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Understanding pay stubs: 7 tips to help your employees

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How well do you understand your company’s pay stubs (also known as payslips)? Better yet, how well do your employees understand them?

Understanding pay stubs can be confusing for employees. While some never look at their pay stubs, others go over theirs with a fine-tooth comb, checking for discrepancies.

You need to be able to address any queries your employees may have confidently to ensure them that your payroll processes are accurate every time.

And if your business has had to cut employees hours due to the coronavirus (COVID-19) outbreak, their take-home pay may be different to usual. That could have implications for their tax bracket and entitlements that are due to them. If they don’t understand their pay stubs, they could easily miss important details.

So, how do you break down all the calculations, formulas and deductions in layman’s terms?

Simon Gibbs is the director of Lite Consulting, a consultancy firm that works with HR leaders as they upgrade their systems to the cloud.

Below, he talks about employees’ changing expectations around pay stubs, and where HR leaders are looking to improve their company’s pay stubs. He also offers seven tips for HR leaders to improve the clarity of their pay stubs.

1. Be clear on how your payroll team calculates pay

2. Improve clarity around employer-paid benefits

3. Use customization for clarity around understanding pay stubs

4. Digitize your pay stubs

5. Implement employee self-service functionality

6. Plan ahead for voluntary attrition

7. Add understanding pay stubs to your onboarding process

Help for your employees to understand their pay stubs

Gibbs points out that the most frequent pay stubs question from salaried employees is about how the payroll team calculates their pay.

He says: “One of the big things that always confuses people is the hours that appear on a pay stubs are generally averaged across 12 months for salaried employees. A shorter month throws off their calculations.

“Their pay stubs shows they’ve been paid for working, say, 162 hours, but they’ve actually only worked 130.”

Adding that detail to your salaried employees’ pay stubs could slow down those types of inquiries.

Another problematic area for understanding pay stubs is how the other elements of your employees’ compensation is documented, such as for pensions.

Gibbs says: “There are a lot of questions about what the employer pays and what they pay, in terms of how it’s shown on the pay stubs. There are still a lot of pay stubs that don’t cover all of the elements in enough detail.”

It’s worth expanding this field on the pay stub to include this itemization.

Gibbs says the standard pay stub with basic pay information isn’t enough for employees to get the full picture. Simple updates to your pay stub template could make a difference in the volume of queries.

He adds: “I think there’s a shift to a more customizable and bespoke pay stub that fits the specific requirements of the company.

“Instead of just one template, HR managers should compare pay stub layouts and details to see the many levels of detail that they can and should include.”

The most significant change that has happened to pay stubs is digitization, which is to the HR leader’s benefit in several ways.

Gibbs says: “Digitizing has made it easier to create pay stubs because most software gives you a choice of templates that you can configure to what you think your business needs.

“Now you’re able to put a narrative on a pay stub much easier because it’s electronic—way easier than if it were pre-printed stationery.

“So if you’re getting a lot of queries about the average hours per month, for example, you can easily update your pay stub to address that and stop those calls.”

Employee self-service functionality is critical when it comes to understanding pay stub. In today’s digital society, employees expect the same on-demand access to their pay stub as they get in other areas of their lives.

With payroll software, you can create an FAQ for common questions about pay stubs that employees can access and review on-demand.

This way, they can get immediate answers as they need them, and you don’t have to spend time addressing the same questions repeatedly.

“The exit stage is still a challenge for organizations to find the right solution to make sure employees can access their pay stubs as they need to after they’ve left the company,” says Gibbs. “Think about how a person will take their pay stubss with them when they leave.

“When a person leaves an organization, usually their access to the HR portal is turned off or left on for a short time. Both can confuse former employees in the end.

“Some organizations have a separate, third-party portal where they can upload the employee’s final documents. But by doing that, you risk non-compliance because you end up with pay stubs in multiple places for multiple employees.

“For me, it’s a process that I recommend you give a lot of clarity and thinking through.”

This may seem like a no-brainer, but Gibbs says it’s rarely even considered when mapping the employee experience.

He adds: “I don’t think it’s ever covered in an induction program. I’ve personally never had someone talk through my pay stub with me.

“But if we look at how payroll is processed, I have this view that a lot of organisations make it artificially complex. It doesn’t need to be as complicated as it’s made.

“Once you simplify those processes, it will be easier to display distinctions such as single and double-time pay, holiday entitlement, and everything else.

“Because the problem is people see things on their pay stub and don’t fully understand what they are. So, it’s crucial to set those expectations right when they are joining, so those elements aren’t confusing.”

To help your employees get clarity on the information that features in their pay stub, we’ve created a handy infographic below, so you can share the information with your workforce.

Conclusion on understanding pay stubs

The pay stub is an important document for many reasons, and it’s important for the sake of employee engagement that your employees clearly understand their compensation.

This builds their trust in your company and their perceived value as an employee. It also saves you time by offering all the information they need upfront.

Upgrading to payroll software inherently resolves the common problems with pay stub through automation, customization, and smart data. Using it gives you the flexibility to create the kinds of payroll documents that are best suited for your business model, and to make updates quickly as needed.

Gibbs concludes: “There needs to be automation within payroll. There needs to be connectivity with the relevant tax offices so you’re always up to date with tax codes.

“There is a such thing as static payroll where everyone gets the same amount every month. But that isn’t the case for many businesses.

“And even in those cases, automation is crucial to make the job easier.”

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