How to Fill Out a Payroll Check & Pay Stub
Learn the essential steps for accurately preparing payroll checks and pay stubs, ensuring proper employee compensation and compliance.
A payroll check is a financial document issued by an employer to an employee, representing compensation for work performed. It summarizes the employee’s earnings and deductions. Understanding payroll checks and pay stubs helps employers ensure compliance and employees manage personal finances.
Key Components of a Payroll Check
A payroll check and its associated pay stub contain information detailing an employee’s earnings and deductions. Gross pay is the total amount an employee earns before any deductions. This includes regular wages, overtime pay, bonuses, and other compensation.
Deductions are amounts subtracted from gross pay, categorized as mandatory or voluntary. Mandatory deductions are legally required withholdings, including Federal Income Tax (FIT), based on an employee’s W-4 form and IRS tax tables. Other mandatory deductions are Federal Insurance Contributions Act (FICA) taxes, comprising Social Security and Medicare contributions. Social Security has a wage base limit, while Medicare tax applies to all covered wages. State and local income taxes are also mandatory, varying by jurisdiction.
Voluntary deductions are optional withholdings authorized by the employee, often for benefits or savings. These commonly include health insurance premiums and contributions to retirement plans like a 401(k). Some, such as health insurance premiums or traditional 401(k) contributions, are pre-tax, reducing taxable income. Others, like Roth IRA contributions, are post-tax. After all deductions, the remaining amount is net pay, the actual take-home pay an employee receives.
Calculating Payroll Figures
Calculating payroll figures begins with gross pay. For hourly employees, gross pay is their hourly rate multiplied by hours worked, including overtime at one and a half times the regular rate for hours over 40 in a workweek. Salaried employees’ gross pay is their annual salary divided by the number of pay periods.
After gross pay, tax withholdings are calculated. Federal income tax withholding relies on the employee’s Form W-4 and IRS tax tables or procedures in IRS Publication 15-T. FICA taxes consist of a 6.2% Social Security tax up to an annual wage base limit and a 1.45% Medicare tax on all wages. For 2025, the Social Security wage base limit is $176,100. An extra 0.9% Medicare tax applies to wages exceeding $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married taxpayers filing separately.
State and local income tax calculations vary by employee residency and work location. Employers must consult specific tax regulations for each jurisdiction to determine correct withholding amounts. Voluntary deductions are then subtracted, based on employee elections for benefits or retirement contributions, expressed as fixed dollar amounts or percentages of gross pay. The final step is to subtract all mandatory and voluntary deductions from gross pay to arrive at net pay.
Completing the Payroll Check and Pay Stub
After calculating payroll figures, transfer the results onto the physical check and accompanying pay stub. Write the current date on the designated line in the upper right corner. The payee’s full legal name, typically the employee’s name, is written on the “Pay to the order of” line.
Write the net pay amount numerically in the box next to the dollar sign, including cents and filling the space to prevent alterations. Write this same amount in words on the line below the payee’s name, expressing cents as a fraction over 100 (e.g., “and 45/100”). Add a brief description, such as “Payroll” or the pay period end date, to the memo line. The authorized signer, usually the employer or a designated representative, must sign the check in the lower right corner to validate it.
Creating the pay stub involves organizing calculated figures into a clear, itemized statement. It should include employee and employer identification, pay period dates, and clearly display gross pay. A detailed breakdown of each deduction, including Federal Income Tax, Social Security, Medicare, state income tax, health insurance premiums, and 401(k) contributions, must be itemized. Net pay is prominently displayed. Pay stubs also include year-to-date (YTD) totals for gross pay and each deduction, providing a cumulative overview.
Maintaining Payroll Records
After payroll checks and pay stubs are issued, maintaining accurate records is an administrative step. Employers are required to retain payroll records for a specified period to comply with tax and labor laws. The IRS mandates keeping employment tax records for at least four years after the tax becomes due or is paid, whichever is later. These records include employee names, addresses, Social Security numbers, hours worked, wage rates, and all deductions.
The Fair Labor Standards Act (FLSA) requires employers to retain payroll records for a minimum of three years, with records supporting wage computations, like time cards and wage rate tables, kept for at least two years. These records serve as documentation for tax reporting, such as W-2 forms at year-end, which summarize an employee’s annual earnings and withheld taxes. Record retention ensures compliance and provides information for audits or inquiries.