Legal Requirements for an Employee Pay Stub

Instructor: Tammy Galloway

Tammy teaches business courses at the post-secondary and secondary level and has a master's of business administration in finance.

In this lesson, you'll learn about the different requirements for issuing pay stubs throughout the United States. We'll discuss how to calculate gross and net pay. You'll also learn about various types of pay deductions.

What is a Pay Stub?

Kristen Hallmark, a technology wiz, developed a popular widget in her small California farming town. The widget became so popular that she's hired employees in all 50 states to manufacture the widget. Sales skyrocketed and now she's the richest, most popular entrepreneur under the age of 25 in her state. However, since she's expanded her business nationally, her company has received several complaints from the Department of Labor. Her accountant told her all the problems stem from paycheck stubs.

A paycheck stub is a statement listing specific information regarding an employee's pay. The accountant explains to Kristen that he just learned that the requirements for paycheck stubs are different in each state. While some states do not require employees to receive pay stubs, others require them to be issued - and they must include specific information. For the rest of this lesson, we'll review the California state requirements for information that's to be listed on paycheck stubs, from employer and employee details to compensation and deductions.

Employer and Employee Information

The pay stub must include the legal name and address of the employer. The legal name might be the Doing Business As (DBA) name registered with the county clerk's office. (For example, if Kristen was the sole owner of her business she could register her business as 'Kristen Hallmark DBA Widgets Are US.') Kristen could also register her business as a partnership (a business with two or more owners) or a corporation (an entity owned by investors). The owners of both partnerships and corporations register their businesses with the State Secretary's office.

The pay stub must also include the employee's name and address. In California, either the last four digits of the employee's Social Security Number or full Employee ID number are also required to be listed.

Compensation

Kristen's company has gained popularity due to the compensation package she offers employees. Her employees are paid on average 40% more than those working in other industries. All employees are salaried or hourly workers. All employees are paid bi-weekly.

Salaried workers' pay is based on an annual amount and is not dependent on the number of hours they work. However, the hourly employees' wages are based on the number of hours worked. Both types of compensation are required to be reported on pay stubs.

Bi-weekly pay for salaried workers is simply calculated by taking the annual amount paid divided by 24 pay periods. Hourly workers' wages are paid based on how many hours the employee works every two week times the hourly rate. For both types of workers, the dates worked and amount paid are listed on the pay stub. This is considered gross pay or the employee's pay before deductions are taken out.

Pay stub listing the Year to Date amounts of pay & deductions.
Payroll

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