Types Of Payroll Deductions

 10 Aug 2017

Payroll deductions are made from the employees’ pay-checks every month. There is a difference between an employees’ gross pay and their net pay because of the deductions subtracted. The two types of payroll deductions are

  • Mandatory payroll deductions
  • Voluntary payroll deductions
  • Mandatory payroll deductions

Employers are supposed to withhold the payroll taxes from their employees’ wages and are required to submit them to the tax agencies, by law. If you fail to pay payroll taxes, it can lead to penalisation. Therefore, taxes are statutory employee deductions from payroll.

Student loan repayments

Employers can use their payroll system:

  • To make records if the employees need to make student loan repayments. This should be included in both, into the system as well as on the payslips.
  • To calculate and deduct the total amount that the employees need to repay (9% of their income above £17775 a year for Plan 1 or £21000 a year for plan 2).


It is the responsibility of the employer that pension deductions are made after any employee takes a National Insurance. Usually pension deductions are made before National Insurance is taken and therefore for this purpose employees might have to check with their workplace pension provider. As an employer, you are even needed to pay any employer contributions into your employee’s pension scheme.

A new law that is implemented by the government states that all employers will have to provide and pay into a workplace pension scheme for their employees. This scheme is termed as automatic enrolment.

Payroll giving

By using payroll giving, employees can choose to donate to charities directly from their pay before the tax is deducted. To use this scheme, you can register with a payroll giving agency where they will help you know how to make these deductions. Also, along with usual payroll records employees must also keep the agency contract, employee authorisation forms and details of the payments to the agency.

Child maintenance

You may be required to deduct child maintenance directly from the paying parent’s earnings or pension.

  • Voluntary payroll deductions

As an employer, you might need to withhold some extra money from your employee’s pay in addition to the mandatory payroll deductions. For voluntary payroll deductions, employers need consent from their employees.

Health insurance premiums

These deductions are varied based on what the employers are offering at their business and according to the plan your employee chooses. Health insurance covers doctor visits and prescriptions.

Retirement plans

As an employer if you are offering retirement plans to your employees, they can opt into having money withheld for a personal retirement plan. This money that the employees will be contributing in the retirement plan will eventually benefit them once they retire.

Life insurance premiums

It is completely the choice of the employees if they want money to be deducted for the purpose of a life insurance premium. In the event of an employee passing away, the life insurance will provide the noted beneficiaries with the payment.