So you just got your first job and your first paycheck has finally arrived. Congratulations! But you’re probably wondering what all the deductions and acronyms on your paycheck stub mean. What do they stand for? Where’s the money going? Read on to find out.
Alright, first off, if your pay stub reads “statement of earnings” instead, don’t worry, it’s the same thing. It’s something your employer is legally required to give you each time you get paid, either in hard copy or electronically.
Whether you’re paid weekly or biweekly (like most employees), whether your payday is Tuesday or Thursday, whether you’re a seasonal, temporary, or permanent worker, you’re supposed to receive a pay stub from your employer.
You may need your pay stubs for various purposes, such as applying for a loan. It’s also a good idea to use the last statement of each year to validate the figures on your income tax forms (T4 slips, etc.) and make sure no errors have been made.
Good to know: Pay stubs can also be used to check if your employer has made any mistakes, e.g., in your number of hours worked or your overtime hours, which are often paid at a higher rate. So make sure you have a look at them.
The first thing to know is that pay stubs are generally divided into four sections:
This section contains your identification information and that of your employer. Make sure it’s up to date. Your job title and employee number may be listed as well.
In addition, this section includes the pay period (i.e., the week[s] for which you are being paid), the payment date, and sometimes a pay period number (e.g., 12/26 for biweekly pay periods).
This section shows you the number of hours you worked and your hourly rate (how much you’re paid per hour of work). Make sure this information is accurate.
It may also include overtime, which may be paid at a higher rate depending on your employer’s policy. If applicable for your job, this section will also contain tips or commissions. It also includes incentives, bonuses, and allowances. Together, these amounts make up your gross pay before deductions (e.g., income tax).
The following lines may also be included:
This is where abbreviations come in. This section lists all deductions at source, i.e., amounts that your employer takes from your pay and remits to the government.
As a wage earner, you must contribute to public services such as health insurance, employment insurance, road construction, schools, and more.
Here are the main deductions:
Other deductions on your pay stub
A word of advice: Errors can always happen, even with deductions. For example, if you agree with your employer to join the group insurance plan when you start working (and not after three months as is usually the case), make sure there’s a deduction on your first paycheque. Payroll may not have received the information. It’s always a good idea to check your pay stub for errors.
This is the shortest section, but probably the most important one to you. This is the money you have left after all deductions have been taken from your gross pay. It’s the amount deposited in your bank account.
You will also find a summary of your year-to-date earnings and deductions in this section.
You should keep your pay stubs in a safe place for the rest of the year. Create a folder (digital or cardboard) to file them in as you get them. Once you’ve received the last pay stub of the year, you no longer need to keep the others since the last pay stub shows the year-to-date amounts for the previous 12 months.
Be sure to dispose of the other statements securely (hello shredding!) since they contain your personal information. You don’t want them to fall into the wrong hands.
We recommend that you keep your pay stubs (at least the year-to-date ones) for 6 years after filing your tax return. This rule applies to all documents related to your tax returns. That way you’ll have everything you need in case you get audited, which will hopefully never happen.
By now you should have a better understanding of the acronyms and deductions appearing on your pay stub, but if you’re still unsure about anything, ask your employer for clarification.
If you’re wondering what to do with the money you earn, you can develop a savings plan, make a budget (if you haven’t already), set up an emergency fund for unforeseen events, and start saving for the future.
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