What is Payroll?

Payroll is the sum of all compensation a business must pay

to its employees for a set period or on a given date. The
accounting department of a business usually manages it;
small-business payrolls may be handled directly by the
owner or an associate. Payroll can also refer to the list of
employees of a business and the amount of compensation
due to each of them. It is a major expense for most
businesses and is almost always deductible as such.

PAYROLL PROCESS

1Set up new employees

2Collect timecard information
3Verify timecard information
4Summarize wages due
5Calculate applicable taxes
6Calculate applicable wage deductions
7Enter employee changes
8Account for separate manual payments
9Create payroll register
10Print paychecks
11Enter payroll information in general ledger
12Send out direct deposit notifications
13Issue paychecks.
14Issue government payroll reports Premium Pay

ELEMENTS IN COMPUTATION OF NET PAY  Premium pay is given on non-working days (rest
days/special holidays)
 Basic Pay
 There are 3 special holidays:
 Overtime Pays
 Taxable/nontaxable allowances – Ninoy Aquino Day
 Deductions – All Saints Day
 Withholding Tax – Last Day of the Year
 Basic Pay Premium Pay Rates:
 Basic Pay is a fixed amount of salary that an employee is
eligible for in return of the work he does. It does not  – On a rest day or special holiday, an employee is entitled to
include benefits, bonuses, or any other potential form of an additional 30% of his daily basic rate, or a total of 130%.
compensation from the employer.
 – On a rest day which is also a special holiday, an employee
Minimum Wage
is entitled to an additional 50% of his daily basic rate, or a
 is the lowest or the minimum amount that an employee can total of 150%.
receive in rendering as service or work to a certain
 – On a regular holiday which is also an employee’s rest day,
employer.
an employee is entitled to an additional 30% of the regular
holiday rate of 200%, or a total of 260%. Note that it is only
applicable to employees covered by the holiday-pay rule.
Different Types of Paid Leaves
 The “no work, no pay” principle applies during special non-
 Sick Leave (SL) working days and such other special days as may be
 Vacation Leave (VL) proclaimed by the President of the Philippines.
 Service Incentive Leave (SIL)
 Maternity Leave (ML)
 Paternity Leave HOLIDAY PAY
 Parental Leave  The Labor Code requires the payment of an employee’s
 Rehabilitation Leave daily basic wage for all non working regular holidays.
 Study Leave
 12 regular holidays are (Republic Act No. 9849):
Overtime Pay

