Skill: 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$:

$$0.12 \times 2400 = 288$$

So, income tax is 288$.

Step 2: Calculate the retirement contribution

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

$$0.05 \times 2400 = 120$$

So, the retirement contribution is 120$.

Step 3: Include the fixed deduction

Health insurance is already given as a fixed amount:

$$\text{Health insurance} = \$75$$

Step 4: Add the deductions

$$288 + 120 + 75 = 483$$

The total deductions are 483$.

Step 5: Find the net pay

Subtract total deductions from gross pay:

$$2400 - 483 = 1917$$

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

$$\boxed{\$1{,}917}$$

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