Employee deductions — Accounting glossary

Employee deductions are amounts withheld from gross earnings before calculating net pay. Examples can include employee income tax, employee social contributions, pension contributions and authorised deductions. The employer records a liability to the recipient until payment. A deduction normally reallocates part of gross pay between the employee and another payee; it does not reduce the gross staff expense.

Worked example

Gross pay is $4,000 with $700 tax and $200 employee pension deductions. Credit employee net-pay liability $3,100 and deduction liabilities $900 against a $4,000 gross-pay debit.

Common mistake

Do not treat withheld employee tax as the employer’s own income tax expense. Use the rates and deduction bases supplied.

Where it appears in your exams

Qualification	Exam	Relationship	Period
ACCA	F1	Direct	July 2027–August 2028
ACCA	F2	Direct	July 2027–August 2028
ACCA	K1	Direct	July 2027–August 2028

Related terms

Employer payroll contributions
Gross pay
Net pay
Payroll liabilities

Also called: Payroll deductions, Deductions from pay