TECHNICAL GLOSSARY

What Is an Earnings Statement?

Commonly referred to as a pay stub, paycheck or pay slip, an earnings statement is an important document all employers must provide employees either at the time of an employee’s payday or before. In the United States, earnings statements are critical to payroll transparency and tax reporting as well as ensuring compliance with laws governing employment.
An employee’s earnings statement contains a detailed account of the employee's compensation during a certain pay period. For example, it will lay out the method in which gross wages are determined, the deductions from gross wages and the net amount the employee is entitled to receive. Many financial institutions will require an earnings statement as a type of proof of having sufficient income when applying for a car loan, home loan, mortgage or any type of credit facility.

Key Information Included in an Earnings Statement

A standard earnings statement in the United States lists the following components:

1. Gross wages -
   All gross pay that has been paid or will be paid to an employee. This may include other compensation not normally associated with wages.
2. Net wages -
   Such as, federal income taxes withheld, Social Security taxes withheld, Medicare FICA (Federal Insurance Contributions Act), as well as state/local taxes withheld from pay check.
3. Payroll deductions -
   Any payroll deductions made for employer voluntary contributions (typically through direct deposit), such as retirement plan contributions (401(k)), health care (medical, dental, vision), life insurance, disability insurance, etc.
4. Total Hours Workd -
   All hours worked (both regular and overtime).
5. Additional Pay for Overtime/Extra Shift -
   The amount of additional pay for overtime (as defined under the Fair Labor Standards Act) as well as for any extra shifts worked.
6. Year to Date Totals - Cumulative earnings as well as cumulative deductions to date for the calendar year.

W2 Statements (Earnings Statements/W2) can be used as evidence for an employer's compliance with payroll and labor laws. Employees will utilize them for preparing their tax returns (IRS Forms) as well as to assist with anticipating future financial obligations

What Is a Retained Earnings Statement?

A retained earnings statement details the changes in a corporation’s retained earnings for a certain accounting period and is an important part of the overall financial statements for performing entities. Retained earnings are the portion of net income that the business has kept, which it has not distributed to its (1) owners, or (2) stockholders as dividends.
The retained earnings statement is particularly significant for corporations, expanding businesses, and businesses attempting to secure business loans or investors' investments. This statement provides a clear picture of the extent to which the corporation has reinvested its profits back into itself or has distributed its profits to its shareholders.

Information Included in a Retained Earnings Statement

What is a typical retained earnings statement made up of? It generally consists of:

• Your starting retained earnings balance is brought forward from the previous reporting period
• Your net income (or loss) — derived from your company's income statement
• Any dividends that were declared and paid to shareholders (or owners)
• Your ending retained earnings balance, as related to the period in question

Retained earnings statements give you information about your company’s financial strength, and how it plans to grow for the long-term.