What Is A Pay Stub And Why Is It Important?

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The American people are back to work. In fact, the unemployment rate is near historic lows at 3.7 percent. In the month of June, the American economy added nearly 225,000 jobs. Additionally, employee wages are up over 3 percent from the prior year. What do all of these great economic indicators mean? For starters, it proves that people are earning money and depositing pay stubs.
The vast majority of workers are paid through electronic direct deposit. Read on to learn everything you need to know about pay stubs. Explore why a pay stub is important and how to read one.

Why Is A Pay Stub Important?

Your pay stub is critical to your personal finances. This is how you manage your weekly or biweekly budget. The pay stub reveals your gross earnings during the pay period. This is your hourly rate multiplied by the number of hours you worked. From here, there are a number of deductions that lead to your take-home pay. Your pay stub automatically takes out money for things like taxes or insurance.
It also tells you other important information. This includes items like paid time off or annual retirement contributions.

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What Are Deductions?

The amount of money deposited into your bank account is not the same as your gross pay. This is because there are various deductions made to your earnings. Some deductions are employee benefits, while others are government programs. Your pay stub is important because it informs you how much is contributed towards benefit programs.
For instance, you will learn how much is taken from each paycheck for health insurance. Any other type of insurance that you carry is deducted from your earnings. This includes dental, vision, and life insurance. Other major deductions are federal and state income taxes. The federal government deducts a portion of your paycheck for Social Security and Medicare entitlements.
Furthermore, your state of residency automatically deducts more money. The rate varies but goes towards programs like unemployment and disability insurance.

What Other Information Is Included On A Pay Stub?

Financial information is just the tip of the iceberg. There are other important details included on a pay stub as well. One great example is your paid time off (PTO). Each company handles PTO differently. Some break it out between sick and vacation time. Pay stubs often provide a summary of how much PTO you have remaining.
Another important detail on your pay stub is the number of federal withholdings you are claiming. This is related to your federal income tax deduction. The number of withholdings changes the amount that your employer holds back for taxes.  

Wrapping It Up

Your pay stub is one of the most important financial documents that you receive. This is something that you should be checking on a weekly or biweekly basis. Of course, it is a great way to verify that you are being paid the correct amount in gross earnings. In addition, it is a great way to track items like PTO. Need help creating a pay stub, Let's get you started, create your pay stub now!

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