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Understanding Payroll Deductions

The term ‘payroll deductions’ covers a number of payments taken through PAYE which can be used for charitable donations, payment towards employee benefits and other more basic deductions such as National Insurance and Student Loans.

Understanding how these work and what it means for your employees is important for any business and we explain the basics to different deductions below.

Find details for payroll service providers who can offer payroll deductions as well as advice by filling out the form above with your details which Expert Market UK will use to match you with details of suitable providers.

About payroll deductions

All UK employers must register through PAYE, which ensures that deductions such as Income Tax and National Insurance are taken out automatically of an employees’ pay. HMRC will also take care of student loan deductions but the amount which needs to be taken will need to be provided by the employer.

Other payments which may be deducted through PAYE include pensions and child maintenance payments.

payroll deductions

Other types of payroll deductions

A number of businesses offer their employees the chance to use payroll deductions in order to benefit from offers or services, as well as for charitable giving. These benefits are usually agreed upon before the beginning of the tax year in order to ensure that they are calculated fairly across the year.

Salary Sacrifice

These types of payroll deductions are known as ‘salary sacrifice’ which means that they are taken out of your salary, often before employees are taxed which allows employees to benefit from reduced income tax and NI deductions.

These kinds of options include Cycle To Work, private healthcare as well as additional holidays and other benefits such as wine clubs. Not all employees offer these kinds of benefits but those that do have to ensure that these are calculated for properly and are in accordance with an employees salary.

How to carry out payroll deductions

If you are registered with PAYE, then all necessary deductions will be taken automatically in conjunction with your payroll. It is important when producing payslips for employees that they show the amounts deducted, as well as what they have been deducted for. All information regarding payments needs to be reported to HMRC before the scheduled payday in order to make sure that the deductions are taken properly. If an employee changes tax codes or is owed tax for some reason, this should also be reported.

The most effective way to take care of payroll deductions is to go through an outsourced payroll provider who will ensure that all of the necessary information is passed onto HMRC and can administer the deductions for other purposes (e.g salary sacrifice) on your behalf. This takes away the worry of providing incorrect information and risking bad relationships with your staff. Outsourced payroll providers will also be able to handle end of year tax and pay data which will save your business a lot of time and money and leaves you assured that the process will be completed accurately and on time.

Payroll deductions can help businesses to build better relationships with their employees, offering them different ways to receive benefits and making the most out of their pay. Payroll deductions are usually easy to set up through the right provider and require very little administration once set up. Find the best payroll service providers for your business who can offer you advice and administration of payroll deductions, complete the form at the top of the page and Expert Market UK will bring you relevant providers for your business.

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