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
Set a Cap for the deduction amount
Set the Dates the deduction will apply from or to
Click the Create button
Capped Deductions
Deductions can be capped, meaning you can set a maximum amount that will be deducted over time. Once the total amount deducted reaches the cap, the deduction will stop applying.
This allows for more control over deductions, ensuring they only apply until the specified limit is reached. As each pay run is posted, the "Amount Paid So Far" will be updated to help track progress toward the cap.
Date-Driven Deductions
Deductions can be date-driven, meaning you can set a start date for either a deduction template or a recurring tax template to begin applying and another date for the template to finish applying.
This provides greater flexibility in managing deductions and ensures they are applied only during the relevant period.
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.
