Key points
-
Deductions are amounts withheld from employee pays (other than taxes) and paid to a third party, such as child support payments
-
Deductions are set up as pay items and assigned to your employees to be included in their pays
-
You can set up one deduction for multiple employees, or individual employee deductions
-
For the rules governing workplace deductions, the Fair Work website is a good place to start.
Before or after tax deductions?
If you're not sure whether a deduction is pre-tax or post-tax, check with your accounting advisor or the ATO.
There's a handful of deduction pay items which come with MYOB, including a Union Fee and One-Time Deduction. You can customise these to suit your needs and assign them to your employees, or create new deductions from scratch.
Let's step you through how to set up a deduction, and show you what a pay looks like with a deduction.
To set up a deduction
Go to the Payroll menu and choose Pay items. The Pay items page appears.
Click the Deductions tab.
Click to open an existing deduction, or click Create deduction pay item to create a new one.
Enter a Name for the deduction.
If you'd like a different, more personalised, name to show on pay slips for this earning, enter a Name for pay slip, such as "Union fees - Steven". If you leave this blank, the pay item Name will display instead.
Choose the Linked payable category.
What's a linked payable category?
This is the category (usually a liability category) in which all the deducted money will be accrued. The Default Tax/Deductions Payable Category you specified when setting up payroll appears as the default. You can change this default if you want to track the deduction separately. For example, if you're deducting union fees, create a Union Fees Payable liability category. This way, the balance sheet will display the deductions separately from your PAYG Withholding and other deductions.
Choose the ATO reporting category for this deduction. If you're not sure, check with your accounting advisor or the ATO. Learn about assigning ATO reporting categories for Single Touch Payroll.
Choose the Calculation basis.
User-entered amount per pay period - Select this option if you want to manually enter a specific amount for each employee each time you pay them. Note that manually entered deductions should be entered as negative values.
Equals a percentage of a pay item - This option allows you to enter a percentage of any of the wage pay items. This amount will be deducted until the deduction Limit (see below) is reached.
Select a wage pay item upon which the calculation is to be based. Alternatively, you can select Gross Wages or Federal Wages, which totals all wage pay items (hourly and salary) you pay an employee.Equals dollars per pay period - This option allows you to deduct the specified amount per pay period, per month, per year or per hour. This amount will be deducted until the Limit (see below) is reached.
Choose an applicable Limit.
No limit - signifies no limit on the amount of money that can be deducted from the employee’s pay for this category.
Equals a percentage of wages - results in the maximum deduction amount being a percentage of a wage pay item. For example, a deduction might be $50 per pay period up to a maximum of 50% of the employee’s base salary. Gross Wages and Federal Wages are also available here which total all wage pay items (hourly and salary) you pay an employee.
Equals dollars per pay period - results in the maximum deduction being a fixed dollar amount per pay period, per month or per year. For example, a deduction might be 10% of the employee’s gross wages up to $1,500 per year.
Under Allocate employees, choose the employees who require this deduction. To remove an employee, click the delete icon for that employee.
Under Exemptions, choose any taxes that shouldn't be calculated on this deduction. For example, if it's a pre-tax deduction, choose PAYG Withholding. If you're not sure if the deduction should be pre- or post-tax, check with your accounting advisor or the ATO.
When you're done, click Save.
To process a pay with the deduction
After you've set up a deduction and assigned it to one or more employees, it'll appear in their pay. Let's take a look:
Go to the Create menu and choose Pay run.
Choose the Pay cycle and confirm the pay dates.
Click Next.
Click the employee to open their pay details.
If required, enter or change the deduction amount for this pay.
Continue processing the pay as normal. Need a refresher?
Amounts deducted are allocated to your payroll deductions category, ready to be paid to the applicable third party. See the FAQ below for more info.
FAQs
What happens to the deducted money?
Money deducted from employee pays needs to be paid to the applicable third party. For example, deducted union fees need to be paid to the applicable union. Check with the third party regarding their accepted payment methods.
After you've made the payment, you can record it in MYOB using a spend money transaction (Banking menu > Spend money).
When recording the transaction:
In the Bank account field choose the bank account the payment is coming from.
In the Contact field choose the organisation the payment went to (you can set up a supplier for this purpose).
In the Category field choose the MYOB Payroll Deductions category.
Do I have to set up deductions for PAYG and superannuation?
No. These amounts are automatically calculated on your employees' pays so you don't need to set up deductions for them.
Learn more about Taxes and Superannuation.
What if I deducted the wrong amount from a pay?
If you've deducted the wrong amount from an employee's pay, you can fix it in the employee's next pay. Here's all the details.