Deductions Definition
Deductions are a crucial aspect of payroll and benefits management that HR professionals must be well-versed in. Essentially, deductions refer to any amount of money that is withheld or subtracted from an employee’s paycheck before it is issued. This can include various items such as taxes, insurance premiums, retirement contributions, or other agreed-upon payments.
Types of Deductions
Different types of deductions can be made, including mandatory deductions that are required by law, such as federal and state taxes, Social Security, and Medicare. Voluntary deductions, on the other hand, are optional deductions that employees can choose to have taken out of their pay, such as health insurance premiums, retirement plan contributions, or charitable donations.
Key Features of Deductions
One key feature of deductions is that they are typically calculated as a percentage of an employee’s gross pay. This means that the actual amount deducted can vary based on factors such as salary, tax bracket, and benefit elections.