How to Make Pay Stubs for Employees as a Small Business

The Small-Business Pay Stub Workflow

A pay stub is the employee-facing summary of a payroll run. It is not payroll by itself. The payroll run is the calculation, tax deposit, filing, and recordkeeping process behind the stub.

For a small business, the workflow is:

1. Collect employee and pay-period information.
2. Calculate gross pay.
3. Calculate taxes and deductions.
4. Calculate net pay.
5. Issue the pay stub.
6. Keep the records that prove the math.

That sequence matters because mistakes usually happen when a business starts with the PDF instead of the payroll records.

1. Collect Employee and Pay-Period Details

Every stub needs the basics: employee name, employer legal name, employer address, pay period, pay date, pay frequency, and work state. If the employee is hourly, you also need hours worked each day or week, regular rate, overtime hours, and any different rates for different work.

For salaried employees, confirm whether the worker is exempt or non-exempt. Salary does not automatically mean exempt from overtime. The FLSA exemption tests depend on salary basis, salary level, and job duties. If the employee is salaried non-exempt, you still need hours and overtime math.

2. Calculate Gross Pay

Gross pay is the total earned before taxes and deductions.

For hourly employees, regular gross pay is hours times rate. Overtime is usually hours over 40 in a workweek at one and one-half times the regular rate under the FLSA, unless a state rule is more protective. California, for example, has daily overtime rules that go beyond the federal weekly standard.

For salaried employees, gross pay is the annual salary divided by the pay frequency: 52 weekly checks, 26 biweekly checks, 24 semi-monthly checks, or 12 monthly checks.

Then add other earnings: bonuses, commissions, reported tips, paid time off, holiday pay, reimbursements that are taxable, and shift differentials. Keep each earning type separate when possible. A stub that lumps everything into "salary" is harder to audit later.

3. Calculate Taxes

For W-2 employees, the normal tax lines are:

• Federal income tax withholding
• State income tax withholding, if applicable
• Local tax withholding, if applicable
• Social Security tax
• Medicare tax
• Additional Medicare Tax for wages over $200,000 in the year

Federal income tax withholding comes from the employee's Form W-4 and IRS Publication 15-T. Social Security is 6.2% for the employee up to the annual wage base. Medicare is 1.45% on all wages, with an extra 0.9% withheld after wages exceed $200,000 in the calendar year.

Paystub Pilot can calculate these lines, but the employer still has to deposit and file payroll taxes correctly.

4. Add Deductions

Deductions need labels. Common lines include:

• Health insurance
• Dental or vision insurance
• Traditional 401(k)
• Roth 401(k)
• HSA or FSA
• Garnishments
• Union dues
• Post-tax insurance
• Loan repayments or advances

The pre-tax versus post-tax distinction matters. A traditional 401(k) deduction reduces federal taxable wages but does not reduce Social Security or Medicare wages. A Roth 401(k) deduction does not reduce federal taxable wages. Health plan premiums under a Section 125 cafeteria plan usually reduce federal income tax and FICA wages. Labeling all deductions generically makes W-2 reconciliation harder.

5. Issue the Pay Stub

The employee's stub should show enough detail to reproduce the paycheck:

• Pay period and pay date
• Gross pay
• Each earning type
• Each tax line
• Each deduction line
• Net pay
• YTD totals
• Hours and rates for non-exempt workers
• Employer and employee identification

Then check state wage-statement rules. Pay stub requirements by state can differ from the federal recordkeeping baseline. California and New York require detailed itemized statements; other states are less prescriptive.

6. Keep Payroll Records

DOL Fact Sheet 21 lists the records covered employers must keep for non-exempt workers, including hours worked, wage rates, additions and deductions, total wages paid, pay dates, and pay periods. Payroll records generally need to be retained for at least three years, with wage-computation records retained for two years.

That means the business should be able to answer, months later: why did this employee's net pay equal this amount on this payday?

When a Generator Is Enough, and When It Is Not

A pay stub generator is reasonable for a one-person business, occasional contractor-style income summaries, or a very small W-2 payroll where the employer separately handles tax deposits and filings.

Full payroll software is usually better once you have multiple employees, benefits deductions, garnishments, multi-state workers, paid leave balances, new-hire reporting, or recurring payroll tax filings. The dividing line is not the stub; it is the compliance work around the stub.

If you use a generator, use it as the presentation layer. Keep the payroll register, tax deposit records, time records, and deduction authorizations in a separate file.