Most transactions, from buying groceries to purchasing a car, are documented with proof of payment. Payroll is no different, except instead of a receipt, employees are given a pay statement – also known as a pay stub, payslip or wage statement. For the sake of transparency, many states require certain information to appear on these statements at the time wages are paid.
Fulfilling pay statement obligations is essential for employers. They must not only know how to create compliant pay statements for employees, but also ensure that they provide all the required information.
Table of Contents
How to make pay statements online
Providing pay statements online is easy for businesses that use payroll software. Most solutions automatically generate pay statements after payroll is processed and include them with other payroll reports. This step is crucial because most states require pay statements to be provided to employees when wages are paid.
If employees choose to receive printed checks, the pay statement must be included with the paper check. Or, if an employer offers an employee portal, workers may be able to access their pay statements electronically.
Without payroll software, creating pay statements for employees may be more labor-intensive. Employers might have to resort to using a pay statement template and entering the required information themselves. Online pay statement generators are another option, but there may be processing fees.
See how simple small business payroll can be.
Compare PackagesWho needs a pay statement?
Employees must receive pay statements in all states where required. Generally, federal law does not require employers to provide pay statements, though they must keep accurate records of hours worked and wages paid to employees. These record keeping provisions are part of the Fair Labor Standards Act (FLSA).
Absent a state law, providing pay statements to employees is still good business practice. It helps them understand how their take-home pay, or net pay, is calculated and confirms that they are accurately paid. Employees might also need pay statements to provide proof of employment and income when applying for loans, mortgages and leases.
What information is available on a pay statement?
In states with pay statement laws, employers must display specific information on their employees’ pay statements. These details may include, but are not limited to the following:
- Employer’s legal name and address
- Employee’s name and identification number
- Pay period beginning and ending dates
- Payment (check) date
- Total hours worked
- Pay rates and the number of hours worked at each rate
- Gross earnings
- Taxes
- Deductions
- Net earnings
- Paid time off (PTO) balances
Abbreviations on pay statements
Sometimes, employees need help understanding their pay statements. In addition to explaining how gross pay is converted to net pay, employers might have to decipher the following abbreviations:
- REG (regular pay)
- HR (hourly rate)
- OT (overtime)
- PTO (paid time off)
- FIT (federal income tax)
- SIT (state income tax)
- SUT (state unemployment tax)
- STD (short-term disability)
- LTD (long-term disability)
- FSA (flexible spending account)
- HSA (health savings account)
State requirements for pay statements
The laws requiring employers to include specific information on pay statements vary by state. In some cases, the industry where work is performed and the compensation method also dictate what must be displayed on a pay statement.
Download ADP’s latest chart detailing pay statement requirements for all states and territories
Common pay statement mistakes
Employers who do not meet pay statement requirements can be exposed to statutory penalties and civil suits filed by employees. Some common violations include the following:
- Failure to furnish a pay statement that displays all required information.
- Failure to accurately pay employees all wages due.
- Failure to use the required manner of pay statement delivery, e.g., paper or electronic.
Frequently asked questions about how to create pay statements
Can you make your own pay statements as an independent contractor?
Businesses generally do not have to issue pay statements to independent contractors, though doing so may be helpful. Independent contractors who don’t receive a pay statement and need proof of income for a loan or other reason may produce their annual tax return or a copy of their Form(s) 1099-NEC, Nonemployee Compensation.
How do I manually create a pay statement?
Pay statement samples may be available on a state’s department of labor website. Employers can complete these templates with their gross-to-net pay calculations and send them to employees. However, it’s important that they review the applicable state laws and work with legal counsel to confirm that their pay statements meet all the requirements, including delivery method and recordkeeping, in the states where their employees work.
Can pay statements be verified as an employee’s proof of income?
If an individual submits a pay statement as proof of income for a loan or other reason, the recipient may contact the employer to verify the payment. However, in some jurisdictions, employers must have written authorization from employees before responding to such inquiries. Employers should review their respective state laws or consult legal counsel for further guidance.
This article is intended to be used as a starting point in analyzing how to make pay statements for small business 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.
