Running a business with even one employee comes with a lot of responsibility, especially when it comes to payroll. One of the most common challenges business owners face is fielding repeated questions from employees about their paychecks. These questions may seem repetitive or overwhelming, but they reflect employees’ need to understand how they’re compensated and taxed. A well-informed team is a more confident and trusting one—so it’s in every employer’s best interest to have clear, accurate answers ready.
Here are the five most common questions employees ask about their paychecks, and how you can effectively respond to them.
1. Why Are There No Taxes Coming Out of My Paycheck?
This question often arises when employees receive a paycheck with little or no tax withheld, which can be alarming or confusing. Typically, there are two main reasons for this:
Insufficient Earnings: If the employee hasn’t earned enough during a pay period, their income may fall below the federal threshold that requires tax withholding.
W-4 Form Choices: More commonly, the employee may have selected a filing status or claimed a number of dependents or deductions on their Form W-4 that reduces their tax withholding significantly. For example, if they claimed “Exempt” or a large number of allowances, federal taxes may not be withheld.
In either case, it’s important to point out that employers are legally required to follow the information submitted on the employee’s W-4, even if it's incorrect. If an employee is concerned about their withholding, advise them to review and update their W-4.
2. What Are All These Deductions on My Paycheck?
Employees are often surprised by how much is taken out of their gross pay. Deductions generally fall into two categories: mandatory and optional.
Mandatory Deductions
These are required by law and include:
Federal Income Tax: Determined by the employee’s W-4 and annual salary.
FICA (Social Security Tax): 6.2% of gross income is withheld, and you, as the employer, must match that amount.
Medicare Tax: 1.45% of gross income is also withheld, with the employer contributing the same.
State Income Tax: Depends on the state. Nine states do not have a state income tax—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Employers in those states are not required to withhold state income tax, even if an employee lives in a state that does. However, complexities can arise with remote employees who live and work in different states.
Optional Deductions
These typically require written employee authorization and include:
Health Insurance Premiums
Retirement Plan Contributions (e.g., 401(k))
Union Dues
Voluntary Benefits like life insurance or accident protection
Employees must give written permission for all deductions beyond the legally mandated ones, which is why accurate and complete W-4 forms are so essential.
3. When Can I Get My W-2?
Employees may start asking for their W-2 forms as soon as January rolls around. While most W-2s are available by early January, it's wise to wait until mid-January before distributing them to allow time for final payroll adjustments and error corrections.
The IRS requires that employers provide W-2s to employees by January 31 each year. However, the preparation of W-2s involves a year-long reconciliation of wages, taxes, deductions, and employer contributions—not just filling out a simple form.
Let your employees know that producing accurate W-2s is a complex process that ensures they’ll be able to file their taxes correctly and avoid unnecessary headaches.
4. Why Don't I Get Overtime Pay When I Get Holiday Pay?
Many employees confuse holiday pay and overtime pay, but they are calculated differently.
Overtime Pay is earned for any time worked beyond 40 hours in a standard workweek. It is typically calculated at 1.5 times the regular hourly rate.
Holiday Pay is provided when a business closes for a holiday and still pays employees for that day. These hours do not count as hours worked toward overtime.
Example: If an employee works 36 hours and also receives 8 hours of holiday pay, the total is 44 paid hours, but only 36 are worked. Since the worked hours don’t exceed 40, no overtime is owed.
Some companies offer holiday premium pay when employees work on holidays, and those hours do count toward the 40-hour threshold for overtime eligibility.
5. What Does "Exempt" Status Mean?
Understanding the difference between exempt and non-exempt status is essential for correctly determining eligibility for overtime pay.
Exempt employees do not receive overtime pay, regardless of hours worked beyond 40 per week.
Non-exempt employees are entitled to overtime pay under the Fair Labor Standards Act (FLSA).
However, exempt status isn’t based on whether someone is salaried—it depends on job duties and salary level. Exemptions are typically reserved for employees in administrative, executive, professional, or outside sales roles. These exemptions are determined by the primary duties performed, not job titles.
Hourly employees are almost always non-exempt, meaning they must be paid overtime for any hours worked over 40 per week.
Questions
Answering these common paycheck questions is part of being a responsible employer. While payroll can be complex, taking the time to explain taxes, deductions, and compensation clearly helps foster transparency, build trust, and reduce confusion within your team. Whether you're handling payroll yourself or relying on a professional service, understanding the basics equips you to respond confidently and keep your employees informed. If you have any questions, please feel free to reach out to TrueBlaze Advisors.