For small businesses, managing payroll efficiently is crucial to keeping employees happy and staying compliant with tax laws. One key part of payroll is providing payroll check stubs, which serve as a record of employee earnings, deductions, and net pay.
In this guide, we’ll cover everything small business owners need to know about payroll check stubs, including their importance, how to create them, what to include, and the best tools to use. Whether you’re new to payroll or looking to improve your current process, this guide will help you handle payroll check stubs with ease.
What Are Payroll Check Stubs?
A payroll check stub is a document that outlines an employee’s earnings, tax withholdings, and other deductions for a specific pay period. It helps employees track their income and provides proof of payment for loans, rentals, or tax filings.
Payroll check stubs are typically provided with a paper paycheck or as a digital document for employees who receive direct deposit.
💡 Fact: Some states require businesses to provide check stubs to employees by law, even if they use direct deposit.
Why Are Payroll Check Stubs Important for Small Businesses?
✅ For Small Business Owners:
✔ Ensures payroll transparency – Employees understand their pay breakdown
✔ Helps with tax compliance – Keeps records for IRS reporting
✔ Reduces payroll disputes – Clear documentation of wages and deductions
✔ Builds employee trust – Professional pay stubs show employees they’re paid fairly
✅ For Employees:
✔ Proof of income – Needed for loans, rentals, and credit applications
✔ Tax filing assistance – Shows tax withholdings for easier tax returns
✔ Tracks earnings and deductions – Helps employees verify their pay
💡 Pro Tip: Providing clear and accurate payroll check stubs prevents confusion and reduces complaints from employees.
What Should Be Included in a Payroll Check Stub?
A well-structured payroll check stub should include the following details:
1. Employee Information
✔ Employee’s full name
✔ Employee ID or Social Security Number (last 4 digits)
✔ Address
2. Employer Information
✔ Business name
✔ Company address
✔ Employer Identification Number (EIN)
3. Pay Period & Pay Date
✔ Start and end dates of the pay period
✔ Actual date of payment
4. Earnings (Gross Pay)
✔ Hourly wage × Hours worked
✔ Salaried amount for the pay period
✔ Overtime pay (if applicable)
✔ Bonuses or commissions (if applicable)
5. Deductions
✔ Federal & State Taxes (based on employee tax bracket)
✔ Social Security & Medicare Taxes (FICA)
✔ Retirement Contributions (e.g., 401(k))
✔ Health Insurance Premiums
✔ Other deductions (e.g., union dues, wage garnishments)
6. Net Pay (Take-Home Pay)
✔ Final amount after deductions – The amount the employee actually receives.
How to Create Payroll Check Stubs for Your Small Business
Step 1: Choose Your Payroll Method
As a small business owner, you can generate payroll check stubs manually or automatically using payroll software.
✔ Manual Method – Use Excel or Google Sheets to create a template
✔ Payroll Software – Use QuickBooks, Gusto, ADP, or Wave to automate payroll
💡 Tip: If you have multiple employees, payroll software saves time and reduces errors.
Step 2: Gather Payroll Information
Before creating a check stub, collect details like:
✔ Employee’s hourly rate or salary
✔ Total hours worked (for hourly employees)
✔ Tax details based on W-4 form
✔ Additional deductions (health insurance, retirement, etc.)
This ensures accuracy when calculating earnings and withholdings.
Step 3: Calculate Gross Pay
Gross pay is the total earnings before deductions. It depends on how the employee is paid:
✔ Hourly Employees: Hourly rate × Hours worked
✔ Salaried Employees: Annual salary ÷ Number of pay periods
✔ Commission-Based Employees: Base pay + Commission earnings
💡 Example Calculation:
- Hourly Employee: $20/hour × 40 hours = $800 Gross Pay
- Salaried Employee: $50,000/year ÷ 26 pay periods = $1,923.08 Gross Pay
Step 4: Deduct Taxes & Other Contributions
Employers must withhold specific taxes:
✔ Federal Income Tax – Based on employee’s W-4 form
✔ State Income Tax – Varies by state
✔ Social Security Tax – 6.2% of gross pay
✔ Medicare Tax – 1.45% of gross pay
✔ Health Insurance & 401(k) Contributions
💡 Example Deduction Calculation:
- Gross Pay: $800
- Federal Tax: -$80
- State Tax: -$40
- Social Security & Medicare: -$61.20
- Health Insurance: -$50
Net Pay = $800 – ($80 + $40 + $61.20 + $50) = $568.80
Step 5: Format & Distribute the Payroll Check Stub
Once calculations are done, format the check stub in a professional, easy-to-read layout.
✔ Provide digital pay stubs via email or payroll portals
✔ Print pay stubs for employees who receive paper checks
💡 Best Practice: Always keep a copy of each payroll check stub for your records.
Best Payroll Check Stub Tools for Small Businesses
Using payroll software can save time and prevent errors. Here are the best options:
✅ QuickBooks Payroll – Best for automated tax filings
✅ Gusto – Best for small businesses with benefits
✅ Wave Payroll – Best for budget-friendly payroll
✅ ADP – Best for growing businesses with multiple employees
✅ PayStubCreator – Best for generating pay stubs manually
💡 Tip: Many payroll software options integrate with accounting tools, making tax season easier.
Legal Considerations for Payroll Check Stubs
Before issuing payroll check stubs, ensure compliance with:
✔ Federal Laws – Employers must withhold and report payroll taxes
✔ State Laws – Some states require businesses to provide check stubs
✔ Record-Keeping Requirements – Employers should keep payroll records for at least three years
💡 Tip: Check your state’s Department of Labor website to verify payroll laws.
Common Payroll Check Stub Mistakes to Avoid
🚨 Mistake #1: Incorrect Tax Withholdings
💡 Always verify tax deductions using an online payroll calculator.
🚨 Mistake #2: Missing Required Information
💡 Ensure the check stub includes gross pay, deductions, and net pay.
🚨 Mistake #3: Not Keeping Payroll Records
💡 Store copies of payroll check stubs for at least three years for tax audits.
🚨 Mistake #4: Delayed Payroll Processing
💡 Use automated payroll systems to ensure on-time pay.
Final Thoughts
Providing accurate and professional payroll check stubs is essential for small businesses. Whether you create them manually or use payroll software, check stubs help with tax compliance, employee trust, and financial record-keeping.
Key Takeaways:
✔ Payroll check stubs include employee details, earnings, deductions, and net pay
✔ Accurate payroll processing ensures tax compliance and employee satisfaction
✔ Using payroll software can save time and reduce payroll errors
