What Are Employee Payroll Deductions?

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  • Written By: B. Miller
  • Edited By: Andrew Jones
  • Last Modified Date: 16 September 2019
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Employee payroll deductions refer to the funds that are withheld from an employee's paycheck by his or her employer. Some of these are voluntary deductions, such as funds withheld to pay for health insurance or retirement fund contributions. Other employee payroll deductions may be required by law, depending on the country in which an individual lives. Deductions to pay government taxes or to contribute to certain programs, for instance, may be automatically withdrawn from the paycheck. The amount of these deductions may be adjusted in some cases by the employee; for instance, a single person may opt to have less withheld than a married person.

Voluntary employee payroll deductions are largely designed to make it easier for employees to pay certain expenses, or to save for retirement, and they frequently offer tax benefits as well. This occurs when payroll deductions are taken pre-tax, as this prevents the individual from having to pay income taxes on this money. The most common voluntary employee payroll deductions are those for group health insurance, as well as life insurance if it is offered by the company. Contributions to retirement accounts, health savings accounts, or investment plans -- such as to purchase company stock -- are also common.


An employee's pay stub will show the amount of these voluntary payroll deductions that have been taken, to allow him or her to verify that the amounts are correct. Typically, an employee may make changes to these deductions if he or she desires, though some companies will only allow insurance changes once per year, during a period known as open enrollment. The only exceptions to this open enrollment period are when a major life change occurs, such as a marriage, divorce, or the birth of a baby, for example.

Mandatory employee payroll deductions are often included on paychecks as well, as the employer withholds certain taxes or fees, and then pays them to the government on behalf of the employee. This can include a portion of income tax as well as state taxes where applicable, as well as contributions to certain social programs, such as government-sponsored health insurance or retirement plans. The amount of taxes withheld may be adjusted based on an individual's marital status in some cases. Other required mandatory payroll deductions might be company-specific; for instance, if the employees in a company participate in a union, or are required to pay fees for certain benefits such as uniforms, these funds may be automatically withdrawn from a paycheck.


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