The Complete Guide to Generating an Independent Contractor Pay Stub
There are many benefits to being self-employed. But there are also a few challenges that traditional employees don’t experience.
One of these challenges is keeping accurate records of your income to submit tax returns to the Internal Revenue Service (IRS).
Luckily, the process of generating pay stubs doesn’t have to be complicated.
In this article we’ll discuss pay stubs, why they are necessary for independent contractors, and how to create pay stubs online.
Key Takeaways:
- Pay stubs are records of employee compensation that outline earnings and deductions. Employers usually provide pay stubs on a weekly or monthly basis.
- Independent contractors tend to be self-employed, which means they don’t receive pay stubs from a formal employer.
- Pay stubs can be used as proof of income and stable employment when you want to apply for a loan or rent a property.
- Pay stubs can also help independent contractors keep track of how much their clients have paid them—essential information that you’ll need for filing your tax returns.
- There are many online tools, like Form Pros, that can help you generate pay stubs as an independent contractor. Find out how here.
Formal Employees vs Independent Contractors
Millions of workers are incorrectly classified as independent contractors each year. This simple mistake costs government agencies billions of dollars to fix.
It also denies workers compensation for overtime, minimum-wage, and medical and family leave.
Before you make a similar mistake, let’s take a closer look at what the key differences are between employees and independent contractors.
| Employees | Independent Contractors |
| Usually work a fixed number of hours | Define their own work schedules and hours |
| Have their taxes deducted from their income by their employers’ | Self-employed people take responsibility for their own taxes |
| Work for a single company | Typically work for more than one company |
| Receive various sick leave, health and unemployment benefits | Do not receive any employment benefits other than wages |
By definition, independent contractors are not formally employed by a particular company. This means that they do not receive pay stubs from an employer and have to make their own.
What Is a Pay Stub?
A pay stub is a formal record of a person’s compensation. It outlines all of their earnings and taxable deductions for a specific pay period.
We’ll show you how to complete a pay stub in more detail later in this article.
A pay stub generally reports the following information:
- The independent contractor’s personal details, including their full name, postal address and Social Security number (SSN)
- The full name and address of the client that the work was completed for
- The number of hours worked
- Gross pay before deductions
- Federal, state and local tax withholdings
- Net pay after deductions
Although pay stub laws differ from state to state, many formal institutions require copies of these documents as proof of income and stable employment.
Why Would an Independent Contractor Need Pay Stubs?
Pay Stubs Help You Keep Track of Your Earnings
The main benefit of using pay stubs as an independent contractor is that they help keep track of how much your clients have paid you over a specific period of time.
You’ll need this information when you fill out your 1099-NEC tax form at the end of the year.
The 1099-NEC is the official tax return that independent contractors have to file with the IRS.
This tax document reports your total income and the amount of federal and state income taxes withheld from your earnings.
Having up-to-date pay stubs on hand can help you find payment records when you need to fill out tax forms at the end of the year.
Remember, your pay stub information should match the data on your 1099-NEC.
Pay Stubs Provide Proof of Income and Employment
If you want to apply for a loan, buy or rent a property, you will need to submit documents as proof of income.
Individuals who cannot provide proof of stable income and employment generally don’t get approved for credit.
Pay stubs can be used to show landlords, banks, and businesses what you earn as an independent contractor
The amounts reported on the pay stubs will verify your ability to repay the loan or make rent payments.
How to Complete an Independent Contractor Pay Stub Template
Because independent contractors aren’t formally employed by companies, they often have to create their own pay stubs.
Luckily Form Pros makes it easy to create professional pay stubs within a matter of minutes.
In the section below, we explain some of the important details you will need to provide when using our online pay stub generator.
Your Personal Details
In this section, add your full name and postal address. This includes the state you live in and the ZIP code.
You will also need to fill out your SSN and contractor ID if you have one. This is a nine-digit number that the IRS uses to identify businesses for tax purposes.
Payment Periods and Dates
This box outlines the pay periods of your services. Specifically, this is a recurring length of time that represents when you worked and earned wages.
For example, your payment period might be 12/08/2022 to 12/14/2022.
Self-employed workers typically define their pay periods on a weekly, bi-weekly, semi-monthly or monthly basis.
Keep in mind that your preferred payment structure must suit the type of work you do and the labor laws of the state you do business in.
On the other hand, the pay date refers to the day that you expect your clients to pay you for your services.
In this section, you will also have to specify whether you work on an hourly or salary basis.
If you work on an hourly basis, specify what your rate is and how many hours you worked during the given pay period.
Outline Your Deductions
If you are creating pay stubs for your own record-keeping purposes, you can use Form Pros to calculate your tax deductions.
Under the heading “Statutory Deductions” you will be able to list your Medicare, Social Security and FICA taxes, as well as your federal and state income tax.
However, if you are using the pay stub generator to create invoices for your clients you can leave this section blank.
Net Pay
Once you have added your earnings and deductions, our form will calculate your net pay. This is the amount you take home after all of your taxable deductions.
Common Mistakes to Avoid When Creating a Pay Stub
Providing Incorrect Information
Many people don’t take the necessary care to ensure that the information they provide on their pay stubs is accurate and complete.
Typically, this happens when people don’t calculate their deductions properly or forget to list pay period dates.
This can become an issue at the end of the tax year because you will potentially have to recalculate your income and expenditure totals when you fill out your 1099-NEC form.
Using Incorrect Tax Data
Many people don’t keep up with federal and state tax laws and mistakenly use outdated tax rates.
Not only does this result in incorrect calculations on pay stubs, but these errors often get transferred to tax payments and forms.
In situations like this, independent contractors have to resubmit copies of their tax forms and may be liable for penalties from the IRS.
Not Keeping Pay Stub Records
Once people create pay stubs, they often forget to keep them in a safe or accessible place for record-keeping.
If you don’t have any pay stubs to show proof of income, it will become very difficult to apply for loans and buy or rent a property.
To avoid this issue we recommend that people save electronic pay stubs to their computer, cloud storage, or external hard drive.
Create Flawless Pay Stubs Every Time
At Form Pros, we know that independent contractors don’t want to struggle with time-consuming and manual payroll processes.
This is why we’ve designed our online pay stub generator to be automated, user-friendly and efficient.
All you need to do is add basic details about your business and our form will ask you a few simple questions about your salary and pay dates.
Our form will then automatically calculate all of your taxable deductions in just a few minutes.
The best part of all? Form Pros costs a fraction of the price of hiring an accountant or payroll company.
Try our platform today and see how easy it is to create accurate, professional pay stubs with Form Pros.