Employers can face several potential compliance risks as they navigate pay statement disclosure requirements on a state-by-state basis. These risks include government audits, litigation, penalties and potential reputational harm. That’s why it’s critical to understand the importance of pay statement compliance to avoid its costly penalties.  Below we discuss the components of an effective pay statement and considerations of compliance for employers. 

Components of an Effective Pay Statement

Pay statements are essential for record-keeping and effectively communicating with employees about compensation. An effective pay statement should be clear, concise and easy for employees to understand, accurately reflecting their earnings to ensure compliance and transparency. They also assist employers in addressing employee and regulator inquiries regarding wages and taxes. Additionally, a complete and accurate pay statement is vital for compliance. Most states require some or all of the following information to be listed on employee pay statements:  

• Contact information and relevant dates: Display of employer's legal name, address and phone number, pay period beginning and ending dates, and employee details, such as name and an employee identification number. 
• Pay rates and hours: This is critical information for nonexempt employees who are eligible for overtime. Statements should detail regular, overtime, double-time rates and corresponding hours worked. Pay statements should also include all other types of compensation, such as shift differentials, bonuses, commissions, piece rate earnings and any other wages being paid to the employee. 
• Gross earnings: Total earnings before any taxes or other deductions. 
• Employee taxes: Deductions for federal income tax, FICA taxes (Medicare and Social Security) and state/local taxes, as applicable. 
• Benefit deductions: Employee contributions to employer-sponsored benefit programs, such as health insurance and retirement plans. 
• Garnishments: Pay statements should reflect any amounts withheld for court-ordered reasons like child support, defaulted loans or tax levies. 
• Paid time off (PTO): Many state and local jurisdictions that mandate time off, such as paid sick leave or paid leave for any purpose, require employers to include time accrued, time available, time taken and amounts paid. 
• Net pay: The amount paid to an employee after all deductions. 

Any additional state- or jurisdiction-specific required information based on where the employee is performing services (e.g., where the employee is working and being paid) should also be included on pay statements.  

Employer Considerations

For employers evaluating their pay statement compliance, below are a few items to consider:  

• Retention rules: The IRS requires you to save payroll and paycheck records that include dates of wages, dates of employment and dates and amounts of tax deposits for at least four years. 
• Resolving disputes: Pay statements help improve transparency when it comes to the compensation employees earn for their work. If a pay dispute arises, the employer and employee can turn to the pay statement to review information regarding hours worked, compensation and deductions. 
• Accessibility: Effective payroll management includes the ability to access pay stubs anytime, anywhere. Offering universal access to pay statements, whether from a phone, desktop or other mobile device, ensures employees can view their pay statement information when they need it. Our self-service portal allows employees to modify their personal information, and access pay stubs, tax forms, and much more.  

Paying employees has become more complex over the years. As of June 2024, a company that distributes non-compliant pay statements to its California employees could pay $50 per employee for the first violation and $100 for each subsequent violation, subject to an aggregate penalty of up to $4,000 per employee. Similar legislation could be passed in other states mirroring the California law. 

How We Can Help

Partnering with the right payroll service provider helps ensure compliance but also allows you to improve employee satisfaction through transparent and accessible pay statements. Regardless of how you pay your employees, we will provide you with the tools to help generate an accurate pay statement, every time.