Ways to Avoid the 3 Common Payroll Errors

Making mistakes is normal, but making the same mistake repeatedly is unreasonable. Most payroll and HR personnel experience these common errors when preparing their company’s payroll register. Even tenured payroll and HR personnel may tend to be complacent due to the repetitive work and overlook some items when doing the payroll of employees. They may forget to check the timesheet of every employee, excluding overtime, or include undertime. They may forget the treatment of de minimis benefits or the excess of the Php 90,000 limit of the other benefits. They may incorrectly compute the net pay of employees.

Payroll registers are easy to prepare, but intricate in terms of the principles or basis used to produce an accurate payroll report. Payroll-related technical knowledge from government agencies should be updated once in a while to avoid common errors in payroll preparation. In this article, we will tackle three of the most common payroll errors and discuss ways to avoid them.

1. A lack of timesheet validation may affect the computation of gross compensation.

In order to avoid incorrect timesheet records applying to the payroll register, the company could establish a payroll manual that would include timesheet validation before the generation of the payroll register. The payroll department could assign a staff member to review the timesheet before using it for generating payroll registers. The staff should be able to review the factor or number of working or paid days in a year, the absences, undertime, lateness, overtime, night shift differential, premium, or holiday pay.

2. Erroneous specifications of taxable and non-taxable compensation may affect the computation of the withholding tax on compensation.

In order to classify the taxability of the compensation correctly, the Payroll and HR Personnel should be well-informed about the general rules and exemptions on payroll-related taxable items. Generally, all forms of compensation are taxable except for the items identified in BIR Form 2316, such as:

1. Basic Salary (including the exempt P250,000  & below) or the Statutory Minimum Wage of the MWE
2. Holiday Pay (MWE)   
3. Overtime Pay (MWE)
4. Night Shift Differential (MWE)                       
5. Hazard Pay (MWE)   
6. 13th Month Pay and Other Benefits (maximum of P90,000)
7. De Minimis Benefits   
8. SSS, GSIS, PHIC & PAG-IBIG Contributions and Union Dues (Employee share only)
9. Salaries and Other Forms of Compensation

Apply the proper taxability of compensation based on the regulation reflected in RR 11-2018. If not sure about the items, whether the allowance or incentive is taxable or not, identify first if the allowance or incentive is included in the non-taxable compensation enumerated above. If not, this may be deemed taxable. Then, you may also assign a staff to review the specification of taxable or non-taxable compensation if this is not a recurring incentive or allowance.

3. Miscalculating the payroll computation, formula, contributions, or withholding tax on compensation may produce an incorrect payroll.

In order to be cautious about the calculations of the payroll register, the Payroll and HR Personnel should be well informed about the new updates for the SSS, PHIC, HDMF table of contributions, and the BIR revised tax table. Use the proper formula and computation if you are doing a manual payroll. Double check the reflected amount of government contributions if correct and recompute the withholding tax on compensation of employees. The company may also assign a staff to review the formula of the payroll computations, the amount of the contributions, and withholding tax on compensation. In summary, common payroll errors may be avoided by being well-informed about the technical knowledge of each government agency related to payroll preparation. A consistent and strict peer review may also prevent typo or formula errors and incorrect classification of taxability of allowances or incentives, or other types of compensation. A payroll manual may also help the payroll department since all important policies and processes reflect on it. Cautiousness and consciousness are the keys.

Summary: Most of the payroll associates may forget to review the timesheets of every employee, excluding overtime, or including undertime. They may forget the inclusions and treatment of de minimis benefits or the excess of the Php 90,000 limit of the 13th month’s pay and other benefits and may miscalculate the net pay of employees. This article will tackle three of the most common payroll errors and discuss ways to avoid them.