Understanding the Payroll Register in the Philippines 

A payroll register is a report filled with employee information and payroll figures for a specific payroll cut-off and payout period. A payroll register is composed of the following: 

1. Employee name, number, and position 

2. Payroll cut-off and payout period 

3. Basic rates on a monthly, daily, and hourly basis 

4. Tardiness, undertime, and absences, if applicable 

5. Overtime, night shift differential, premium, and holiday pay, if applicable. 

6. Non-taxable and taxable allowances, if applicable 

7. Gross, non-taxable, and net taxable compensation 

8. Withholding tax on compensation 

9. Loans and cash advances, if applicable,  

10. Net pay 

In every country, there are different labor rules and regulations that need to be followed. In the Philippines, to get the net pay of employees, employees’ basic rates should be identified initially using the factor suggested and determined in the Handbook on Workers’ Statutory Monetary Benefits (WSMB). The following are the common equivalent number of days per year: 

1. 365: Employees who are paid every day of the month, including unworked rest days, special days, and regular holidays 

2. 394.40: Employees who work every day, including rest days, special days, and regular holidays 

3. 313: Employees who do not work and are not considered paid on one rest day per week 

4. 261: Employees who do not work and are not considered paid on two rest days per week 

First, identify the factor to be used in calculating the daily and hourly rates. Second, compute the employee’s daily and hourly basic rates by multiplying the monthly salary by 12 to get the annual salary, then divide it by the factor. Then, divide the daily rate by 8 regular working hours to get the hourly rate. 

For example, A works from Monday to Saturday, earning PHP 15,000.00. Since A is working six days a week and has an unpaid rest day, his factor is 313 days per year.  

Calculation: Daily rate:  (15,000 * 12) / 313 = PHP 575.00 

       Hourly rate:  PHP 575/8 = PHP 71.88  

The amount of tardiness, undertime, and absences are to be deducted from the employees’ semi-monthly/monthly basic salary. To compute the hourly rate, multiply the hourly rate by the number of hours of tardiness, undertime, and absences. 

When calculating the employees’ overtime pay, night shift differential pay, premium pay, and holiday pay, basic rates are required. The WSMB determines the rates to be used, which will be discussed in another article. The determined amount will be added to the net basic pay to get the gross compensation for employees. 

Gross compensation less non-taxable compensation equals net taxable compensation is the standard formula used to determine the withholding tax on remuneration. Unless otherwise excluded by the Code, gross compensation refers to all actual payments made by the employer for services rendered by an employee under an employment contract. Non-taxable compensation enumerated in BIR Form 2316 will be tackled in another article. Net taxable compensation will be the basis for calculating the employee’s withholding tax on the compensation. 

Figure 1: 2023 Revised Withholding Tax Table 

Figure 1 illustrates the withholding tax table that is composed of the mode of payment, compensation range, and the prescribed withholding tax. Employees are exempt from withholding tax on compensation if their annual taxable income is PHP 250,000 or less, and if exceeded, they are subject to tax rates ranging from 15% to 35% based on the withholding tax table. 

Figure 2: 2023 Annual Revised Withholding Tax Table 

Figure 2 illustrates the tax table used for annualization or during the calculation of the annual withholding tax of employees. The same rationale applies to Figure 1, except for the timing of the calculation of withholding tax. More details about the annualization will be discussed in another article. 

When calculating the net pay, the normal equation is gross compensation less the total deduction. Total deductions would include some of the following: 

1. Government contributions from employees 

2. Withholding tax on compensation 

3. Cash advances 

4. Loans  

5. Other related adjustments 

The different components are based on the different rules and regulations of payroll-related government agencies. Understanding these components will help generate an accurate and reliable payroll register for company and employee use.