Voluntary deductions from wages

Written by grace ferguson
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Voluntary deductions from wages
Paycheck deductions can be pre- or post-tax. (check in macro image by Alexey Klementiev from Fotolia.com)

The law does not require employers to withhold voluntary deductions from their employees' paychecks. Voluntary deductions are dependent on whether the employee chooses to have the payroll deduction. Some voluntary deductions are pre-tax (deductions are withheld before taxes) while others are post-tax in which contributions are made on an after-tax basis.

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Some employers offer retirement plans such as 401(k) to their employees. The employee chooses from a selection of investment options and decides how much he would like to contribute each pay date. Some employers contribute a matching amount to their employees' 401(k). The government sets a limit on how much employees can contribute to 401(k) plans in a given year. For 2010, the limit is £10,725, with a £3,575 catch-up for individuals 50 years and older. The two most common employer-sponsored 401(k) plans are traditional 401(k), which is pre-tax, and Roth 401(k), which is post-tax.

Payroll Deduction IRA

The employer may offer a Payroll Deduction Individual Retirement Account (IRA) in which the employer selects a plan that makes the employee responsible for funding her own account--no employer match is included. The employee states how much she would like deducted from her paycheck, and the employer withholds accordingly. Further, the contribution limit is much less than a typical 401(k) plan--$5,000 for 2010 with a catch-up of £650 for those 50 and older. Payroll deduction can be pre-tax or post-tax, depending on whether it is a traditional IRA or Roth IRA.

Health Benefits

Employers often offer their employees health insurance benefits, which include medical and dental. By law, the employer does not have to offer health insurance to his workers. Those who choose to offer health insurance either pay all of the cost to the plan or a portion of it. In the latter case, the employer deducts the premium, which is pre-tax, from elected employees' paychecks. For instance, the employer may cover 80 per cent of the cost for dental procedures while the employee pays the remaining 20 per cent.

Additional Life

When an employer offers his employees basic life insurance, the employee does not have to pay a premium. However, the employee may choose to purchase additional coverage so her beneficiaries will be more financially secure upon her death. She may also purchase more coverage, which includes spousal, child and Accidental Death & Dismemberment (AD&D) coverage. If she purchases additional coverage, she must pay a premium, which is payroll deducted and post-tax.


If an employee has to be absent from work for an extended time frame because of illness, maternity or injury, she may elect to go on short-term disability (STD) or long-term disability (LTD), if the employer offers these programs. With STD, the employee usually receives 100 per cent of his base earnings for the first few payouts, then about 60 per cent of his pay thereafter, up to a maximum of six months.

Long-term disability time frame vary by policy, however, some policies may pay out up five or 10 years, while others may continue until the employee is 65. Long-term disability is a post-tax payroll deduction, which typically replaces 50 to 70 per cent of the employee's salary.

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