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What Are Statutory Deductions?

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  • Written By: K. Kinsella
  • Edited By: Shereen Skola
  • Last Modified Date: 22 November 2016
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Statutory deductions are sums of money that employers are required by law to withhold from employees' paychecks. In many countries, income taxes are among the statutory deductions that employers are required to make under national or regional laws. Other types of deductions cover the cost of health insurance plans, pension funds and debt payments.

Salaried and hourly employees in many countries normally receive a pay slip that details both a gross wage and a net wage for the current pay period. A gross wage is the amount of the money that the employer paid the individual before statutory deductions and optional withholdings were deducted. The net wage is the sum of money that the employee actually receives. In some instances, employers miscalculate income tax withholdings and at the end of the tax year affected employees may either receive a tax rebate or receive a bill for past due taxes.

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Some countries have a national health service and workers fund this program with statutory deductions. Additionally, national pension plans are often funded with wage deductions and some countries also fund unemployment insurance programs with these payments. Some worker's wages are subject to both national and regional deductions that fund overlapping pension programs and other types of government sponsored plans. Workers who receive tips or commissions are normally expected to make contributions towards such programs, but since their wages are subject to fluctuation many government agencies encounter difficulties when attempting to collect money from those without a steady rate of pay.

Aside from deductions that are tied to government programs, some statutory deductions are court ordered. In many areas, judges have the ability to authorize paycheck garnishments when creditors sue borrowers who have fallen behind on their debt payments. Employers must abide by the court order and make arrangements to have some of the impacted employee's wages sent directly to the creditor. Some people with serious financial problems end up having several separate debt related deductions withheld from each of their paychecks.

In addition to collecting past due debts, judges in many areas have the authority to order employers to make statutory deductions when workers renege on their financial obligations. Individuals who fail to make child support or alimony payments often end up having their wages docked. In some instances, the deductions stop if these individuals agree to honor their financial obligations in the future but in other instances, a judge may order an employer to keep docking an individual's wages indefinitely to ensure that payments are made on a timely basis.

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