The primary purpose of payroll deductions is to withhold income taxes and social security payments from the employee’s wages and forward this money directly to the Government.
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The employer is responsible for deducting income tax and National Insurance Contributions (NIC). Income tax deductions are termed pay-as-you-earn (PAYE). PAYE is a withholding tax on income payments to employees.
In the UK, student loan payments can be automatically deducted from salary after employees have reached a specific earnings ceiling.
Income tax is withheld from wages and paid by the employer directly to the Government. The tax withholding system is termed Pay-As-You-Go (PAYG) because the amount of tax is calculated based upon the actual recent past earnings of the employee.
A Medicare deduction of 1.5% is also applied to salaries.
Canada has a twofold tax deduction system, with income taxes being deducted for both Federal and Provincial income taxes. Other deductions from payroll include deductions for the Canada Pension Plan (CPP) and Employment Insurance deductions.
In China, payroll tax is paid to the Government by employers. This tax is not deducted from wages. CHINA also administers the PAYG system under which employers withhold a portion of wages and remit the sums to the Government.