A Complete Guide For New Employees On Payroll And Deductions

Deductions are an inevitable part of payroll processing. Payroll deductions can be of different types depending on the company, their policies, and other schemes that affect an employee’s payroll. In some instances, certain legislation mandates these deductions, and overlooking them can result in fines and penalties for a company. Compulsory payroll deductions also vary from one country to another, but the ultimate purpose of these deductions remain the same. If you’re a new employee confused about the concept of payroll deductions, here is a quick guide to help you out. 

What Is Payroll Deduction? 

Payroll deduction is when a part, portion or percentage of your salary/compensation is deducted and withheld by your employer for both legal and voluntary purposes authorized by you. These deductions can be done either manually or using HR software systems, with the latter being error-free, reliable and efficient. 

When you receive your paycheck, you will be getting something called the “Net Pay” and not the “Gross Pay”. Gross pay is the total amount you’re supposed to get before the respective deductions, which is also your total compensation. On the other hand, net pay (also called the take-home pay) is what you actually get to take home with you after the deductions are made. In your payslip, you will be able to see a breakdown of the payroll deductions made for the month. 

What Are The Types Of Payroll Deductions?

Generally, all payroll deductions, even the ones made in Middle-east payroll frameworks, fall into two categories: mandatory deductions and voluntary deductions. As you may be able to guess, mandatory deductions are those that are made compulsory by the laws of a given country. As for voluntary deductions, they are payments withheld and reduced from the gross pay purely based on voluntary consent from you as an employee, which could be to benefit you or as a matter of charity. 

Here is a breakdown of mandatory and voluntary deductions within the UAE context. 

Mandatory Payroll Deductions 

Since UAE has no individual or corporate income taxes (with exceptions to certain oil and gas businesses and some branches of foreign banks), tax deductions are not made in your Payroll in UAE. But it’s a common mandatory payroll deduction made in the majority of the other countries. 

In UAE, mandatory payroll deductions include a contribution for health insurance, court-ordered garnishments for judgements won against particular employees, and payments for delinquent child support, among others.

Apart from this, employers of local workers in the UAE are legally obliged to withhold (deduct) a certain amount from their payroll for pension contributions. Local employees will contribute 5% of their monthly salary (deducted from their monthly salary) for pension, whereas government and private employers will contribute 15% and 12.5%, respectively. With regard to private sectors, an additional 2.5% will be contributed by the government to employees as well. 

Voluntary Deductions 

An employer cannot withhold voluntary deductions from the payroll slip unless you give them the authorization on the deduction. If you want your employer to make a voluntary deduction, you must provide written consent. You will have to provide the date, name and the reason for the voluntary deduction, along with the signature and whether the amount to be deducted is in AED or USD.  Some common examples of voluntary deductions include, 

  • Certification deductions
  • Tuition fee deductions 
  • Contributions to flexible spending accounts
  • Donations for an inter-office charity
  • Health insurance premiums (can include dental, vision, or medical plans)
  • Inter-office purchases, e.g. office equipment, TVs, and old computers
  • Life insurance premiums
  • Retirement contributions to third party insurance provider(s)
  • Short-term disability plans
  • Tools and uniform

The above mentioned written consent will also have to include the name of the charity or individual that you want to donate a portion of your salary to, and/or quantity or sizes with regard to tools and uniforms. Once you give your voluntary consent on payroll deductions, your company’s payroll system will automatically make the necessary deductions from your pay every month until you withdraw the consent.