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Deductions
This guide tells you how the system decides what to take away from the pay of an employee. For what is added to pay, see Allowances.
The examples in this guide use the Uganda NSSF (National Social Security Fund) contribution. For the tax that goes with it, see Taxes.
Purpose
A deduction takes an amount from the pay of an employee. Tax, a social security contribution, a loan repayment, and a fine are all deductions. Each deduction record holds three things: the employees that it applies to, the amount, and the position of the deduction in the calculation.
Who a Deduction Applies To
A deduction uses the same targeting controls as an allowance. See Allowances. A deduction can apply to:
- Every active employee.
- Specified employees.
- Each employee that agrees with one or more conditions, for example marital status, years of experience, or department.
You can also exclude specified employees from any of these groups.
For a national contribution such as NSSF, select Include all active employees. Then exclude the small number of employees that the law does not cover.
How the Amount Is Calculated
The amount of a deduction is one of these:
- Fixed. A constant amount.
- A percentage. The system calculates the percentage of basic pay, gross pay, taxable gross pay, or net pay.
You can also set a maximum amount, in the same way as on an allowance.
Pre-Tax, Tax, and Post-Tax
Each deduction goes in exactly one of three groups. The group sets the position of the deduction in the calculation.
| Group | Position in the calculation | Effect on the tax |
|---|---|---|
| Pre-tax | Before the system calculates the tax. | Decreases the taxable gross pay, so it decreases the tax. |
| Tax | The tax deduction itself. | Not applicable. |
| Post-tax | After the system calculates the tax. | None. |
The system subtracts all three groups from gross pay to get net pay:
net pay = gross pay
- pre-tax deductions
- the tax from the filing status
- deductions that have the mark Tax
- post-tax deductions
- unpaid leave
then, last of all:
net pay = net pay - deductions that use net pay as their basisA pre-tax deduction therefore decreases net pay in the same way as a post-tax deduction. The difference is the effect on the tax, and only the effect on the tax.
A deduction that uses net pay as its basis is always last, after all the other deductions. The system calculates it from the net pay that remains.
Rules that the system applies
- A pre-tax deduction cannot use taxable gross pay or net pay as its basis. The calculation would be circular. The system rejects the record.
- A deduction that has the mark Tax cannot also be pre-tax. The system removes the pre-tax mark automatically.
- A deduction that has the mark Tax cannot use net pay as its basis.
The pre-tax default is a risk in Uganda
Warning: The system sets Is pretax to on for each new deduction. Uganda gives very few reliefs against PAYE. If you keep the default, the system decreases the taxable gross pay and withholds too little PAYE. The employer is responsible for the shortage.
Set Is pretax to off unless you have written confirmation that the deduction is a relief against Uganda PAYE. Employee NSSF contributions are not a relief. See the case study below.
Case Study: Uganda NSSF
The NSSF Act makes two contributions necessary each month:
| Contribution | Rate | Who pays it |
|---|---|---|
| Employee contribution | 5% of the gross monthly wage | The employee. The employer takes it from the pay. |
| Employer contribution | 10% of the gross monthly wage | The employer. The employer cannot take it from the pay of the employee. |
The employer sends the total of 15% to the NSSF.
Note: Confirm the current rates, the coverage rules, and the tax treatment with the NSSF and with your tax advisor before you use this setup for real pay. This guide shows how to configure the system. It is not tax advice.
The important decision: NSSF is not pre-tax
Uganda calculates PAYE on the full employment income. The 5% employee contribution is not a deduction from chargeable income. Therefore the NSSF deduction in the system must be post-tax.
The numbers below show the effect. The employee has a gross pay of 1,700,000 UGX each month.
| NSSF post-tax (correct) | NSSF pre-tax (incorrect) | |
|---|---|---|
| Gross pay | 1,700,000.00 | 1,700,000.00 |
| Employee NSSF at 5% | 85,000.00 | 85,000.00 |
| Taxable gross pay | 1,700,000.00 | 1,615,000.00 |
| PAYE for the month | 412,000.00 | 386,500.00 |
| Net pay | 1,203,000.00 | 1,228,500.00 |
The incorrect setup withholds 25,500 UGX too little each month. Over 12 months this is 306,000 UGX for one employee. The employee gets more pay each month, but has a debt to the URA at the end of the year.
