6 Important Things You Need To Know About Your Paycheck


This blog is a part of our educational campaign on the occasion of National Payroll Week. In this blog, we will try to help you understand the basics of paycheck i.e. benefits, deductions, check, and direct deposit.


  1. What is a Paycheck?
  2. Difference between Gross Pay and Net Pay
  3. Deductions and Benefits
  4. Paycheck
  5. Direct Deposit
  6. Check

What is a Paycheck?

Paycheck is issued by an employer to an employee for the compensation of their work. It is a commitment of employer made with the employee when the employee was hired. Paycheck can be given in the form of a written check or direct deposit to the employee.

What is the difference between Gross Pay and Net Pay?

During the time of hiring, the employee will agree to be paid either annual salary or on hourly basis by the employer. The total amount agreed upon is called gross pay.

Gross Pay is the amount without any deduction. For example, if the employer agrees to pay an employee $24000 annually on a monthly pay frequency, the employee’s gross pay per paycheck will be $2000.

Net Pay is the amount of money an employee receives on the payday after the deduction carried out by the employer.

Deductions and Benefits

  • Health Insurance – medical, dental and vision health insurance premiums are voluntary deductions but they cover the high cost of medical care, wherein employer may contribute partially to this program. It is deducted at each payroll cycle or once in a month.
  • Life Insurance – This deduction is used if an employer provides the life insurance coverage. In the event of death, the life insurance company provides money to the beneficiary, usually a relative. The premium of the policy is deducted from the paycheck, unless the employer is paying the premiums on behalf of the employee.
  • Short-Term & Long-Term Disability – This benefit totally depends on the employer and type of company. In this benefit, employee gets paid when an accident leaves them disabled, temporary or permanent. This insurance provides some percentage of salary. Short term and long term disability insurance coverage changes according to different states and their tax laws. In case, your state or employer does not offer any disability insurance, you can purchase a plan based on your needs.
  • Dependent Life Insurance: This insurance provides financial security to the beneficiaries in case of loss of life of the employee. This is a voluntary coverage and if employee wants to avail this insurance, the premium will be directly deducted from the paycheck.
  • Accidental Death & Dismemberment – This policy pay benefits to the beneficiary if the cause of death is an accident. Generally, this is a limited form of life insurance and it’s inexpensive. The policy premium is based on the employee’s salary or specific set amount. It’s an optional deduction and if an employee wants to avail this benefit, the employer will deduct the premium from an employee’s paycheck.
  • 401(k) / Registered Retirement Savings Plan – This plan may be provided by the employer to employee. Contribution will get deducted from the employee payroll every pay cycle and this benefit will help the employee plan his retirement.
  • Profit-Sharing – This type of plan is to motivate and retain employees, as it gives them a chance to participate in company’s financial success. However, employees usually have limits in this benefit.
  • Garnishments – Also known as Wage Garnishment, this deduction is used when the employee is required to pay a debt, as a result of a court order. The amount is deducted from every paycheck until and unless the entre debt is paid off or the alternate arrangement has been made in orders to pay the remaining debt by the employee.

Understanding Paycheck

Understanding Paycheck

  1. Employer Information

This section contains the name and address of the employer.

  1. Employee Information

This section contains the name and address of the employee.

  1. Employee Work information

This section contain sensitive information of the employee such as employee ID, job designation, social security number, department number, pay period and pay date.

  1. Employee Tax Details

In this section, the current tax filing details are mentioned such as marital status and exemption allowances for federal and state taxes.

  1. Employee Hours and Earnings

In this section, the total amount being paid, pay rate, pay period and gross pay. In addition, the current pay period and year to date columns are also provided in this section.

  1. Employee Deductions

In this section, monthly gross pay and year to date columns are provided. The employee can find the number of deductions withheld from the gross pay.

These deductions will include:

  • Federal income tax
  • State income tax
  • Social Security tax
  • Medicare tax
  • Additional taxes (state wise deduction/benefits)

Other possible deductions include:

  • Health/dental/vision
  • Retirement or pension plan
  • Life insurance
  • Disability insurance
  1. Employee Net Pay

The final section contains the net pay of the employee for the given pay frequency.

Understanding Direct Deposit

Understanding Check

Many employers pay their employees using direct deposit because it is convenient and easy for the employers and employees. The paycheck amount gets directly deposited in the employee’s savings or checking account.

To avail this option, employee needs to provide bank account number, name of the bank, routing number, voided check and necessary information to the employer. After the direct deposit, the employer provides direct deposit slip to the employee, which resembles the actual check and its written “”THIS IS NOT A REAL CHECK” and “NON-NEGOTIABLE” printed on them.

Understanding Check

Understanding Direct Deposit

In paycheck, the employee can find the employer details and net pay.

The details are:

  • Employer name and address
  • Name of the bank
  • Name of the employee
  • Check number
  • Account number
  • Net pay in figures
  • Net pay in words
  • Employer signature

The employee should ensure the detail mentioned in the paycheck should be similar as per the bank records. To encash, the employee should deposit checks in their respective banks.

We hope this blog has helped you to understand more about the basics of paychecks.