MORE THAN a million strong workforce, I included, face the daily grind of work demands. What keeps us going? One of the many reasons might be compensation.
As we eagerly await our compensation, a few of us may be those tasked with the noble responsibility of computing payroll on time and accurately up to the last centavo. How is compensation computed? What payroll regulations and updates does one need to know? Here are pertinent M-O-N-E-Y guidelines:
- Maximize the use of payroll software
To manage payroll processing, software systems are advantageous in handling accurate step-by-step procedures in payroll computation, as well as statutory contributions reporting and payslip generation. Payroll software systems can also be programmed to perform human resources tasks such as timekeeping and leave monitoring.
- Observe updated statutory contribution tables
Contributions to Social Security System (SSS), Philippine Health Insurance Corporation (PHIC), and Home Development Mutual Fund (HDMF) have been recently revised.
In accordance with Republic Act (RA) No. 11199, otherwise known as the Social Security Act of 2018, starting January 2023, the members’ contributions will increase from 13% to 14%, wherein the 1% increase will be shouldered by the employer. Consequently, the members’ minimum and maximum monthly salary credits will also be adjusted and will be the basis for the member’s Workers Investment and Savings Program contribution.
On the other hand, RA No. 11223, otherwise known as the Universal Healthcare Law, mandates increases in member premiums by 0.5% every year, starting in 2021, until it reaches its 5% limit in 2025. However, this year’s premium rate increased from 4 percent to 4.5 percent, and the income ceiling increase from P80,000 to P90,000 were thankfully suspended.
For HDMF contributions, RA No. 9679, otherwise known as the Home Development Mutual Fund Act, provides that a 2% monthly contribution is imposed based on the maximum monthly compensation level of not more than P5,000.
Knowing the latest contribution rates will ensure the accuracy of payroll computations.
- Note rules on payroll computation for holidays
The Department of Labor and Employment provides labor advisories on how holiday pay, whether regular or special, is computed. Case in point, employees who worked last Maundy Thursday, Good Friday, and on Monday, April 10, are entitled to 200% of their basic wage for the first eight hours. Should the employee work excess hours, an additional 30% of their hourly rate on the said day, on top of the 200%, shall be paid. On the other hand, employees who decide to work on a regular holiday that also falls on a rest day shall be paid an additional 30% on top of the 200% wage.
- Engage payroll professionals when necessary
For some companies, focusing on their businesses’ core competencies proves more beneficial than handling support and administrative functions such as payroll preparation in-house. Reputable professional firms are more than capable of handling payroll work where the benefits outweigh the costs.
- Yearly review is a must
At the end of the calendar year, payroll annualizations take the spotlight. Knowing the proper adjustments in payroll computations before the year-end generation of payslips, Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316), and Annual Alphabetical List of Employees (alphalist) helps manage mistakes that may have tax consequences.
The Bureau of Internal Revenue (BIR) has released a revised version of the BIR Form No. 2316 that allows the presentation of the tax incentive from the Personal Equity and Retirement (PERA) Fund. A qualified employee-contributor is entitled to a 5% tax credit of the aggregate qualified PERA contributions made in a calendar year, creditable only against the income tax liabilities of the employee.
Under Revenue Memorandum Circular No. 139-2020 and Revenue Regulations No. 6-2021, the 5% tax credit should be evidenced by a PERA-Tax Credit Certificate, wherein such details are to be reported in the column provided for in the alphalist and the BIR Form No. 2316 of the contributor-employee.
Unfortunately, most employees are unfamiliar with PERA as a voluntary retirement program with tax incentives.
In addition, reconciliations of compensation, including bonuses and tax payable amounts reported per books, per returns, and per attachments, further facilitate the review of the completeness and accuracy of payroll computation.
Ensuring that payroll is accurate and timely is a burden that employers and payroll service providers face. But it doesn’t have to be intimidating every time the payroll period comes. Understanding the M-O-N-E-Y matters in payroll practice will make payroll less demanding.
Wendell Ganhinhin is Partner for the Tax Advisory and Compliance at P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines, with 24 Partners and more than 1000 staff members. We’d like to hear from you! Tweet us: @GrantThorntonPH, like us on Facebook: P&A Grant Thornton, and email your comments to email@example.com. For more information, visit our website: www.grantthornton.com.ph.
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