Remember that first time you laid eyes on the multiplication table in grade school? Or how about the first time you encountered an algebraic equation in junior high? All those numbers and letters might just as well have been a foreign language to you because you did not understand a thing about what you were looking at. It turns out a lot of employees feel the same way about their pay stubs.
For some reason, we have failed as a society when it comes to helping people understand how to decipher what amounts to a weekly accounting of pay. Not understanding the pay stub can lead to all sorts of problems, including not being able to identify mistakes as soon as they are made.
Here at BenefitMall, we make every effort to make the weekly pay stub easy-to-understand. We make pay stubs available online to those clients who utilize our online payroll systems. Still, it is up to employers to educate their workers about pay stubs if there are any questions.
Understanding the Terms
To some employees, a pay stub is just a piece of paper with a lot of numbers and words they do not understand. For a lot of them, life would be easier if they could just define the terms. So this is the place to begin helping them. Have supervisors sit down and explain pay stub terms to employees. For example:
- Rate – This is the hourly rate of pay an employee receives.
- Hours – This number represents the total number of hours worked during the pay period.
- Current – This in the amount of gross pay calculated by multiplying the rate by the hours.
- Deductions – This number represents the amount of money deducted from pay to cover various things.
A lot of pay stubs separate the earnings and deductions sections so as to clearly display current and year-to-date values for both. As a side note, a lot of people do not understand the acronym 'YTD'. They need to be told that means year-to-date.
Net and Gross Pay
Another thing employees have trouble with is distinguishing between net and gross pay. You should already know the difference as a payroll professional. The key is explaining it to workers in language they understand. And, of course, a thorough understanding of net and gross pay also requires at least a working knowledge of deductions.
It is a good idea to talk with employees about income tax and FICA. The former is pretty easy-to-understand, but the latter causes trouble for some people.
Be sure to explain that FICA is a combination of Social Security and Medicare deductions. Explain that both income tax and FICA are mandatory deductions that every employee must pay. It might help to also explain that the employer pays an equal share of FICA as well.
One last thing we need to talk about is the personal information contained on the pay stub. Employees will have no trouble understanding this information, but they do need to be encouraged to check it for accuracy – and to check it frequently. That personal information is the same information the company uses for tax reporting purposes. If it is wrong, an employee’s annual tax return could be delayed.
The pay stub can be a confusing document to employees who do not understand what it is they are reading. Employers can make pay stubs easier to understand by taking the time to sit down with workers for a few minutes of instruction. Remember that informed employees are better equipped to make decisions. They need to understand their pay stubs.