What is the hierarchy of payroll deductions?

Question

Justin Parker · Accepted Answer

The hierarchy of payroll deductions consists of mandatory deductions, voluntary deductions, and wage garnishments. The hierarchy of payroll deductions refers to the order and precedence of payroll deductions when an employer is calculating an employee's net compensation.

Here is a closer look at the typical hierarchy of payroll deductions starting at the top of the hierarchy with the most prioritized payroll deduction:

Mandatory deductions
Mandatory payroll deductions have this name and status because they are required by law. This includes federal, state, and local taxes, and Medicare and Social Security taxes. These deductions normally take top priority in the payroll deduction hierarchy of an organization.
Voluntary deductions
Coming in second in terms of priority are any voluntary deductions. These are deductions that an employee has agreed to have withheld from their pay and are voluntary. Examples include health insurance premiums, contributions to a retirement plan, medical expenses, and flexible spending accounts (FSA) used for dependent care.
Wage garnishments
The process of garnishing wages sees a creditor taking legal action for a debt owed by an employee, thus making the employee's employer garnish their wages, or skim money from their paychecks, to repay the employee's debt to the creditor. Wage garnishments are court-ordered, and in general, are the third priority in a payroll deduction hierarchy.
It is worth mentioning that the specific order of the payroll deduction hierarchy can differ depending on the specific company and its internal policies. Also, there can be other deductions that might impact the order of payroll deductions, such as child support or wage assignments.