Payroll deductions

What it means

Payroll deductions are amounts the employer takes from an employee’s pay before paying it out. The Labour Code allows them only in cases defined by law: some the employer must make, others only on the basis of a decision by a court, bailiff or authority, or a written agreement with the employee.

The mandatory deductions are tax advances and health and social insurance contributions, which turn gross pay into net pay. From net pay then come garnishments, maintenance payments and deductions agreed with the employee, such as repayments of an employer loan.

In enforcement, the law protects the employee with a protected amount that is derived from the subsistence minimum and rises for each dependant. Deductions are made from the rest under statutory rules, and priority claims, above all maintenance, come before the others.

How it works in practice

When running payroll we record each deduction with its legal basis, date of receipt and ranking. When a client receives an enforcement order, we build it into the next payroll, calculate the deduction using the current protected amount and pay it to the creditor within the statutory deadline.

We draw up a deduction agreement in writing, with an exact amount or calculation method. Typical cases are loan repayments, union dues, savings or compensation for damage the employee has acknowledged. Without such an agreement the employer may not simply take its own claims against the employee out of their pay.

On the payslip we show each deduction separately so the employee can see why they received less. When employment ends, we notify the new employer or the bailiff that deductions at the client are ending and state how much has already been deducted.

What to watch out for

An employer that miscalculates a deduction or fails to make it at all after receiving an order can itself become liable to the creditor for the amount not paid over. With several enforcement orders at once, the order of service decides the ranking, so it is essential to record the exact date each document was received.

A deduction beyond the law or without a valid agreement breaches the Labour Code, and the employee is entitled to the unpaid wages. Common mistakes are deducting the price of a damaged tool without the damage being acknowledged, or charging for unreturned workwear without the employee’s written consent.