 Minimum wage is based on a work week of 40 hours or 8

hours per day. The daily 60 minute mandatory lunch break is – New Year’s day
not included in the 8 hour work day and is not compensated. – Maundy Thursday
– Good Friday
 Overtime Rates: – Araw ng Kagitingan
– Labour Day
– Regular work day: plus 25% of the hourly pay rate. – Independence Day
– Rest day, regular/special holiday: plus 30% of the – National Heroes’ Day
hourly rate on said day. – Eidl Fitr
– Eidl Adha
 – Bonifacio Day -For tax purposes, only the benefits considered as “de
– Christmas Day minimis” are considered as tax-exempt. All other benefits
– Rizal Day given by the employers which are not included in the listing
of “de minimis benefits” are considered taxable.
NIGHT SHIFT DIFFERENTIAL
De Minimis Benefits includes:
 For work done between the hours of 10pm to 6am,
employees are entitled to Night Shift Differential (NSD),  Monetized unused vacation leave credits of employees not
which represents an additional 10% to the regular wage for exceeding ten (10) days during the year; (RR No. 5-2011)
each hour of work performed.
 Monetized value of vacation and sick leave credits paid to
Computing Overtime: government officials and employees; (RR No. 5-2011)
 Medical cash allowance to dependents of employees, not
 On Ordinary Days exceeding P750 per employee per semester or P125 per
Plus 25% of the hourly rate multiplied by the number of month; (RR No. 5-2011)
hours.  Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per
 On a rest day, special day or regular holiday month amounting to not more than P1,500; (RR No. 5-
Plus 30% of the hourly rate on said days multiplied by the 2011)
number of hours.  Uniform and Clothing allowance not exceeding P5,000 per
 Computing pay for work done on: annum; (RR No. 8-2012)
 Actual medical assistance, e.g. medical allowance to cover
 A special day (130% x basic pay)
A special day, which is also a scheduled rest day medical and healthcare needs, annual medical/executive
(150% x basic pay) check-up, maternity assistance, and routine consultations,
A regular holiday (200% x basic pay) not exceeding P10,000.00 per annum; (RR No. 5-2011)
A regular holiday, which is also a scheduled rest day  Laundry allowance not exceeding P300 per month; (RR No.
(260% x basic pay) 5-2011)
 Employees achievement awards, e.g., for length of service
 Computing Night Shift Premium Where Night Shift is a
Regular Work:
or safety achievement, which must be in the form of a
tangible personal property other than cash or gift
 -On Ordinary day (110% x basic hourly rate) certificate, with an annual monetary value not exceeding
 -On a rest day, special day, regular holiday (110% of P10,000 received by the employee under an established
regular hourly rate for a rest day, special day, regular written plan which does not discriminate in favor of highly
holiday) paid employees; (RR No. 5-2011)
 Computing Overtime on Night Shift:  Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per
 -On ordinary day (110% x overtime hourly rate) annum; (RR No. 5-2011)
 -On rest day, special day or regular holiday (110% x  Daily meal allowance for overtime work and
overtime hourly rate for rest days, special days, regular night/graveyard shift not exceeding twenty-five percent
holidays) (25%) of the basic minimum wage on a per region basis;
SEPARATION PAY (RR No. 5-2011)
 A separation pay of ½ month pay for every year of service  Benefits received by an employee by virtue of a collective
can be claimed under the following authorized causes: bargaining agreement (CBA) and productivity incentive
– Retrenchment of person for loss prevention. schemes provided that the total monetary value received
– Cessation of operation of a branch not due to serious from both CBA and productivity incentive schemes
losses or financial difficulties. combined do not exceed P10,000.00 per employee per
– If the employee has contracted a disease not curable taxable year. (RR No 1-2015)
within 6 months and that his presence at work can be DEDUCTIONS
harmful to himself or his co-workers.
 Pag-IBIG (HOME DEVELOPMENT MUTUAL FUND)
 A separation pay of 1 month pay for every year of service
o through the Republic Act No. 9679, the HDMF
can be claimed under the following authorized causes:
answers two important needs for Filipino
– Labor-saving devices installed by the employer.
– Redundancy of the employee’s services for the company. workers by establishing a national savings
– Impossibility to reinstate the employee to his former program and an affordable house financing
position or to an equivalent position, for reasons outside of system.
the employer’s power. o P100 standard contributions
 PHILHEALTH
RETIREMENT PAY
o The National Health Insurance Program was
 A pay that an employee will received upon reaching he retirement established to provide health insurance coverage
age of 60-65 years old provided the employee have served the and ensure affordable, acceptable, available, and
establishment for at least 5 years. accessible health care services for all citizens of
the Philippines
Taxable and Nontaxable allowances o Contributions are based on salary range.
DE MINIMIS” BENEFITS o National Insurance Act pf 2013 R.A. 10606
 Social Security Services (SSS)
  By law, private sector employees  Tax on P15,833 P 1,875.00
must be covered under the Social Tax on excess (P9,167 x 25%) 2,291.75
Security System (SSS). Based on Withholding tax for January 2011 P 4,166.75
each employee’s gross monthly
pay, both the employer and  Example 2: Married with qualified dependent children
employee remit monthly receiving semi-monthly compensation
contributions to the SSS. In turn,
 Jose Cruz, married with three (4) qualified dependent
the SSS benefits cover maternity,
children receives P14,000 (net of SSS/GSIS,PHIC,HDMF
retirement, sickness, disability,
employee share only) as regular semi-monthly
death and pension benefits.
compensation. His wife is also employed but he did not
 R.A. 8282 Social Security Law waive his right in favor of the wife to claim for the additional
exemptions.
 Tardiness/Absences
 Loans
 Insurances
WITHHOLDING TAXES

 is the tax withheld from income payments to individuals

arising from an employer-employee relationship 
 Methods of computing tax withheld on compensation  Computation: Using the semi-monthly withholding tax
tables, the withholding tax due is computed by referring to
 Use of withholding tax table Table B line 4 ME4 of column 6 which shows a tax of P937.5
 Cumulative average method on P12,083 plus 25% of the excess (P 14,000 – 12,083 =
 Annualized withholding tax method P1,917).

 Total taxable compensation P 14,000

Steps in computing amount of tax to be withheld
Less: compensation level
 Example 1: Single with no dependent receiving monthly (line B-4 Column 6) 12,083
compensation Excess P 1,917
Tax on P12,083 P 937.50
Juan Santos, single with no dependent, receives P18,000 Tax on excess (P1,917 x 25%) 479.25
(net of SSS/GSIS,PHIC,HDMF employee share only) as Semi-monthly withholding tax P1,416.75
monthly regular compensation and P 7,000 as
supplementary compensation for January 2011 or a total of GOVERNMENT PAYROLL REPORTS
P25,000. How much is the withholding tax for January
 1601C- Monthly Remittance Return of Income Taxes
Computation: Withheld on Compensation

 By using the monthly withholding tax table, the withholding  2316 - Certificate of Compensation Payment / Tax Withheld
tax for January 2011 is computed by referring to Table A line For Compensation Payment With or Without Tax Withheld.
2 S (single) of column 6 (fix compensation level taking into
Quiz
account only the regular compensation income of P18,000
which shows a tax of P1,875 on P15,833 plus 25% of the  1-5 Elements of computation of net pay
excess of P 2,167 (P18,000-15,833) plus P7,000
supplementary compensation.  6-7. Problem- Romeo an employee, earned P125 per hour in
his work, he extended to work for another 4 hours due to
bulk of work load he have. That day was a labor day. His
fixed schedule is 7am to 5pm. Compute his overtime pay

 8-10 Problem- Single earned basic pay of P20,000 net of

SSS, Philhealth, HMDF with a transportation and food
allowance of 4000 and a rice subsidy of P1500. Compute the
withholdingtax.

 Regular compensation: P 18,000

Less: compensation level
(line A-2 column 6) 15,833
Excess P 2,167
Add: Supplementary compensation 7,000
Total P 9,167