Understanding Pay Statements

The Fair Labor Standards Act passed in 1938 stated, among other labor-related provisions, that employers must keep records on employee time and pay. Part of this provision was to create a written record to ensure a fair wage for an employee and accurately based on the rate and number of hours.

When you look at these records that we now call a pay stub, it can be overwhelming with its many numbers, acronyms, and financial jargon. Sure, we want to know how much money we made, but there are some crucial pieces of information that not only affect your paycheck but your life and the lives of others. What is all that information, and what does it mean for you? Take a look below to understand your pay statement.

What Information is Available?

A pay stub is a record that documents your work and wages during a specific period. Remember that your pay stub contains personal information, so make sure to keep it secure and private. But within that personal information, you will find how much you made, how many hours you worked, and how much your paycheck was.

After that, you will see your totals for taxes and deductions. Your paycheck then reflects the amount of your actual check (after taxes) and possibly information about your direct deposit if you elected that option.

What's On a Pay Stub?

While there may be slight variations in pay stub information from employer to employer, there are four main types of information on most pay stubs that include the below:

  1. Pay details

    • Employee ID number
    • Company name and location
    • Pay period dates

  2. Earnings

    • How many hours you worked
    • Your hourly rate (if you are hourly)
    • The earnings from your current pay period
    • Your year-to-date earnings

  3. Taxes

    • Mandatory taxes
    • Taxes taken pre-tax
    • Taxes taken post-tax
    • Employer taxes, benefits, and wages
    • Tax allowances

  4. Other information

    • Direct deposit information

Understanding Deductions

Often the most significant deductions you see on your pay stub are mandatory taxes. These include your federal, state, and sometimes local taxes. Most of these are required, but the amount is pre-set or determined by your tax allowances. There is no way to alter these amounts significantly.

Here is a rundown of some of those taxes. Please note that these abbreviations may vary by employers or state.

Mandatory Deductions (required of every worker in the United States)

  1. FED / FIT / FITW / EE: Federal income taxes
    • The amount paid into federal taxes uses your W-4 form, which shows how much you withheld and how many allowances you claim. This process is all managed by the Internal Revenue Service.
  2. OASDI / FICA / SS / SOCSEC: Social Security taxes
    • Every worker pays 6.2% of their gross income into the Social Security fund. In addition, each employer must pay 6.2% per employee.
  3. MED / Medicare: Medicare taxes
    • Every worker contributes 1.45% of their gross income to Medicare taxes. Additionally, every employer pays an additional 1.45% for each employee.
  4. SUI: State Unemployment
    • State unemployment Insurance is a tax-funded program that pays workers who have lost their job.
    • In nearly all states, the employer pays into this fund
    • Three states require that the employee pay into it: Alaska, New Jersey, Pennsylvania.
  5. Local Taxes (if applicable)
    • Not every community enforces local taxes.
    • Municipalities add in a tax based on where people live or work.
    • That tax money goes back into the community for education, police, EMS and fire, garbage, and other local services.

    Post-tax deductions occur after your other taxes.

Post-Tax deductions include:

  • Long term disability (if applicable)
  • Short term disability (if applicable)
  • Life insurance
  • Garnishments such as child support
  • Roth IRA
  • Charity donations
  • Union dues

Pre-tax deductions occur before your other taxes, which lessens the amount that can be taxed and the amount owed to the federal government.

Pre-Tax deductions include:

  • Health insurance
  • Dependent care accounts
  • Flexible spending accounts
  • 401(k)
  • Commuting programs (if applicable)
  • Group term life insurance

Takeaway

A pay stub is an official record of what you worked, how much you made, and how much you paid in taxes and benefits. This written record is essential to have on file for when you see a discrepancy, want to ensure payments or garnishments, or witness changes concerning your wages or benefits.

It is crucial that you not only understand what your pay stub represents but that you monitor it closely in case something changes or is inaccurate. Thanks to the Fair Labor Standards Act, you have a record of your wages to ensure fair and accurate payment.

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