Whether you’re a business owner, an independent contractor, or a freelancer, you’ll eventually need to create pay stubs for various purposes. No matter what your role is, you’ll need to show professionalism at all times, and that can’t be achieved without organized, accurate, and comprehensive financial management. In that sense, pay stubs, or paycheck/salary statements, are an excellent way to showcase your professionalism.
However, generating pay stubs manually can quickly become a tedious and daunting task, especially if you are short on time or have a long list of employees to generate pay stubs for. Instead of wasting time and resources, it’s better to look for a way through which you can automatically generate them. Here’s exactly how you can do that.
Generating stubs automatically is an easy and hassle-free process that saves you a ton of time, money, and resources. However, it’s important to know the steps involved in the process so you can do it on an auto-pilot mode from this point forward. That being said, here’s how the process goes.
Before generating the stub automatically, there are some calculations you should either make or take into account first. That will be decided depending on the program you’ll use, which we’ll discuss in the following point. As far as your calculations go, your goal is to determine the actual amount of payment you’ve paid your employees (in case of owning a business) or got paid (for contractors and freelancers). This amount is known as the net pay, which can be calculated by removing the deductible from the gross pay.
First, you’ll calculate the gross pay. This amount refers to the total salary or total check payment. Gross pay can be calculated in a number of ways, but you’ll want to state the pay per hour rate, and then add any incentives, overwork hours, paid sick leaves, and additional payments made.
For a normal 9-5 job routine, it’s easy to calculate the gross pay by dividing the annual salary by the number of paydays worked by the employee. Next, overtime hours are added, which are usually calculated by a higher rate. It’s common to multiply every hour of overtime work by 1.5 times the rate of a normal work hour. Add that to bonuses, commission rates, and paid sick leaves.
After calculating the gross pay, you’ll subtract whatever needs to be deducted from it. For starters, you’ll need to deduct several taxes from this pay, such as federal, state, and local taxes, and FICA tax withholding. Other deductibles can include retirement contributions, wage garnishments, and medical insurance. The amount of taxes paid will vary according to the state of residence, so it’s imperative that you check the federal and state tax laws governing your area of residence.
After finalizing your deductions, the amount that remains is the net pay.
There are a myriad of ways to generate pay stubs, but if it’s automation you’re looking for, then you’ll have to be selective in your methods. Spreadsheet software will do just fine, but it’s much more practical to make your own stubs using an automatic pay stub generator. You can pay for a premium stub generator software, but you’ll also find multiple free online tools that you can use. Using the stub generator of your choice, all you’ll have to do is insert the information, choose a template, and download the stub’s report.
The greatest thing about automatic pay stub generators is that they do all the calculations for you. It’s sufficient to choose your area of residence and state, and the program will take care of all tax calculations for you. However, you’ll still need to add any other deductibles and withholdings manually to generate an accurate report. You can also expect to add company information, social security numbers, and start and end employment dates.
Aside from free online generators, you can create a paystub by downloading a fillable stub template. You can also find authentic stub templates by searching legal forms or your state’s website. If you’re using accounting or payroll software, then there’s a high chance that they have built-in payday stub generators as well.
Generating pay stubs for contractors and freelancers works in almost the same way a normal pay stub would work. The only difference a self-employed should watch out for lies in the way of calculating the pay, taxes, and deductibles. Instead of dividing the annual income by workdays, they’d divide it by the number of projects per year. The tax calculation process will also vary significantly, both according to state laws and the personal situation of the self-employed.
While they’re not a legal requirement in all states, some states still require employers to provide their employees with pay stubs within a day of getting paid. Even without the legal requirement, most employees nowadays have enough awareness to inquire about the details of their payment. Generating these stubs automatically proves to be a much more practical solution; however, it’s important to make sure that you choose a secure and reliable program.