What you make is not what you make: Understanding deductions, benefits, and more

How do deductions work? What are the unseen costs both employers and employees often pay?

Understanding those darn deductions  

Both salaried and hourly workers are subject to multiple deductions from their pay, meaning what they actually receive in their bank account can be as much as only half of what their stated compensation is. This is due to obligations related to taxes—at the federal, state, and sometimes local levels—as well as co-pays for various types of insurance and possibly contributions to 401(k) investment plans. Other deductions might include parking and additional optional services that the employer offers.

Some deductions can be made on a pre-tax basis, meaning that they effectively lower the amount of compensation that’s taxable, which effectively increases the employees’ net compensation by providing them a direct benefit (e.g., money for daycare or medications through FSAs, or Flexible Spending Accounts) while also lowering the amount they must pay to the government. While some of the line items deducted from an employee’s paycheck are mandatory and cannot be changed, many are variable, meaning the employee has options that might make the amount of the deductions higher or lower (e.g., selecting a PPO vs. an HMO vs. no insurance if covered by a spouse or opting for various types of disability or life insurance).

The deductions that are variable are typically evaluated annually as part of an event in November called “open enrollment.” This event enables employees to evaluate the choices they’ve made related to various types of insurance, FSAs, etc. and adjust them over time based on their evolving needs (e.g., daycare might be funded through an FSA when you have younger children, but later you might not require childcare, which will decrease the amount deducted from your payroll).

Included here is a table that nets out the typical deductions that are applied to payroll:

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The unseen costs and benefits of employment   

Your employer also has a litany of unseen costs. For salaried employees, organizations will typically pay around 50% of your insurance premium and sometimes as much as 100%. They’re also paying for any equipment you use (computers, phones, etc.), internet, software office space, coffee, and sometimes perks like your gym membership, laundry services, snacks, etc. And then there’s the cost of training you—maybe through classes that cost money or through the time it takes to get you ramped up and ready to go when you first join the team.  

What it comes down to is this—before you take a job, you need to understand everything that’s provided, including the explicit or published compensation as well as the intangibles, which effectively benefit or cost you in some way. Insurance, 401(k) matching, time-off, face-time, flex-time, commute, gym memberships, dress code, parking, public transportation, and more—all of these add-ons impose costs or provide benefits that can make a huge difference in your overall quality of life. Our Job Scorecard can be a helpful tool for figuring this out.

About Alexis


Alexis Harding is Women at Work’s resident HR expert. A long-time HR professional based in the Boston area, Alexis has rich experience in the HR departments of several large institutions over nearly two decades. She is here to engage with your questions about a range of topics that might be impacting your career and your overall success.


About Christina


Christina Van Houten is the founder of Women at Work. Based in Boston with her husband and two teenage sons, she has spent the last 20 years of her career as a senior executive in the enterprise technology sector. Prior to evolving into tech, Christina founded a women's athletic apparel brand and served in several public interest roles focused on community and economic development. She started working at age thirteen and hasn't stopped since. She’s eager to help women find their way to the best possible life they can achieve.