Do you know your Mandatory And Voluntary Payroll Deductions?

Mandatory & Voluntary Payroll Deductions

Payroll deductions that impact the paycheck you take home.

Under US Labor laws, wages earned by an individual are that person’s property; the employee needs to be paid wages, as per the hours decided and the contractual terms that would have been signed at the time of the beginning of employment. Once the terms have been decided, no employer is allowed to change them; otherwise, it would be considered a breach of contract. As a matter of fact, if improper deductions are made, it could lead to underpayment cases, and if the situation is not clarified and rectified on an immediate basis, it could lead to heavy penalties. So whether you are an employee or an employer it makes sense to know the mandatory & voluntary payroll deductions that impact the paycheck you take home.

As you probably know, there are certain deductions that are allowed by law, and the employer is allowed to make these deductions from the employee wages. While some of these deductions are mandatory, there are certain deductions that are optional and to the discretion of the employer or employee. 

The employer is required by law to withhold payroll taxes from an employee’s gross pay prior to issuing a paycheck to comply with government regulations. Employers who fail to follow the law on mandatory payroll deductions are open to lawsuits, fines, and even, going out of business. As an employee, you just need to understand what’s going on.

Mandatory deductions that are authorized and employers allowed to make them.

  • Deductions that have either been authorized or are required as per the federal or state laws – think taxes (state or federal)
  • Deductions that have been authorized by the employee themselves to cover insurance or medical bills
  • Deductions made to cover welfare or pension plans or other healthcare plans
  • Court ordered payments, such as child support

Voluntary deductions: Then there are the deductions that are made by the employer, but with the explicit consent of the employee. While the law does not require an employer to take voluntary deductions from payroll, most employers do. In some cases, voluntary payroll deductions are convenient for the employer. In others, voluntary payroll deductions are convenient for the employee.

  • For instance, if a deduction is being made for the usage of the employee cafeteria or if the employee is a part of a stock purchase plan at the organization, the deductions will be considered legal. However, the employee must be making use of the said facility or else, it would be deemed unlawful. So, for instance, if an employer is deducting a particular amount for cafeteria or food, it is imperative that the employee is utilizing the said facility. Here are some of the other involuntary payroll deductions:
    • Retirement of 401(K) plans
    • Health and life insurance premiums
    • Plans related to disability
    • Uniforms, tools, equipment
    • Deductions for certification or training courses
    • Donations for charitable causes
  • When it comes to losses caused by employees, there are certain situations wherein the employer needs to absorb the loss. For instance, if a person misplaces a company allocated phone, while on travel or a barista spills a customer’s coffee, the employer will be expected to bear the loss. The employer, is however, allowed to discipline the employee at fault, in order to avoid any further losses. 
  • An employer is also not allowed to make deductions, because of losses that might have taken due to theft in inventory or because of sales that might not have taken place. Such situations also do not allow for any deductions in bonuses. Same goes for uniforms and equipment – if an employer provides said things and the employee does not return them, the employer is not allowed to deduct the amount from the wages. 

But what if the loss has been incurred because the employee did so intentionally or was being dishonest or was grossly negligent? Even then, the employer cannot make any salary deductions – the employer is allowed to take the said employee to court and sue them for the losses, but they have to pay the entire wage due. 


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