Payroll Deductions Law and Legal Definition

Payroll deductions are amounts taken from each paycheck that reduces an employee's gross pay or total pay. For example, tax deductions. It is the difference between the gross payroll amount and net payroll amount. Some payroll deductions are federal or state mandated and others are deductions elected by the employee. It includes income tax, national insurance or social security contributions, and may also include group insurance or pension fund contributions, union or association dues, authorized wage assignments, etc.

Employers are responsible for making involuntary payroll deductions from employees’ income. Involuntary or statutory deductions are those that a legal entity requires. An employer may also offer voluntary deductions. They are withheld from an employee's paycheck only if the employee has agreed to the deduction.

No employer shall make any deduction from the wages of an employee, except deductions which:

a. are made in accordance with the provisions of any law or any rule or regulation issued by any governmental agency; or

b. are expressly authorized in writing by the employee and are for the benefit of the employee

A business cannot arbitrarily decide to take a deduction from an employee's payroll. All payroll deductions must be statutory or approved by the employee. Every entity should require signed authorization for all employee-elected deductions.

The following are examples of case law on payroll deductions:

The governing body of a municipality with a population of more than 10,000 may deduct from a municipal employee's monthly salary or wages an amount requested in writing by the employee in payment of membership dues to a bona fide employees' association named by the employee. [Tex. Local Gov't Code § 141.008].

A request for a payroll deduction must be in writing, be submitted to the county auditor, and state the amount to be deducted and the entity to which the amount is to be transferred. [Tex. Local Gov't Code § 155.002].