Payroll Deduction | Meaning and Definition

What is payroll deduction?

Earnings deducted from an employee’s paycheck for the payment of taxes, benefits, or withholdings are known as payroll deductions. Payroll deductions are both required and optional. Since certain deductions are made pre-tax, and others are made post-tax, the sequence in which they are taken out of paychecks is also important.

Employees can donate revenue automatically to an ongoing cost or investment through payroll deduction arrangements. Some payroll deduction arrangements may also include systematic, voluntary payroll deductions for the acquisition of common stock.

Voluntary Payroll Deductions

  •   Health Insurance Plans – Deductions for health insurance will vary depending on what you provide at your small business and which plan your employee selects. Doctor visits and medicines are covered by health insurance.
  •   Retirement Plans –  If you have a retirement plan, your employee might choose to have money deducted from their paycheck for a personal retirement fund. An employee’s current contributions will benefit them when they retire.
  •   Life Insurance Plans – Employees can choose to have money deducted from their wages to pay for life insurance premiums. Your employee’s life insurance pays out to their beneficiaries in the case of their death.
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