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Global Work Glossary

What are common payroll deductions?

Payroll deductions are a critical aspect of managing employee compensation, ensuring various taxes, benefits, and garnishments are properly accounted for. Here's a detailed overview of how payroll deductions work, including different types, calculations, and frequently asked questions:

What are Payroll Deductions?

Payroll deductions refer to earnings withheld from an employee’s paycheck to cover taxes, benefits, and garnishments. These deductions are subtracted from gross pay to determine net pay, impacting the amount an employee takes home.

How Payroll Deductions Work:

  • Employer Responsibility: Employers withhold mandatory deductions from employee paychecks, facilitated by payroll software.
  • Employee Authorization: Employees provide written authorization for voluntary deductions, outlined on Form W-4.
  • Types of Deductions:
  • Pretax Deductions: Withheld before federal taxes, reducing taxable income.
  • Statutory Deductions: Mandatory payments to government agencies.
  • Post-tax Deductions: Withheld after taxes, reducing net pay.
  • Voluntary Deductions: Chosen by employees for benefits or donations.
  • Wage Garnishments: Court-ordered deductions for various expenses.

Calculating Payroll Deductions:

  • Acquire W-4 Forms: Gather forms from employees to determine deductions.
  • Calculate Gross Pay: Determine total earnings based on salary or hourly wages.
  • Adjust for Overtime: Account for any overtime owed to employees.
  • Calculate Taxes: Determine federal, state, and FICA taxes based on guidelines.
  • Subtract Deductions: Deduct mandatory and voluntary deductions to calculate net pay.
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