Payroll deductions refers to the amount deducted from the employee’s paychecks each pay period. Due to these deductions, an employee’s gross salary is different from their net or take-home salary. Payroll deductions can be of 2 types –
• Mandatory payroll deductions
These are the deductions that employers are required to withhold from the employee pay by law and submit to the respective tax agencies. These taxes are generally statutory employee deductions from a payroll software.
Examples of mandatory payroll deductions include federal income tax and other state & local taxes.
• Voluntary payroll deductions
These are the deductions that require employee consent to withhold extra money from employee wages. Some of the examples of voluntary payroll deductions include –
• Life insurance premiums
An employee can choose to have payroll deductions taken out of their monthly paychecks to go towards a life insurance premium.
• Health insurance premiums
Health insurance deductions generally vary depending on what plan the employee chooses and what plan is offered by the employer.
• Job-related expenses
If the employer charges the employee any job-related expenses such as meals, uniforms, etc., the same will be deducted from the employee’s paychecks.