Deductions for Benefit Premiums

As a courtesy to your employees, if you offer benefits for which employees must share in the cost, you should deduct the amounts of premiums for those benefit plans to make sure that premiums are paid appropriately (after all, you're responsible for the payments as the employer providing the benefit).

Minimum wage implications. Where the deductions for pension or health plans cut into statutory minimum wage and overtime pay requirements, you can deduct them only if the employee voluntarily agrees and you don't get any profit or benefit from the transaction.

Get the employee's permission. Generally, if you enroll in any kind of employee benefit plan, the insurance carrier or benefit provider will provide you with the necessary forms to enroll employees in the plan. If a payroll deduction for part of the premiums is necessary, the forms should also have a part that specifically allows you, as the employer, to make deductions from the employee's paycheck and will provide a space for the employee to sign, acknowledging that the deductions will be taken. Be sure you have the employee's signature before making any deductions.

Generally, benefit premiums are paid monthly, but employees are usually not paid once a month. The best way to handle this is to prorate the premium amount over the number of pay periods in the month.


Bob is an employee of the Buy -n- Fly convenience store, which offers its employees a health insurance plan and pays its employees bi-weekly.

If Bob's monthly premiums for his health insurance coverage are $100, then the employer can take $50 out of each of the two paychecks that Bob receives for the month.

For months when there are three pay days in a month, the third check would not have any health insurance premiums deducted.

Administering benefits deductions. In administering benefits deductions, it's important to know what you're paying for and when you're paying for it. Some companies want you to pay for the month's premiums in advance, which would mean that the deductions you make in March are for coverage in April. It can get tough to keep track of it, especially when people change their coverage levels (from single coverage to family coverage and vice versa). It may mean that you'll have to make refunds or withhold extra money from employees to make up for coverage increases, unless you have enough notice to make the adjustments beforehand.

Benefit providers usually send an itemized billing list once a month for the coverage that you are carrying on employees. Take care to reconcile this statement each month and make sure that you're not paying for coverage that employees no longer have and that your employees' deductions are enough to pay for the coverage they have. Make sure that employees who have terminated coverage are taken off your bill, too.