Note: The PAYE amounts above are the URA monthly figures. The amount that the system puts on a payslip changes by a small amount with the length of the month. See Tax. The difference between the two columns does not change.
Procedure: create the NSSF deduction
- Open Payroll > Deductions.
- Select Create.
- Set Title to
NSSF Employee Contribution. - Set Include all active employees to on.
- Set Is tax to off. NSSF is a contribution, not a tax.
- Set Is pretax to off. This step is the important one.
- Set Is fixed to off.
- Set Based on to Gross Pay.
- Set Employee rate to
5. - Set Employer rate to
10. - Leave Has max limit for deduction off. Uganda sets no upper limit on the wage.
- Leave One time date empty. NSSF applies each month.
- Save the record.
The card for the deduction then shows Employer Rate : 10.0% of Gross Pay.
What the employee sees
The payslip shows the 5% amount in the post-tax deductions. The employer 10% is not on the payslip of the employee, because it is not a deduction from their pay.
Employer Contributions
A percentage deduction can hold a second rate, the employer rate. The system calculates this amount from the same basis as the employee rate, but it does not subtract the amount from the pay of the employee. The system records the amount so that you can report it and pay it.
For the NSSF example, with a gross pay of 1,700,000 UGX:
- Employee contribution:
1,700,000 x 5% = 85,000 UGX. The system subtracts it from the pay. - Employer contribution:
1,700,000 x 10% = 170,000 UGX. The system records it only. - Total for the NSSF return:
255,000 UGX.
Caution: Set an employer rate only on a deduction that uses a percentage. A fixed deduction has no basis to calculate the employer amount from, and payslip generation stops with an error.
Where to see the amounts
The Payroll Dashboard has an Employer Contributions card. Select an employee to see a table with three columns: the deduction, the employee contribution, and the employer contribution.
Caution: This card adds the amounts from all payslips of the employee. It has no date filter, so it shows a total from the start, not a total for one month. To make a monthly NSSF return, use the payslip of that month.
Change a Pay Figure Before the Rest of the Calculation
Most deductions become a line on the payslip, and the system subtracts them in sequence. A deduction can instead decrease basic pay, gross pay, or net pay directly, before the calculation of that stage continues.
Use the Update compensation field for this. It is an advanced option. Use it only for an adjustment that must have an effect earlier in the sequence. For NSSF and PAYE, do not use it.
One-Time and Recurring Deductions
- A deduction that has a One time date applies only to the payslip whose period contains that date. Use it for a fine or a single correction.
- A deduction that has no date applies to each payslip that agrees with its targeting rules. Use it for NSSF.
What Each User Sees
| Action | Employee | HR / Payroll Administrator |
|---|---|---|
| See their own deductions on a payslip | ✅ | ✅ |
| Create, change, or delete deductions | — | ✅ |
| See the Employer Contributions card | — | ✅ |
How Visibility Is Decided
- Ownership. An employee sees the deductions on their own payslips.
- Permissions. To open the Deductions screen, a user must have the
payroll.view_deductionpermission. - Company. Each company keeps its own deductions. In a multi-company system, create the NSSF deduction again for each company.
Customization Options
- Targeting is company-wide, employee-specific, or condition-based.
- The basis is a fixed amount, or a percentage of basic pay, gross pay, taxable gross pay, or net pay.
- The group is pre-tax, tax, or post-tax. It sets the position in the calculation order.
- The employer rate is optional, in addition to the employee rate.
- A maximum amount is optional on a percentage deduction.
Good to Know
- Loan repayments and reimbursement recovery are deductions. The system creates them automatically. See Loans & Advanced Salary. The system hides these deductions from the main Deductions list and shows them only on the record of that employee.
- A payslip keeps a copy of its own calculation. A change to a deduction does not change a payslip that already exists. Generate the payslip again to apply the change.
- Check the first payslip against a manual calculation. Compare the taxable gross pay, the PAYE, and the NSSF amount. An incorrect pre-tax mark is difficult to see on the payslip, but it changes the PAYE.
- This guide is the counterpart to Allowances. Both use the same targeting controls. Deductions add three controls of their own: the pre-tax, tax, and post-tax group, the employer rate, and the option to change a pay figure directly.
Everything taken, accounted for.