How to Help Your Employees Understand Their Paycheck Easily

Every time you process a payroll to pay your workers, you need to provide them with a paycheck.

The paycheck works as a record of an employee’s payroll, and the format of the paycheck might vary depending on how / what you use to process payroll at your company.

There are certain elements that will appear on every paycheck, and by making it easier for your employees to understand their paychecks, they will be able to stay on top of their finances.

We have created a comprehensive list of all the payroll terms and terminology your employees will find on their paychecks and everything they need to know to understand those payroll amounts.

And all you have to do is share the post with your company and everyone should have a better understanding of how to read a paycheck accurately.

Employee & Employer Details

Because paychecks contain sensitive payroll information, you should make sure that the paychecks include your business details as well as employee personal details.

Employee personal details, like their full name and their home address, should always be accurate and kept up-to-date.

Payroll Cycle Details

The payroll cycle start and end dates should be clearly outlined in a paycheck. This will help your employees know exactly what they got paid with each pay period.

The pay dates are usually aligned with the payroll frequency for your company, unless you are processing an off-cycle payroll.

Another item that should be included in a paycheck is the employee’s hourly or annual pay rate. This makes your employees aware that the right amount is being used in payroll calculations.

There are four types of payroll frequencies, and while bi-weekly or semi-monthly payrolls are the most common, some small businesses and startups might process payroll on a monthly or weekly basis.

Depending on the frequency your company uses, there will be a specific number of pay periods each year. It helps if your employees keep this in mind when they are reviewing the payroll calculations on their paychecks.

Federal, State & Local Taxes

As an employer, you are responsible for withholding and remitting all the federal and state taxes owed on behalf of your salaried employees. Local taxes may not always be handled by your payroll provider or your payroll software, but you should make sure that local taxes are paid out as necessary.

With self-employed/contract workers, the responsibility of paying those taxes lies solely with the worker.

Based on gross payroll amounts, your employees will be taxed at different percentages because of the graduated income tax system in the United States. The tax brackets depend on the range of income and filing status of your employees, and it ranges from 10 – 39.6% in Federal Income tax.

Federal Income Tax Rates for 2015

Source: IRS 2015 Federal Tax Rates, Personal Exemptions and Standard Deductions

In addition to Federal Income tax, you are also responsible for filing and paying the state specific taxes applicable for each employee, based on their location of work.

State Wage Withholding and Supplemental Wage / Bonus Tax Rates for 2015

Most payroll providers or software solutions can handle these state withholdings automatically, on your behalf using the state specific tax tables. But, if you are tackling payroll by yourself, you can use the wage withholding tables to determine what taxes need to be paid on behalf of your employee.

Your employees should review their paychecks to ensure that you are filing and paying the right amount of Federal and State withholdings on their behalf.

Social Security & Medicare

As per the Federal Insurance Contributions Act (FICA), you are responsible for remitting both the employer and employee contributions towards Social Security Tax and Medicare Tax to ensure coverage under the U.S. Social Security system.

The Social Security tax rate is 6.2%, which is the same for both the employer and employee. This qualifies your employees to receive a monthly social security payment after they retire.

The Medicare tax rate is 1.45% for both the employer and employee, and it is a mandatory withholding, same as the Social Security tax. If the employee is eligible for Social Security, these medicare payments ensure that your employees get coverage for a variety of medical expenses.

An individual is liable for additional medicare tax (rate is 0.9 percent) if the individual’s wages, compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed the threshold amount for the individual’s filing status:

These are the main elements of a paycheck, but sometimes you might hold back insurance deductions or retirement plan contributions on behalf of your employees.

These amounts are also reflected on the paycheck on a case-by-case basis. Other additional items like leave time and childcare assistance might also appear on their paycheck.

We hope this post makes it easy for your employees to read and understand their paychecks better. For help for creating your payroll system, count on Wagepoint’s payroll solution.

Written by Leena Thampan

Leena worked for some of the big guns in the media industry before deciding her true calling was to be the ultimate curator of our brand - this is our version of the story, of course. She spends her days cooking culinary masterpieces from all over the world. And if you are not really careful, she might just offer it to you.

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