Payroll vs. Paycheck: Key Differences
Payroll is the entire system and process an employer uses to compensate employees. It includes calculating wages, withholding taxes, processing deductions, maintaining records, and distributing payments. Paycheck is the end result of payroll processing — the actual payment an employee receives.
Think of it this way: payroll is the engine that runs behind the scenes, while your paycheck is the output you see every pay period.
What Does Payroll Include?
- Wage calculation — computing hours worked, overtime, bonuses, and commissions for each employee
- Tax withholding — calculating and deducting federal income tax, state income tax, Social Security (6.2%), and Medicare (1.45%) based on each employee’s W-4 and earnings
- Employer taxes — the company’s share of FICA (matching your 7.65%), FUTA (federal unemployment), and SUTA (state unemployment) taxes
- Benefits administration — processing health insurance premiums, 401(k) contributions, HSA/FSA deductions, and other benefit-related withholdings
- Compliance — ensuring the company follows federal and state labor laws regarding minimum wage, overtime, and reporting requirements
- Record keeping — maintaining pay records, tax filings (Form 941, W-2s, 1099s), and employee information
What Appears on Your Paycheck (Pay Stub)
Your pay stub is a detailed breakdown of how your gross pay becomes your net pay. A typical pay stub includes:
- Gross earnings — your total pay before any deductions (regular hours, overtime, bonuses)
- Federal income tax withheld — based on your W-4 elections and the IRS tax brackets
- State and local taxes — based on your state’s income tax rates
- Social Security and Medicare (FICA) — always 7.65% of gross wages (combined)
- Pre-tax deductions — 401(k), health insurance, HSA/FSA contributions
- Post-tax deductions — Roth 401(k), life insurance, union dues, garnishments
- Net pay — the final amount deposited to your bank account or printed on your check
- Year-to-date totals — cumulative figures showing total earnings and deductions for the calendar year
Why Understanding Both Matters
Payroll errors are more common than you might think. The IRS estimates that 33% of employers make payroll mistakes each year, resulting in incorrect tax withholding, missed overtime pay, or wrong deduction amounts. By understanding the payroll process and carefully reviewing your pay stub each period, you can catch errors early and ensure you are being paid correctly.