What Is a Payroll Check?
Updated on July 14, 2023
What Is a Payroll Check?
Payroll is an essential aspect of running a business, as is issuing payroll checks. A payroll check is not a personal check, which transfers funds from one individual bank account to another, but a type of business check that represents a promise of payment.
A company issues payroll checks, or paychecks, to employees in exchange for their work over a given period. This guide provides detailed information on payroll checks, who issues and receives them, why they’re so important, and much more.
Who Gets a Payroll Check?
Both exempt and nonexempt employees receive paychecks from their employer, whether they’re paid hourly or salaried. The main difference between an exempt employee and a nonexempt employee is that only the latter is eligible for minimum wage and overtime pay.
An exempt employee is ineligible to receive overtime compensation for the hours they worked over the workweek standard of 40. In accordance with the Fair Labor Standards Act (FLSA), exempt employees must make at least $684 each week, or $35,568 per year. Salaried employees receive paychecks of the same amount according to the chosen payroll schedule, such as biweekly (every two weeks) or semi-monthly (twice a month).
A common business misconception is that only employees classified as exempt can be paid via a salary. But this is untrue, as nonexempt employees can also be salaried.
Unlike exempt employees, nonexempt workers are entitled to overtime pay, should they work overtime hours. The FLSA identifies threshold standards to protect the rights of nonexempt employees, mainly by defining a federal minimum wage and overtime qualifications. The FLSA’s current federal minimum wage is $7.25 an hour.
As mentioned above, salaries are not limited to exempt employees. Nonexempt employees can be paid via a salary while still being entitled to overtime pay. This means your business can compensate nonexempt employees through a salary if it meets these two conditions:
- Employee receives wages equivalent to an hourly rate that does not drop below the federal minimum wage
- Employee receives correct compensation – meaning that any overtime pay is added to the normal salary amount.
Keep in mind, even though nonexempt employees can be salaried, it’s much more complicated than paying them hourly. Either way, the HR department needs to track and maintain records of hours worked and calculate the overtime pay owed.
For additional information on exempt and nonexempt employees, check out the Department of Labor’s Fact Sheet #17A.
Who Issues Employee Payroll Checks?
Payroll is usually the duty of the HR team, which can determine the specific payment methods offered. Paychecks are typically delivered via direct deposit or by mail.
Paychecks deliver an employee’s net pay, also known as take-home pay – the money left after payroll deductions have been taken out. A payroll statement, or pay stub, is usually attached to each paycheck, detailing gross pay, tax deductions, and other earnings calculations.
For businesses that provide employees with a traditional paper paycheck, HR often provides employees with paper checks and payroll information by mail. Alternatively, HR can deliver paychecks and pay stubs in the workplace on payday.
Businesses that use an external payroll service or payroll software must provide employees with access to their paychecks and paycheck stub information. Usually, the employer gives employees log-in details to access this information on an online portal.
What Should Employees Do with A Paycheck?
It’s relatively uncommon these days, but some employers still prefer to print paper paychecks.
As a rule of thumb, employees should always deposit their paychecks immediately. This reduces the number of unclaimed payroll checks, which can cause significant problems for the business’s books and HR recordkeeping.
Many banks now offer the convenience of mobile deposits: employees can simply take a picture of their paycheck on their phone and upload it to their bank’s mobile app. Encouraging employees to take advantage of mobile deposit capabilities are an effective way to reduce the number of unclaimed paychecks.
Sometimes an employee receives a paycheck but fails to cash or deposit it in a timely manner. This is known as an outstanding check, which indicates that the funds have not yet been taken out of the business’s bank account.
Most paychecks expire six months after being issued. These are known as expired paychecks, as well as “stale checks” or “stale-dated checks.” Even if the business has instituted an extended validity period, banks may refuse to accept a paycheck issued more than six months prior. It’s also possible that the business’s account will lack sufficient funds, which may result in the company getting hit with a non-sufficient funds (NSF) fee.
But what if HR doesn’t issue paper paychecks?
An electronic check, or e-check, is effectively the same as a paper check, except the transaction occurs entirely online and typically is performed via payroll software. If a business pays employees via direct deposit, it’s issuing e-checks.
Today, many states have instituted regulations on the use of direct deposit, paper checks, and pay periods. Be sure to carefully check and comply with your state requirements.
Where Can Businesses Purchase Payroll Checks?
For businesses that choose to manually issue paychecks, then can purchase blank check stock from various vendors, such as a bank, Staples, Amazon, and other office suppliers.
But it’s important to note that purchasing check stock from banks will likely be more expensive, while other sellers may offer more appealing – such as custom-made checks displaying your company’s logo.
How to Print Payroll Checks?
If equipped with the right printer, your HR team could probably print paychecks on-site. However, paychecks cannot be printed on regular printing paper, which is vulnerable to fraud.
It’s wise to purchase check stock that provides security, such as heat-sensitive ink, a watermark, and chemically sensitive paper. This helps ensure authenticity and avoid fraud.
Some payroll software services also offer the ability to print custom documents, like pay stubs that detail pay calculations and deductions.
As previously mentioned, paychecks often come with a pay stub, which provides detail on the calculations behind an employee’s take-home pay.
The following information is what you can expect to find on a paycheck:
- Recipient’s name
- Total amount
- Employer’s signature
- Issuing bank
The following information is what you can expect to find on a pay stub:
- Pay period and dates
- Hours worked
- Gross wages
- Wage garnishments
- Federal income tax
- State and local taxes
- Federal Insurance Contributions Act (FICA) taxes
- Social Security taxes and Medicare taxes
- Net pay
- Year to date (YTD) total
Is There Payroll Software that Can Help with Paychecks?
Running payroll and printing paychecks is an immense responsibility for HR teams, one that businesses should take seriously. Even one payroll error can lead to confusion, delay, lost morale, and decreased productivity.
How Long Should HR Retain Paycheck Records?
The period of time businesses are legally required to hold onto payroll records varies by state, but is often around three years. Whatever the number, it’s extremely important for companies to establish good recordkeeping practices. All records should be well maintained and safely stored in an accessible location, whether physical or virtual.
Payroll is of course one of the essential responsibilities of HR, and issuing paychecks may be the most important part of that duty. Unless it’s a one-person operation, a business simply cannot survive if it’s unable to reliably and accurately issue payroll checks, paper or electronic.
Armed with this knowledge on the use and variety of paychecks, the value of pay stubs and recordkeeping, and more, your business and HR team are heading straight for total payroll success!