Interpret common payroll deductions

Detailed Explanation: Interpret common payroll deductions

A pay stub shows how gross pay changes into net pay.

• Gross pay: the amount earned before deductions
• Deductions: amounts subtracted from gross pay
• Net pay: the take-home pay after deductions

To interpret a pay stub:

1. Identify the gross pay.
2. Check each deduction to see whether it is:
   • a fixed dollar amount, or
   • a percentage of a stated pay base.
3. Calculate each percentage deduction.
4. Add all deductions.
5. Subtract total deductions from gross pay.

Worked example

Suppose a pay stub shows:

• Gross pay: 2{,}400$
• Income tax: $12\%$ of gross pay
• Retirement contribution: $5\%$ of gross pay
• Health insurance: 75$ fixed amount

Step 1: Calculate income tax

Income tax is $12\%$ of 2{,}400$:

So, income tax is 288$.

Step 2: Calculate the retirement contribution

Retirement is $5\%$ of 2{,}400$:

So, the retirement contribution is 120$.

Step 3: Include the fixed deduction

Health insurance is already given as a fixed amount:

Step 4: Add the deductions

The total deductions are 483$.

Step 5: Find the net pay

Subtract total deductions from gross pay:

The employee’s net pay, or take-home pay, is:

The gross pay was 2{,}400$, but$$483$ was deducted for taxes, retirement, and insurance.