How To Read Your Paycheck To Make Sure It’s Correct
A pay stub shows you an itemized list of what your employer deducted from your pay and contains valuable information about where your money is going.
It’s something you shouldn’t ignore.
“An employee is well advised to keep a vigilant attitude towards his or her pay stub,” said Maryland-based employment attorney Bruce Godfrey. “Keep every pay stub, which most people don’t want to do, or enter the main data off of each stub onto a spreadsheet.”
Godfrey personally uses a spreadsheet to keep track of each pay period’s gross income, 401K withholding and his bonuses, plus year-to-date totals for each. “I don’t want to depend on the employer’s computers for that,” he said. “I want to have it.”
Most employers are required by the Fair Labor Standards Act to keep time and pay records for employees, including total wages paid each pay period, overtime earnings and hourly rates. Most states also require employers to provide this information in a pay stub to employees.
Your pay stub may come attached to a paper check or be viewable in your company’s online payroll system.
Sometimes, a pay stub may contain accounting or tax errors or other mistakes. In worst-case scenarios, they can reveal workers are being shorted wages.
“It’s not that common that employers just mess up the pay stub [like] a transcription error or data entry error,” Godfrey said. “The mistake happens behind the pay stub in the decision not to pay a worker who is entitled to overtime overtime, or not to pay the worker as agreed, or to dock somebody’s pay illegally.”
Here are some key terms to understand so you know what your paycheck should look like and what you should regularly double-check.
1. Employer’s Name And Address
Typically, a pay stub should list the employer and where it is located. That seems basic, but if it’s missing, it could be a sign something’s wrong.
In Washington, D.C., for example, receiving a personal check would be a red flag, said Sarah Bessell, counsel for the Washington Lawyers’ Committee for Civil Rights and Urban Affairs.
An example of an incorrect pay stub “would be just a personal check with [a] dollar amount,” she said. “And it might have a short memo about the number of hours worked, but it’s lacking all those record requirements that D.C. law usually requires,” including some of the items and calculations below.
“The number one thing that people fail to do is keep track of what is actually owed them. If you are hourly, keep a record of the hours that you worked.”
– Donna Ballman, employment attorney
2. Gross Income Or Gross Pay
Gross income is the total amount of money you earned during the pay period indicated.
“The most important line on a pay stub is the gross pay. If the gross pay is wrong, everything else is wrong,” Godfrey said.
3. Net Income Or Net Pay
Your employer takes money out of your pay for taxes and benefits, and the money left in your paycheck after these deductions is what’s known as take-home pay or net income.
4. Hours And Rate
This is blank if you are a salaried employee. But if you’re an hourly employee, keep a close eye on whether your employer is listing and paying you for all of the time that you work. If you’re eligible for overtime, your overtime hours and rate should be reflected as well.
As Florida-based employment attorney Donna Ballman told HuffPost, “The number one thing that people fail to do is keep track of what is actually owed them. If you are hourly, keep a record of the hours that you worked,” she said.
“Know how many hours you are entitled to be paid for. If you worked over 40 hours in any week, make sure they are paying you time and a half. If you keep a daily record of your hours, it can be used as evidence.”
5. Back Pay
If your employer owes you wages, that should be reflected in your pay stub in some form. “It really varies per employer how that will show up,” Sage said. For example, an employee who got a raise may see a retroactive payout listed as its own line item.
6. Pay Period
This shows the beginning and end dates of the period for which you are being paid. “Most states require that an employer establish a regular pay period,” Godfrey said. This could be a schedule such as every Friday, on a biweekly basis or twice a month on set days.
Small employers “will sometimes pay employees chaotically,” Godfrey said. “They’ll pay on the third and then on 14th and then not until the 17th of the next month. That is illegal under most state laws, and it is also a sign that the employer is recklessly disregarding the overtime laws, because the employer should be calculating by the week strictly.”
If you see “year-to-date” or “YTD” next to your net or gross pay, that’s the total amount of wages you’ve been paid from the beginning of the year to the end of the pay period on the check.
“Anything year to date would be from January 1 to this point right now,” said Minnie Sage, program director of Tax-Aid, a nonprofit that provides free tax services in the San Francisco Bay Area. “Year-to-date is how much you’ve made cumulatively.”
8. Federal Withholding
This money is withheld to pay your federal income taxes. It’s deducted each pay period and sent to the IRS so that you don’t have to pay it all in a really big lump each year when you file your taxes.
When you start a new job, you fill out a W-4 form so that your employer can withhold the correct amount of federal income tax according to factors including the filing status you indicate and the number of dependents you claim. Sage recommends using the IRS’s free tax withholding estimator so you can see the ideal withholding amount for your personal situation. Changes to your W-4 can be made at any time.
“The one thing that a lot of people don’t know is that you can look at your contributions at any time of the year. It doesn’t just have to be when you are hired,” she said. If you experience a change such as having a child or getting married, you can contact your employer at any time to adjust the information on your W-4, which in turn adjusts the amount of your federal withholding.
9. State And Local Taxes
If your state has an income tax, this money is deducted each pay period so you don’t owe a large amount when you file. Some cities and counties may also levy taxes, too.
10. OASDI And Medicare
Both you and your employer are required to contribute a percentage of your taxable wages to Social Security and Medicare. The current basic rate for Social Security is 6.2% each, according to the IRS, and 1.45% each for Medicare.
If you see the term “OASDI” on your stub, that stands for the Old-Age, Survivors and Disability Insurance program ― aka, your Social Security taxes.
If you see “FICA” on your pay stub, that stands for the Federal Insurance Contributions Act, and it indicates the combined employee and employer portions of your mandatory OASDI and Medicare taxes.
These numbers tend to be correct.
“Because there are recipients of this money who have a fiduciary duty to get the number right… or a selfish interest, either one, they tend not to be messed up very often,” Godfrey said.
11. Other Deductions And Costs
Other costs taken out of your paycheck may include health insurance, disability insurance, union dues and contributions to your 401(k) retirement account. Some of these deductions may be “pre-tax,” meaning they’re subtracted from your gross income before federal or state taxes rates are applied, putting more money in your pocket.
If you face deductions from your pay for uniforms or cleaning, Bessell advised keeping a close eye on those deductions.
“At least in D.C., your employer is allowed to make certain deductions like that as long as it doesn’t make your wages fall below the minimum wage,” she said. “A deduction like that might be OK, but you just want to double-check and make sure.”