Deduction code

A deduction code represents a reduction in pay or an add-to-net amount that needs to be applied to employee wages. A deduction code can represent any type of deduction, including tax, workers' compensation, pre-tax, and so on.

You can define three categories of deduction codes:

  • Employee-paid, which reduces employee gross pay.

  • Company-paid, which calculates the amounts that companies must pay for certain deductions.

  • Add-to-Net, which adds the deduction amount to employee net pay.

Payroll uses deduction codes to determine how to:

  • Calculate the deduction amount

  • Print descriptions of the deduction on the payment stub or direct deposit receipt

  • Post deduction accruals to the general ledger

  • Expense company-paid deductions to the general ledger

  • Store deduction history

The following table lists the different types of deduction codes you can create:

Tax A deduction code Payroll uses to deduct taxes from employee pay and to calculate and expense employer paid taxes.
Company Match A deduction code to use for a matching contribution to employee defined contribution plans, such as 401(k) plans in the U.S.
After Tax Limit A deduction code to use for contributions to a defined-contribution plan after an employee reaches the federal limit for pre-tax contributions. These deductions are taxable.
Pre-Tax A deduction code for deductions that Payroll deducts from employee pay before taxes are applied.
Garnishment A deduction code to use for employee garnishments in the U.S. and Canada.
Workers' Compensation A deduction code to use for workers' compensation deductions.
Benefits A deduction code tied to a benefits plan in the Benefits Administration application.
Add-to-Net A deduction code which will add an amount to employee net pay.
Miscellaneous A deduction code for any use including union dues, employee loans, or any other type of deduction.

Example

Two Rivers Company has defined the following deduction codes.

Employee-paid Deduction Deduction Code Company - paid Deduction Deduction Code
U.S. Medicare - Employee paid MEDE Medicare - Company paid MEDC
U.S. Social Security - Employee paid SS-E Social Security -Company paid SS - C
U.S. Federal Tax FIT U.S. Federal Unemployment FUTA
MN Tax MNW MN Unemployment MNU
NJ Tax NJW
NJ Unemployment -Employee paid NJUE NJ Unemployment -Company paid NJUC
NJ Disability -Employee paid NJDE NJ Disability - Company paid NJDC
Employee Loan LOAN
Federal Tax Levy LEVY
Child Support CSUP
United Way UWAY
Medica Health HLTH
401(k) - Employee 401E 401(k) - Co-Match 401C
Canada Pension Plan- Employee CPPE Canada Pension Plan - Company paid CCPR
Canada Employment Insurance - Employee EIEE Canada Employment Insurance - Company EIER