Glossary
What are statutory deductions?
Which deductions from pay are required by law, who they are paid to, and how they become liabilities in the books.
Updated
In short
Statutory deductions are amounts the law requires an employer to deduct from pay and pass to the authorities, such as income tax, social security and pension. SimpleERP posts them to one account, Statutory Deductions Payable, when payroll is approved.
Statutory deductions are amounts the law requires an employer to deduct from an employee's pay and pass to a government body or scheme, such as income tax withheld, social security or national insurance, and compulsory pension contributions. Until paid over they are the employer's liabilities. Voluntary deductions, such as an advance recovery or a canteen charge, are not statutory.
Statutory deductions: a worked example
Ana M, welder at Harbour Steel Furniture, a fictional business paying in US dollars, on a gross of $1,950 in October 2026. Income tax and social security are shown as fixed amounts for illustration.
| Deduction | Paid to | Basis | Employee | Employer |
|---|---|---|---|---|
| Income tax withheld | Tax authority | Amount set for the month | $150 | |
| Social security | Social security agency | Amount set for the month | $117 | $117 |
| Pension | Pension scheme | 5% and 3% of gross | $97.50 | $58.50 |
| Total | $364.50 | $175.50 |
FAQ
Questions, answered
Which deductions from pay are statutory?
Usually income tax withheld at source, social security or national insurance, and in some countries a compulsory pension or provident fund. Which apply depends on the country, the business and the employee's pay. In India, for example, they are PF, ESI, professional tax and TDS.
Are statutory deductions an expense for the employer?
The employee's share is not: it is part of salary, held as a liability until paid over. The employer's own share of social security and pension is an expense, posted as an employer contribution and also held as a liability until paid.
How do I pay statutory deductions from SimpleERP?
Approving the run credits the deductions to Statutory Deductions Payable, and the component summary report totals each deduction per month. Pay each authority or scheme through its own service, then record the payment with a manual journal or an expense against Statutory Deductions Payable.
What happens if statutory deductions are paid late?
Late payment usually attracts interest and penalties, and can stop the employee getting credit for tax or contributions withheld. Due dates and penalties differ by country; check them with your accountant.
Related
Keep reading
Payslip
The statement of paid days, each earning, each deduction and the net pay an employee receives for a period.
Read morePayroll register
One row per employee and one column per pay component for a month, with totals that match the salary journal.
Read morePayroll
Salary structures, monthly runs and payslips with your earnings and deductions, posted to the books.
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