How do I create a new Deduction?

Updated on Jun 12, 2023

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Deductions

A payroll deduction refers to the amount of money that is subtracted or withheld from an employee's gross pay, resulting in a lower net pay. These deductions are typically made to cover various expenses or obligations, such as taxes, benefits, and voluntary contributions. Payroll deductions are authorized by the employee and are typically specified in their employment agreement or governed by applicable laws and regulations.

Here are some common types of payroll deductions:

Income taxes: Payroll deductions are often used to withhold local income taxes from an employee's earnings. The amount withheld is based on the employee's income, filing status, and the tax withholding rates determined by tax authorities.
National Insurance / Social Security: These are payroll deductions that fund the National Insurance or Social Security in the Caribbean and Latin America. Both the employer and employee contribute a percentage of the employee's earnings to these programs.
Health insurance premiums: If an employee receives health insurance coverage through their employer, payroll deductions may be made to cover the employee's share of the premiums. The deducted amount varies based on the insurance plan chosen and the employee's coverage level.
Retirement contributions: Employees participating in employer-sponsored retirement or pension plan, may have payroll deductions made to contribute a portion of their earnings towards retirement savings. These deductions are often matched by the employer up to a certain percentage.
Union dues: In unionized workplaces, employees who are members of a labor union may have payroll deductions made to cover their union membership dues.
Loan repayments: If an employee has taken out a loan from their employer, such as a student loan or a company loan, payroll deductions can be made to repay the loan in installments.
Voluntary benefits and contributions: Employees may have the option to contribute to additional benefits or programs, such as charitable contributions, or employee stock purchase plans. These deductions are typically voluntary and require the employee's authorization.

Payroll deductions are important for both employees and employers to ensure accurate and timely payment of various obligations. Employers are responsible for correctly calculating and remitting these deductions to the appropriate recipients, such as tax authorities or benefit providers, as per legal requirements.

Steps to create a Deduction:

Create a new deduction.
Enter the Deduction Details
Link the deduction to a company.
Enter the Company Link Details

Step 1: Create a New Deduction Record

Step 2: Enter the Deduction Details

Deduction Code: Enter an acronym for the Deduction Description.

Deduction Description: Enter the name of the deduction. E.g. NIS, Net Pay, PAYE, etc.

Account Code: Money is paid out from an employee's pay to this GL account number. This is normally the clearing account that the employee's contribution to a deduction is paid from.

Regular: If the deduction is generated every cycle, then it must be flagged as "Regular". Note that this does NOT apply to Statutory deductions and these must be flagged as "No"as they are not considered regular.

Employee Contr : If there is a set employee amount to be deducted for all employees, enter it here.

Employer Contr : If there is a set amount to be deducted for the employer's contribution for each employee, then enter it here.

Life to Date: If this flag is set to "Yes", it allows deductions entered under this payroll code to be tracked for the payroll year and reset at the beginning of each payroll year for the purpose of Statutory Reporting. This would apply to deductions such as pension, insurance, loans, etc. where the employee and employee would continuously want to see and track the amounts being deducted, even if it rolls over from one year to another. If the flag is set to "No", then the deduction resets at the end of the payroll year.

With the Life to Date option, you can chose ‘Yes’ to ensure that a Deduction, e.g. Insurance or Pension Contributions, continue to be tracked from its inception and not just from the beginning of the calendar year.

Print Order: The order that the Deductions to be printed on reports (e.g. the payslip) is captured here. E.g. You may require that the employee’s Statutory Deductions to be printed first and other deductions to appear below this and also in the order in which they were deducted. If so, then the Print Order should follow the same sequence as what is defined for the Default Priority Order for the deduction code.

Default Priority: This field allows you to determine the order in which Deductions are taken from the Employee’s salary. Note, Statutory Deductions are always applied first and this does not impact the order of statutory deductions as that is configured when setting up the statutory code. This is a global setting i.e. this will apply for all employees. There is, however, an override option available through the cycle change entries.

Net Pay: It is important to note that Net Pay is flagged as a deduction in HRplus as it is an employer deduction. After all employee deductions have come out, the money which goes to the bank is flagged as Net Pay. There can be multiple Net Pay deductions which go to different banks and these can be setup as fixed or based on a percentage.

Loan: This flags a Deduction as a loan. For example, a Car Loan Deduction will be flagged as ‘Yes’.

Employee can Edit: If flagged as "Yes", an employee can edit his/her deductions via the self service. In some cases, however, for example when an employee’s wages are being garnished, you would not want the employee to have the option of editing.

Vac Advance: If the deduction is to be come out when a Vacation Advance payment is made to an employee, flag as Yes. Otherwise flag as No.

Affects Pension: If the deduction affects the calculation of Pension , flag as Yes. Otherwise flag as No.

Payee ID: Select the default payee ID that determines which financial institution the Deduction is going to be sent for most employees. For those whose deduction goes to another location, then a cycle change can be entered for them.

Dr Account Code Employer: If the employer is contributing to the Deduction, such as in the case of government expenditure e.g. NIS, then the company’s relevant Expense Account number goes here.

Cr Account Code Employee: This is the account from which the employer pays their contribution. the Employer will place the company’s Clearing Account number. This number may also be the same as the clearing account for the employee (Account code field on the payroll code).