Getting a paycheck is always satisfying, but sometimes understanding the details on your paystub can be confusing, especially when commissions are involved. Whether you’re in sales, marketing, or any profession that earns a commission alongside a salary or wage, you’ll want to know exactly how much you’re getting paid—and why. In this blog, we’ll take a closer look at commissions on your paystub and break down what you need to know to interpret them correctly.
What Is a Paystub and Why Does It Matter?
A paystub is essentially a record of your earnings and deductions for a specific pay period. It accompanies your paycheck and provides detailed information about your gross income, deductions, and net pay. While the paycheck is the actual money you receive, the paystub explains how that figure was calculated. Many employees overlook the importance of reading and understanding their paycheck stubs, but doing so can help you identify errors, understand your total compensation, and ensure you’re being paid correctly.
What Are Commissions?
Commissions are a type of compensation paid to an employee based on their performance, typically tied to sales or business outcomes. This could be a percentage of sales made or a flat amount paid for each deal closed. Unlike hourly wages or salaries, which are usually consistent from paycheck to paycheck, commissions can fluctuate based on the amount of sales you make during a particular period.
Types of Commissions:
- Straight commission: Employees are paid solely based on sales performance with no fixed salary.
- Salary plus commission: A combination of a fixed salary plus commission on sales.
- Tiered commission: Employees earn commissions based on different levels of sales, with higher rates applied as sales targets increase.
- Residual commission: Often found in industries like insurance or finance, this type pays a commission on recurring business (e.g., renewals).
How Are Commissions Shown on Paycheck Stubs?
Commissions usually appear as a separate line item on your paycheck stub under earnings, distinct from your base salary, hourly wage, or overtime pay. They may be labeled as “Commission” or something similar, depending on your company’s payroll system.
If you use a free paystub maker or your company generates electronic stubs, commissions are generally itemized in a way that clearly distinguishes them from regular wages. This clarity is crucial for tracking your income, particularly if you rely on commissions as a significant portion of your compensation.
Understanding the Commission Calculation
To effectively understand the commissions on your paycheck stub, it helps to know how they’re calculated.
- Percentage-based commission: If your job pays you 5% commission on all sales and you make $10,000 in sales, your commission would be $500 for that period. On your paystub, this will show as a line item under “Earnings” reflecting the $500.
- Flat-rate commission: Let’s say you earn $50 for every product sold. If you sold 10 units, your total commission would be $500, also reflected on your paystub.
Different businesses may calculate commissions in varied ways. Ensure you’re aware of your company’s policies to cross-check your earnings.
The Importance of Tracking Commissions on Paycheck Stubs
Tracking your commission earnings is not just about knowing how much you’re making, but also about ensuring your employer is paying you correctly. Mistakes on paycheck stubs happen, whether due to human error or payroll system glitches. Regularly reviewing your paycheck stub to confirm your commissions align with your expectations can save you from missing out on compensation or needing to chase down payroll discrepancies.
Here are a few reasons why this is so important:
- Accurate Taxation: Commissions are taxable income, and your employer should be withholding the appropriate amount of taxes. Review your paystub to ensure taxes are deducted correctly, or you might face a surprise tax bill.
- Overtime Pay Calculation: If you earn overtime pay, commissions may influence how it’s calculated. The Fair Labor Standards Act (FLSA) mandates that non-exempt employees’ overtime must include commission earnings.
- Transparency: Reviewing commissions on your paystub allows for transparency between you and your employer. This can build trust and ensure fair compensation.
Common Paycheck Stub Mistakes in Commission Payments
Errors in commission calculations aren’t as rare as you’d think. Here are some common mistakes to watch for on your paycheck stubs:
- Incorrect Commission Rates: Double-check that you’re being paid at the agreed-upon rate. Sometimes payroll systems apply outdated commission rates or tier thresholds.
- Missing Sales or Deals: Ensure that all of your sales or qualifying deals are reflected in the commission calculation.
- Late Commissions: Depending on your company’s policy, you may earn a commission in one pay period, but it might not appear until a later period. Understand your company’s payment schedule to avoid confusion.
If you notice any discrepancies, it’s essential to raise the issue with your employer immediately. Keep track of your sales, commissions, and any agreements about how they’re calculated so that you have documentation to back up your inquiries.
Using a Free Paystub Maker to Track Commissions
If you’re self-employed, a contractor, or even a small business owner, you might not have the luxury of a payroll department to create paystubs for you. This is where a free paystub maker can come in handy. Tools like these allow you to create professional paystubs that include line items for both salary and commission earnings. By using a free paystub maker, you can stay organized and maintain clear financial records, which is crucial for tax time, budgeting, or any audit situation.
Moreover, if you’re an independent contractor or freelancer, generating your own paystubs ensures you have detailed documentation of your earnings, making it easier to track commissions and deductions.
How Taxes Affect Commissions on Your Paystub
One aspect of commissions that might take you by surprise is how they’re taxed. The IRS views commissions as supplemental wages, meaning they can be taxed at a different rate than your regular earnings. Depending on your total income, your commission might be taxed at a flat percentage or your normal tax rate.
Here’s how it works:
- Flat-rate withholding: Some employers will withhold a flat 22% from commission payments as mandated by the IRS.
- Aggregate method: This method lumps commissions with your regular pay, and taxes are withheld based on your total earnings for that pay period.
Understanding how your commission is taxed will help you avoid any confusion when looking at your net pay on your paycheck stub.
Why You Should Keep Paycheck Stubs for Tax Season
Come tax season, your paycheck stubs serve as crucial documentation of your earnings, including any commissions. These stubs will detail how much was earned in commissions and how much was withheld for taxes. Keeping accurate records will make filing your taxes easier, as well as give you the ability to quickly reference any discrepancies.
If you’re self-employed or run a business where you pay others commission, using a free paystub maker to generate paystubs will ensure you have all the documentation you need when it’s time to file taxes.
