Create Deductions

Deduction definitions are created in Payroll Setup > Earnings and Deductions in the Deductions tab.

When you create a deduction definition, the application displays a list of predefined deduction codes that cover the majority of deductions that can be configured for use with employees. These can help you locate a deduction code that matches the deduction definition you are creating so that it is taxed correctly. For example, when configuring a deduction for employee 401(k) contributions, select 401K from the list. 

For more information about existing deduction codes in the application, see the Tax and Compliance Reference Sheet included in the documentation set with this and other Dayforce guides.

Note: The availability of the Tax and Compliance dialog box depends on country selection. If your deduction is associated only with a ConnectedPay-enabled country, this dialog box is bypassed, and tax and compliance is auto-assigned, based on the deduction that you select. If you select at least one native Dayforce country (for example, Canada, US, UK, or Ireland), the application prompts you with the Tax and Compliance dialog box to select a tax and compliance rule for that native Dayforce country.

To create a basic deduction definition:

1. Go to Payroll Setup > Earnings and Deductions, and click the Deductions tab.
2. Click Add to open the Add Deduction dialog box, and select a Tax Type, a country or countries to apply the deduction to; and optionally, a Process for Employment. It is common to not make a selection in Process for Employment, unless you are adding a deduction that is specific to contractors or pensioners.
3. In the Tax and Compliance dialog box, select an existing deduction rule to use as a tax-type template, and click Select this Rule and then Finish. Or if you are copying an existing deduction, select the deduction, and click Copy.
4. Enter a name and description of the deduction in the corresponding fields.
5. In the Options sub-tab, in the Source drop-down list, select whether the source of the deduction is Benefits or Payroll.
6. Enter a short name of the deduction in the Display Name field.
7. (Optional) Configure other deduction options. See Sub-Tabs of the Deductions Tab.
8. In the General sub-tab, select the Allow Payee checkbox to configure the application so that the deduction is sent to a payee. See Third Party Payee Configuration.
9. Click Save.

After you save the deduction, the initial configuration of the deduction definition is complete. You still need to configure how the deduction amount is calculated by the application, such as a flat amount per pay, a percentage of another earning, deduction, or a variety of other calculation methods. At this stage, you must specify the deduction parameters and then provide the values for these calculations, typically per pay group.

For example, if the deduction amount for long term disability insurance is calculated as a percentage of regular earnings, four percent for hourly employees and six percent for salaried employees, the deduction parameters define that the calculation method is a percentage of regular earnings, and the pay group specific values specify whether that percentage is four or six percent.

Finally, if the payment represented by the deduction definition is being sent to a payee, you need to select the appropriate payee and define the payment schedule.