Creating Paystubs If You’re Self-employed
If you’re self-employed, you focus on securing new customers and delivering a great product or service. However, there’s more to growing your business, and that includes payroll-related issues. To maintain productivity as you scale, use Form Pros and other technology tools, in order to save time on administrative tasks.
If you hire employees, you may need to generate pay stubs for workers, and you may also provide pay stubs to independent contractors who provide services.
What, exactly, is a pay stub?
Understanding the 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. Independent contractors, however, do not have any withholdings from their pay. You can issue pay stubs to a contractor that lists the gross amount paid, and the contractor can use the form to prove the income to a lender.
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. To create a pay stub, the first step is to have each employee complete a Form W-4.
Generating the W-4 Form
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.
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.
How to Calculate Net Pay
Julie’s annual income is $50,000, and your firm processes payroll 26 times a year. Julie’s gross wages each pay period total ($50,000 / 26), or $1,923 per pay period.
Based on the allowances on her W-4, your company should withhold 20% of her gross pay ($384) for federal taxes, and 5% ($96) for state taxes. Julie also pays $50 each pay period for her share of the company health insurance plan.
Julie’s net pay is $1,923, less a total of $480 for taxes, and $50 for her health insurance premiums. Her net pay is $1,393.
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.
Employers need to generate accurate pay stubs, and using technology can help.
Save Time Using Form Pros
FormPros provides a pay stub generator that is user friendly, and helps you produce accurate pay stubs in less time. You can use the site to produce a number of documents, including 1099s, W-2s, and W-9s. Use FormPros to take charge of the pay stub process.
Which payroll task is the most difficult for you?