What should be deducted from gross pay when calculating employee net pay?
Calculating employee net pay accurately is obviously hugely important, however there can be confusion around what deductions should be made from gross pay in calculating net pay. A common question that we receive is: What should I and shouldn’t I deduct from gross pay when calculating employee net pay?”
In short, there are specific and specified allowable deductions – anything not specified should not be deducted. Apart from the following, no other deductions made from pay should be taken into account in calculating employee net pay:
- Ordinary superannuation contributions
- Additional Voluntary Contributions
- Revenue approved permanent health deductions
- Personal Retirement Savings Accounts
- Retirement Annuity Contracts
- Salary sacrificed for a travel pass scheme
These amounts should be deducted from gross pay by the employer before tax is calculated. Note: PRSI contributions are calculated on net pay (reduced by the appropriate PRSI free allowance) not gross pay.
An employee may claim a tax credit from Revenue for expenses that are wholly, exclusively and necessarily incurred in the performance of the duties of the employment. If due, it will form part of their tax credits and standard rate cut-off point and will not reduce the employee's net pay as already calculated.
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