Most workers are well aware of how much money they receive per pay period, but not many people know anything more about the paycheck. Understanding payroll services and how people get paid in the U.S. might help you make the most of your paycheck.
With that in mind, check out these 10 interesting facts about the paycheck you might not know — but should.
Most Workers Get Paychecks Through Direct Deposit
It’s rare for workers to get an actual paycheck these days. Instead, most employees — 82 percent, to be exact — are paid by direct deposit, according to a survey by electronic payments association NACHA and America Saves, a campaign managed by the Consumer Federation of America.
There are many perks of direct deposit. “Consumers trust the electronic deposit of their payroll because it is a fast, safe and secure method to receive their pay, and it helps them to better control their finances with timely and predictable availability of funds,” said Janet O. Estep, president and CEO of NACHA, in a press release.
Plus, with direct deposit, money can be directed into multiple accounts. So you can designate that a certain amount of your paycheck go into a savings account each month, which is a great way to ensure that you pay yourself first.
If you’re paid by direct deposit, there’s also a chance that your paycheck is bigger than that of workers who aren’t paid by direct deposit. NACHA found that employees who are paid by check are more likely to be adults ages 18-24, part-time workers and workers who earn less than $50,000 per year.
Tips and Tricks: How to Always Pay Yourself First
Most Employees Get Paychecks Weekly or Every Two Weeks
Companies use a variety of pay periods: weekly, biweekly, semi-monthly and monthly. The most common pay period is biweekly, with about 37 percent of private businesses paying employees every two weeks, according to the Bureau of Labor Statistics (BLS).
However, weekly paychecks are almost as common. According to the BLS, 32 percent of private businesses pay employees every week. About 20 percent of business pay semi-monthly, which means they issue paychecks twice a month. And just 11 percent pay employees monthly.
States actually have laws regulating how often employees get paid. In fact, all states except Alabama and South Carolina have payday requirements, according to the U.S. Department of Labor. Most states require companies to pay workers at least semi-monthly.
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Employees Who Get Weekly Paychecks Often Earn Less
If you get your paycheck weekly, you’re likely earning less. According to the BLS, the hourly earnings of employees who are paid weekly average less than $20. Businesses might use this pay period in an effort to pay lower-wage workers more frequently, according to the BLS.
On the other hand, employees who get a semi-monthly or monthly paycheck tend to earn the highest average wages. According to the BLS, employees on either pay period earn an average of about $30 an hour. Employees who get a biweekly paycheck earn an average of $25 an hour.
Despite the potentially bigger paycheck you might be getting if you’re paid semi-monthly or monthly, there can be drawbacks to getting paid less frequently. Without careful budgeting, you might find it hard to stretch your paycheck through to the next pay period.
Additionally, a larger percentage of taxes will come out of your paycheck if you’re paid monthly — about 2.17 times more than if you were on a biweekly schedule. Of course, this shouldn’t have a meaningful effect on a paycheck, as the employee is also paid about 2.17 times more when paid monthly than biweekly.
You Have a Right to Minimum Pay
Federal law ensures workers get at least a minimum wage. The minimum wage was created by the Fair Labor Standards Act of 1938 and originally was 25 cents per hour, according to the Department of Labor.
The national minimum wage is currently $7.25 per hour, the same it’s been since 2009. However, it can be lower for some workers. Employers must pay workers younger than age 20 at least $4.25 per hour. And employers of tipped employees — those who regularly get more than $30 a month in tips — must pay them at least $2.13 per hour, according to the Department of Labor.
States and cities can set their own minimum wage, which can be higher than the federal minimum. In 2017, 19 states and the District of Columbia increased their minimum wage. Massachusetts and Washington now have the highest minimum wage at $11 per hour. However, it’s even higher in some cities.
The minimum wage in Washington, D.C., rose to $12.50 per hour in July 2017. Seattle’s minimum wage rises to $15 this year for employers with more than 500 workers that don’t provide health insurance and in 2018 for employers that do provide health coverage.
Minimum Wage Around the World: Where Does the U.S. Rank?
Not Everyone Qualifies for Overtime Pay
If you work 50, 60 or more hours a week, you’d think your paycheck would be bigger for putting in more time at work. But not everyone qualifies for overtime pay.
If you’re classified as a nonexempt employee under the Fair Labor Standards Act, you must be paid at least one and a half times your regular rate for hours you worked in excess of the standard 40 per week, according to the Department of Labor. What’s a nonexempt employee? Typically, you meet this definition if you work for a company with more than $500,000 in annual dollar volume or work in interstate commerce, produce goods for interstate commerce or even handle or sell goods that have been moved or produced for interstate commerce. The law also applies to some employers regardless of their dollar volume, such as hospitals, institutions, schools and federal, state and local government agencies.
You aren’t entitled to overtime pay if you have a position that is exempt. This includes executive, administrative and professional employees who are paid on a salary — rather than hourly — basis, independent contractors, some computer specialists and sales people who regularly work away from an office, as well as select others.
