If you’re getting your first paycheck at a new job, you could be in for a bit of a shock. It’s way less than what you thought it would be.
It turns out that millions of employees experience payroll errors each year. About a third of payroll errors result in late bill payments.
You know that you have to pay taxes. Do you know what else comes out of your paycheck and how does that impact the final amount your receive? Many don’t, which is why reading a pay stub is so important.
Read on learn 5 tips to read your pay stub and ensure that it’s correct each time.
1. When Know When Pay Stubs are Required
Do you know if your employer is required to give you a pay stub? Some employers are and others aren’t, depending on where you’re located. Federal laws don’t mandate employers to give pay stubs to employees.
It’s good practice to do so because employers need to keep records for payroll taxes and labor disputes, but it’s not required. It’s up to state laws to require businesses to give pay stub access to employees.
There are states that have zero requirements for pay stub access or distribution. Some states require employers to hand out physical copies of pay stubs.
States have laws that only require access to pay stubs or require employers to distribute digital copies of pay stubs.
You’ll want to do some research to learn what the laws are in your state. You can make sure that your employer complies with the law, especially if you have trouble getting copies of your pay stubs.
2. Understand the Codes
Your paycheck looks like it was created in a foreign language with all of those abbreviations and codes. Here’s what they mean and how you can calculate them yourself.
Pay Period
This is the time period that covers your paycheck. It’s usually two weeks or a month, but may vary.
Income Codes
Your paycheck really has two parts: income and deductions. The amount of your paycheck starts with your gross earnings. That appears as “Gross” or something similar on your pay stub. This is the total amount earned during the pay period.
If you worked overtime or took time off, these would appear as separate line items on your pay stub. Vacation time is usually VAC, overtime is OT, and time off can be seen at Personal or PTO.
Deduction Codes
Deduction codes will be different at each employer because many deductions are contributions to your healthcare and retirement plans.
Your deductions start off with federal income taxes, which are listed as FED or FITW. Your state income taxes may be abbreviated by state name or just shown as STATE
FICA stands for the 6.2% of your paycheck that’s withheld for Social Security, and 1.45% that’s withheld for Medicare. These are sometimes listed separately as SEC and MED.
Contributions to your retirement savings can be seen as 401(k) or IRA, depending on your plan. FSA is an abbreviation for a flexible spending account, which you may have to supplement health care payments.
Your pay stub will show the amount for this pay period and for the year to date (YTD).
3. Track Your Hours and Forms Submitted
If you’re an hourly or salaried employee, you need to reconcile your pay stub. Make sure that the number of hours worked is correct, overtime, and vacation time are calculated correctly.
It’s important to track these things on your own during each pay period.
You can create pay stubs by using an online tool. You can then compare this pay stub to what you received from your employer. If you notice any discrepancies, you can ask your employer about them.
4. Double Check Your Tax Withholdings
Tax withholdings are a big topic these days. With the passage of the Tax Cuts and Jobs Act in 2017, many taxpayers were caught off guard because they received a little more money in each paycheck, but a much smaller refund.
If you don’t have enough taxes withheld from your paycheck, you could get a smaller refund or owe money when you least expect it. Your employer calculates your federal tax withholdings based on the information you put down on your W-4 form.
You can check to make sure you have the right amount withheld from your paycheck by using the IRS estimation tool. If you need to make adjustments, you can ask your employer to revise your W-4 form.
5. Work With Your Employer to Solve Issues Quickly
The longer you wait to speak to your employer or HR department, the more difficult it will be to prove errors and solve them.
You have to check your pay stub and match them with your information as soon as you get paid. You’ll then have to gather your documentation to back up your claim.
Errors do happen, but it’s important to remember that they’re not always deliberate. The mistake is likely due to a typo and you could have made an error clocking in and out.
While it can be stressful to get underpaid when bills are due, you need to be calm to get the situation resolved fast.
You want to make sure that your company has a policy in place for dealing with payroll errors. You’ll be able to know who to talk to. They might be able to cut a check for the difference right then and there.
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Your Financial Health Depends on Reading a Pay Stub
You probably didn’t think that there’s so much information in a pay stub. Now that you understand why reading a pay stub is important, you’ll be able to track your earnings and deductions.
You can check that against your records to ensure your paycheck is accurate and you’re paying enough taxes.
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