What Is a Statement of Earnings & What Does It Include?

A statement of earnings, commonly known as a pay stub or payslip, serves as a detailed record of an employee’s compensation for a specific pay period. This document outlines the gross amount earned, itemizes all deductions taken from that gross pay, and ultimately shows the net amount an employee receives. Its purpose is to provide transparency and accountability for the financial transaction between an employer and an employee.

Key Information Found on a Statement of Earnings

A statement of earnings typically begins with identifying information for both the employee and the employer. Employee details usually include the individual’s name, home address, and a unique employee identification number. Employer information lists the company’s name, address, and often its Employer Identification Number (EIN).

The statement also specifies pay period details, indicating the start and end dates of the work period and the actual pay date. Gross pay is the total amount earned before any subtractions.

Deductions, amounts withheld from gross earnings, are categorized as taxes, pre-tax benefits, and post-tax deductions. After all deductions, the remaining amount is net pay, also called take-home pay. Many statements also include year-to-date (YTD) totals, which are cumulative sums for earnings and deductions from the beginning of the calendar year. For hourly employees, the statement details hours worked and pay rate, while for salaried employees, an equivalent salary rate may be noted.

Understanding Different Types of Earnings and Deductions

Gross pay calculation varies based on employment type. For hourly employees, it is determined by multiplying the hourly rate by regular hours worked, plus any overtime. Overtime pay is typically one and a half times the regular rate for hours worked beyond 40 in a workweek, as per the Fair Labor Standards Act (FLSA). Salaried employees receive a fixed amount per pay period. Additional earnings like commissions or bonuses are also added to gross pay.

Mandatory deductions are amounts employers are required by law to withhold from an employee’s gross pay. Federal income tax withholding is determined by information on an employee’s Form W-4, which instructs the employer on how much federal tax to deduct. Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare, are another mandatory deduction.

For 2024, the Social Security tax rate for employees is 6.2% on earnings up to a wage base limit of $168,600, while the Medicare tax rate is 1.45% on all earnings. An additional Medicare tax of 0.9% applies to wages exceeding $200,000 in a calendar year. State and local income taxes are also mandatory where applicable, varying by jurisdiction.

Voluntary deductions are those elected by the employee, often for benefits or savings plans. Pre-tax deductions, such as contributions to a traditional 401(k) retirement plan, health insurance premiums, or Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs), are subtracted from gross pay before income taxes are calculated. This reduces the employee’s taxable income, potentially leading to lower federal, state, and sometimes FICA tax liabilities. For instance, the maximum employee pretax contribution to a 401(k) plan for 2024 is $23,000.

Post-tax deductions are taken from an employee’s paycheck after all applicable taxes have been withheld. Common examples include Roth 401(k) contributions, union dues, or certain life and disability insurance premiums. These deductions do not reduce taxable income but serve various purposes, such as funding retirement with tax-free withdrawals later in the case of Roth accounts.

Using Your Statement of Earnings

Regularly reviewing your statement of earnings helps verify the accuracy of your pay. You can check for correct hours worked, the proper application of your hourly rate or salary, and ensure that all deductions are as expected. If any discrepancies are found, contacting your employer’s human resources or payroll department promptly is advisable to rectify errors.

The net pay figure on your statement is important for personal financial planning and budgeting. This amount represents your actual take-home income, which can be used to track spending, manage expenses, and allocate funds towards savings or debt repayment. Understanding your consistent net income helps in creating a realistic budget and making informed financial decisions.

Your statement of earnings also aids in tax preparation. The year-to-date totals for earnings and deductions provide a summary that can be compared against your annual Form W-2, which employers issue for tax filing purposes. This comparison helps ensure the information reported to the Internal Revenue Service (IRS) is accurate before you file your tax return.

A statement of earnings serves as official proof of income for various financial applications. It can be used when applying for loans, such as mortgages or car loans, or for rental applications. These documents provide lenders or landlords with reliable evidence of your stable income.

The statement also offers a record of your contributions to benefits like retirement plans or health savings accounts, allowing you to monitor your financial growth and benefit utilization. It can also be evidence in the event of a pay dispute or to substantiate claims related to employment benefits.