FICA Takes 6.2% of Your Paycheck
It can be a shock when you get your first job to discover that your paycheck is much smaller than the amount you were told you’d be paid. When you read your pay stub, you’ll see that federal and state taxes are withheld. You’ll also see that a share goes toward FICA taxes.
FICA — the Federal Insurance Contributions Act — includes Social Security taxes and Medicare taxes. The total tax rate for both is 15.3 percent, but employees and employers split the bill. Each pays a 6.2 percent rate for Social Security tax and a 1.45 percent rate for Medicare tax.
If you’re self-employed, you have to foot the entire tax bill on your own. However, you can deduct half of these self-employment taxes on your tax return.
Most everyone has to pay FICA taxes, including nonresident aliens. However, students don’t have to pay FICA taxes on wages earned through a campus job. And there is a wage base of $127,200 for the Social Security tax, which means income that exceeds that amount isn’t taxed. So if you get a big paycheck, some of your earnings might escape the Social Security tax.
Most Employees Let the IRS Take Too Much Out of Their Paychecks
The tax bite out of your paycheck likely doesn’t have to be as big as it is. That’s because most people let the government withhold too much in taxes. How do you know if you’re letting Uncle Sam withhold too much? If you get a big refund each year.
This year, about three-quarters of taxpayers got a refund, according to the IRS. The average amount was $2,769. If you got a refund of that size, you could be adding about $231 back to your paycheck each month if you adjusted your tax withholding.
To reduce your withholding and boost your paycheck, fill out a W-4 Form with your employer to adjust the number of allowances you’re claiming. The more you claim, the less will be withheld in taxes. The IRS Withholding Calculator at IRS.gov can help you figure out the number of allowances you’re entitled to and how many you should claim.
Where Workers Are Taxed Most: How Much Money Gets Taken Out of Paychecks in Every State
Paychecks Aren’t Keeping Up With Inflation
Paychecks for U.S. workers have been growing, but they haven’t been growing fast enough to outpace inflation.
Wages have risen 112.3 percent in the U.S. since 2006, according to PayScale, a database of salary information. However, when inflation is factored in, real wages have fallen 7.5 percent, according to PayScale’s Real Wage Index. That means that even though your paycheck might be bigger than what it was 10 years ago, it buys you less.
If you’re getting only a small cost-of-living increase in pay each year, you should try to negotiate a bigger pay raise. More than half of workers have never negotiated for a higher salary, according to PayScale’s Salary Survey. However, PayScale found that 75 percent of employees who asked for a raise received a pay increase. You can use websites like PayScale or Glassdoor to see what the going rate is for someone in your position, and then ask for what you’re worth.
Men Get Bigger Paychecks Than Women, on Average
Your paycheck might be smaller if you’re a woman. Women working full-time are paid, on average, just 80 percent of what men are paid, according to the American Association of University Women (AAUW).
The pay gap between women and men tends to be worse in Southern and Midwestern states. It’s especially wide for women of color — not just in one region but across the U.S., African American women are paid 63 percent of what white men are paid on average. And Hispanic and Latina women are paid just 54 percent, according to AAUW.
Overall, the pay gap has been getting smaller since the 1970s, as women’s education levels have risen and they’ve joined the workforce at higher rates. However, based on the rate of change from 1960 to 2015, AAUW estimates that women won’t reach pay equity with men until 2059.
To earn more, women should avoid making big career mistakes, such as not negotiating a higher salary.
Nearly Half of Americans Live Paycheck to Paycheck
A recent GOBankingRates’ survey found that 49 percent of Americans currently are living paycheck to paycheck. For some, low wages might play a role in their struggle to make ends meet. However, even high-wage earners can find themselves living paycheck to paycheck because of bad financial habits.
The biggest reason people believe they are living paycheck to paycheck is because of debt, according to a survey by the National Endowment for Financial Education. If you’re struggling to make ends meet because of what you owe, you can make paying down debt a priority by dedicating a portion of each paycheck to it.
Set up automatic payments for your debts to be paid within days of getting your paycheck so you don’t have a chance to blow that money on something else. And make sure the amount you’re paying is more than the minimum to wipe out what you owe quickly.
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About the Author
Cameron Huddleston is an award-winning journalist with more than 18 years of experience writing about personal finance. Her work has appeared in Kiplinger’s Personal Finance, Business Insider, Chicago Tribune, Fortune, MSN, USA Today and many more print and online publications. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances.
U.S. News & World Report named her one of the top personal finance experts to follow on Twitter, and AOL Daily Finance named her one of the top 20 personal finance influencers to follow on Twitter. She has appeared on CNBC, CNN, MSNBC and “Fox & Friends” and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR, WTOP in Washington, D.C., KGO in San Francisco and other personal finance radio shows nationwide. She also has been interviewed and quoted as an expert in The New York Times, Chicago Tribune, Forbes, MarketWatch and more.
She has an MA in economic journalism from American University and BA in journalism and Russian studies from Washington & Lee University.