Learn Which Payroll Deductions Are Mandatory And Which Are Voluntary

Some required deductions, like taxes, are easy, while others demand knowing laws well

Payroll Deductions

Managing payroll deductions is a challenging task—some are mandatory, some are voluntary, some are controlled by the employee, some aren’t, and together they can create a potential minefield of withholdings. Complying with these means knowing how to handle federal and state tax levies, voluntary wage assignments for employer loans, and touchy subjects like shortages and breakages.

Everyone from Human Resources to the CEO needs to know about these payroll details, says payroll pro Vicki M. Lambert. In her webinar for AudioSolutionz, “Payroll Deductions: What You Can & Can’t Deduct From Employee Wages,” Lambert states that anyone handling payroll also needs to now about granular details like child support, creditor garnishments, and employer overpayments to protect their company from financial missteps.

Mandatory Payroll Deductions Include Taxes And Court-Ordered Findings

Both state and federal laws cover employee wages law. Federal wage and hour laws are found in the Fair Labor Standards Act, which was first written in 1938 and has been updated periodically over the years. The act covers minimum wage, overtime, child labor, hours worked, and recordkeeping rules.

State laws may mirror federal rules or supplement them. Minimum wages are higher, for example, in about half of the nation, but can have varying qualifiers based on company size and employment classification.

Mandatory payroll deductions, according to The Balance, include:

  • Federal income tax
  • State income tax
  • Local city or county income tax or local taxes, including those for school districts, state disability, or unemployment insurance
  • Social security taxes
  • Medicare tax withholding

Withholdings which are court-mandated are also mandatory, notes the federal Department of Health and Human Services – even if the employee disputes them to you.

“By law, until otherwise notified, an employer must comply with the terms of the withholding order as issued,” the agency notes on a Q and A page.  “If your employee disagrees with the withholding, he or she should contact the state child support agency or court that issued the order.”

Trickier Examples: What To Do When You Advance Pay To An Employee

Other deductions require more interpretation, notes the legal assistance website Nolo. Among those are instances where an employer advances money to a worker.

“Under federal law, you may deduct an advance from your employee’s paycheck,” the site notes. “However, you may not deduct so much that it reduces your employee’s pay to less than the hourly minimum wage ($7.25, currently). For low-wage employees, this means you may need to spread the repayment period out over several paychecks.”

But before entering any calculations, employers should double-check that their state does not impose additional rules.

The Balance also notes that some deductions are strictly prohibited, including:

  • Employment taxes required to be paid by the employer
  • The cost of bonding an employee
  • Service charges or fees for garnishments—though some states may allow these

Some deductions can be made without an employee’s consent, but these are cases where employers need expert advice. Are your employees exempt or non-exempt? You may need to know that to understand how to handle the following deductions:

  • Lost or damaged tools
  • Cash shortages
  • Uniforms or uniform cleaning
  • Interest owed when an employee takes a loan

You can bet that your employees look at their paychecks with a careful eye, says Lambert in her AudioSolutionz webinar. Payroll deductions are one area where you can’t afford to slip up.

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Jeff Schmerker
About Jeff Schmerker
Jeff has extensive professional experience writing on a variety of topics, from pharmaceutical research to environmental history. He has published more than a half-dozen books, and he has worked as a newspaper reporter, magazine editor and restaurant reviewer. He lives in Missoula, Montana with his wife and son.