Calculating deductions
How to calculate the deduction
To work out how much to deduct from your employee’s pay:
- Calculate their net earnings (after tax, National Insurance, and pension contributions).
- Use the appropriate table below to find the correct percentage rate.
- Apply the percentage to the net earnings to get the deduction amount.
Weekly earnings – Table A
| Net earnings (weekly) | Deduction rate |
|---|---|
| £100 or less | 0% |
| £100.01 to £160 | 3% |
| £160.01 to £220 | 5% |
| £220.01 to £270 | 7% |
| £270.01 to £375 | 11% |
| £375.01 to £520 | 15% |
| Over £520 | 20% |
Monthly earnings – Table B
| Net earnings (monthly) | Deduction rate |
|---|---|
| £430 or less | 0% |
| £430.01 to £690 | 3% |
| £690.01 to £950 | 5% |
| £950.01 to £1,160 | 7% |
| £1,160.01 to £1,615 | 11% |
| £1,615.01 to £2,240 | 15% |
| Over £2,240 | 20% |
Other pay frequencies
If your employee is paid:
- Every 2 weeks: divide their total net pay by 2 and use the weekly table.
- Every 4 weeks: divide their total net pay by 4 and use the weekly table.
Holiday pay
If holiday pay is paid in advance, average the total net pay over the number of weeks it covers. Then apply the percentage rate to the average and multiply by the number of weeks.
Example:
Net pay for 3 weeks (1 week’s wage + 2 weeks’ holiday pay) = £850
Average = £850 ÷ 3 = £283.33
Apply 11% = £31.17
Total deduction = £31.17 × 3 = £93.51
Rounding
Round the deduction to the nearest penny. If the amount ends in exactly half a penny, round down.
Examples:
- £235.63 × 7% = £16.4941 → £16.49
- £1,547.99 × 11% = £170.278 → £170.28
Administrative costs
You may take an extra £1 per pay period from the employee’s earnings to cover admin costs. You can do this even if it reduces their income below the protected earnings level.
Correcting mistakes
If you:
- Under-deducted: take the correct amount for the current period, then add the shortfall from the previous period(s).
- Over-deducted: take the correct amount for the current period, then reduce the deduction by the amount overpaid previously.
The total deduction must not reduce the employee’s income below 60% of their net earnings.
