the borrower’s gross income. Employers should keep pay stubs on file, if they are generated.
The pay stub information should match the data on each employee’s W-2 form, which individuals used to file their personal tax returns.
Working with Form W-4
The Employee’s Withholding Allowance Certificate (Form W-4) is a form that the federal government requires employees to fill out when they are newly hired. Information submitted on the form (allowances) lets employers know how much salary to withhold from a paycheck for tax purposes.
Keep these points in mind:
- As an employer, you should keep a worker’s most current W-4 form in his or her payroll file. The IRS may request a copy of the form.
- You need to make sure that you add the correct number of allowances into your payroll processing system.
The W-4 collects the worker’s basic information (name, address, filing status) and provides guidance for employees who have multiple jobs, or who have working spouses. There are extra resources provided to calculate withholdings for these situations.
Once you have a completed W-4, you’ll need to collect additional information for the pay stub.
Information Needed to Create a Pay Stub
Determine this information for each employee:
- Payroll cycle: The number of pay periods determines how much salary is paid on each payroll date. It also determines the start and ending days for computing hourly payroll.
- Wages: Gross pay and net pay. Wages may be based on a salary, or calculated using an hourly rate of pay.
- Tax withholdings: Federal, state, and possibly local amounts withheld for taxes.
- Benefit withholdings: Amounts withheld for the employee’s share of insurance premiums, or funds to be invested in a retirement plan.
Here’s a simple example to help you visualize the process.
Calculating Net Pay
Sally’s annual income is $60,000, and your firm processes payroll 26 times a year. Sally’s gross wages each pay period total ($60,000 / 26), or $2,308 per pay period.
Based on the allowances on her W-4, your company should withhold 20% of her gross pay ($462) for federal taxes, and 5% ($115) for state taxes. Sally also pays $50 each pay period for her share of the company health insurance plan.
Sally’s net pay is $2,308, less a total of $577 for taxes, and $50 for her health insurance premiums. Her net pay is $1,681.
The pay stub must include all of this information for the current payroll period and year-to-date. The pay stubs you generate may also include unemployment tax payments. Hourly workers need detail on their total hours worked, and any hours that are paid as overtime wages.
Why Spreadsheets Are a Problem
Using manual processes increases your risk of error, and a manual system limits your ability to scale the business. Here are several reasons why:
- Input errors: You run a high risk of making an input error. If you’re creating manual pay stubs each pay period, you’re bound to make a mistake.
- Broken, incorrect links: Links between cells, and links between spreadsheet tabs, may have errors. If you use an incorrect formula over and over for months, you’ll generate multiple errors.
- Current version: You may not use the current version of a particular spreadsheet. It’s also more difficult to save and use the current version of a document.
Incorrect pay stubs have a big impact on your workers. They rely on pay stubs to understand their total pay and tax withholdings. If you report bad information, your workers can’t plan correctly, and they may file incorrect tax returns.
Avoid these problems by using an online pay stub generator.
How FormPros Can Help
FormPros offers expertly customized business and tax forms. The software provides intuitive forms that ask the right questions, so you can quickly generate documents at a fraction of the cost of hiring a lawyer.
Your business can generate pay stubs, 1099-NEC documents, Form W-2, and W-9 forms using FormPros. The process is quick and painless, and you’ll have more time available to grow your business.
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