What Are Payroll Deductions?

Payroll deductions are the wages withheld from an employee’s total earnings. These go towards taxes and benefits. Payroll deductions include both mandatory and non-mandatory deductions.

Employers are responsible for payroll deductions. They withhold wages from an employee’s pay slip. 

Mandatory Deductions

Mandatory deductions on a pay-check can include the following:‍

• ‍Taxes: Taxes are involuntary deductions. Rates and deductions are based on each government’s taxation model. An employer deducts tax from an employee’s total pay depending on the country’s tax rate. The tax deduction is a percentage of the employee’s income.‍
• Legal orders to garnish wages: This often refers to when an employee has to pay child support or repay debt. 

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Voluntary Deductions

Voluntary deductions usually include the following elements:

• Retirement contributions: This is completely voluntary and the amount has to be agreed upon by both the employer and employee. The employee chooses a percentage of their gross pay to go towards pension and retirement. Given that the majority of countries have pension plans in place, not all employers offer retirement contributions, but it is common.
• Insurance: Employers often choose to offer health insurance with their employee’s benefits package. With this, the employer deducts a percentage of the health insurance premium from the employee’s total pay. The amount depends on the company and the insurance policy. 
• Charitable contributions: Employees may choose to deduct money from their gross salary to go towards charitable causes.
• Union dues: Employees may choose to have voluntary deductions so they can remain a union member.

Payroll deductions are different in each country, and sometimes, even within the country itself. 

Let's take a look at Bosnia and Herzegovina, for example. In the country, there are different entities, and as a result, there are different social security contribution amounts.

In the Federation of Bosnia and Herzegovina (FBiH), employers must pay 10.5% of an employee’s salary. This goes towards pension, invalid insurance, health insurance, and unemployment insurance. 

In the Brčko District, employers are required to pay 6% towards pension and invalid insurance. 

When hiring abroad, being aware of the difference of payroll deductions is key in maintaining compliance.

Rather than try and keep track of it yourself, work with Borderless. Borderless makes it easy to pay employees safely and on time with global payroll. Book a demo today.