What's covered in this guide?
What is a deduction?
Deductions are amounts taken from an employee’s gross pay, either due to statutory requirements (like tax and National Insurance) or based on agreements between the employer and the employee. Deductions may also be made for benefits that are genuinely advantageous to the employee (e.g., pension contributions).
Examples of Deductions:
Statutory Deductions: Income Tax, National Insurance, and Student Loan repayments.
Voluntary Deductions: Pension contributions, salary sacrifice for benefits.
Access deduction types
You can view and manage deduction types through Payroll > Payroll Settings > Deduction Types.
Create a deduction type
Navigate to Payroll > Payroll Settings > Deduction Types and click the + New button.
When creating a new deduction type, enter the following fields:
Name (as it will appear on the payslip)
Journal account (choose from any accounts set up in your journal)
Pre-Tax Deduction: tick the 'Pre-Tax Deduction' box to confirm if the deduction reduces taxable income. This is typically used for pension contributions, and other similar deductions that should be made before tax is calculated.
Click the Create button to save.
Assign deductions to employees
Once a deduction has been created, add it to the profiles of the applicable employees.
Navigate to Payroll > Staff tab
Select the employee from the list
Click + Add next to the Deductions section
Select the relevant Payroll deduction type from the drop down list
Enter the Fixed amount or Percent of Income to be taken when the deduction is applied
Click the Create button
There are various scenarios in the UK where deductions are applied. Some deductions are based on a fixed amount, while others are calculated as a percentage of the employee's income or specific premiums (e.g., pension contributions, salary sacrifice schemes).
If you're unsure about how a deduction works in your case, it’s advisable to check with your employer’s HR or benefits administrator for clarification based on your specific plan.
How deductions appear on pay runs
After assigning deductions to relevant employees, the deductions will appear on their pay runs.
To view the applying deductions:
Navigate to the current pay run through the Run Payroll tab
Select an employee from the list included in the pay run
Scroll down to view which deductions are applying, what account they’re paid out of, and the amount being deducted
How deductions appear on payslips
Employees with deductions applying to their wages will have this clearly visible on their payslips, including the deduction type/name and the amount.
Payslips can be previewed in each employee’s individual pay run summary.
Once the payslip is downloaded, find the Deductions section under Tax.
