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.

By: Garry S. Pagaspas, CPA

Under Republic Act No. 9504 implemented by Revenue Regulations No. 10-2008, statutory minimum wage earners are exempted from income tax, and consequently from withholding tax on compensation. While this is a much welcomed legislation for the labor sector, some employees and employers in the Philippines are not aware on how to determine whether or not the salary or compensation in the Philippines is within the statutory minimum wage. For this purpose, this articles attempts to share simple rules on how to determine tax exempt statutory minimum wage in the Philippines.

How to determine minimum wage for daily paid employee Philippines?

For a daily paid employee, simply compare the employee rate per day with the minimum wage of NCR (e.g. 481 a day inclusive of ECOLA). If rate is equal to minimum wage, then, the same is exempted from withholding tax on compensation – basic minimum wage and the corresponding holiday, hazard, overtime, and night shift differential of such employee. If daily rate is more than the minimum wage, then, taxable.

How to determine minimum wage for a monthly salaried employees Philippines?

For a monthly paid employee, you need to determine if the amount of monthly salary is equivalent to the daily rate for statutory minimum wage in the Philippines. You can do it in either of the two (2) ways:

1. Multiply the statutory minimum wage by the denominator depending on the coverage of the employee’s monthly rate and compare with the actual monthly rate of the employee; or,
2. Convert the employee’s monthly rate to daily rate and compare the daily rate with minimum wage

In converting the monthly rate to daily rate, you need to choose the denominator depending on the coverage of such monthly rate as to number of working days in a year as follows:

• 261 days – for those who do not work and are not considered paid on Saturdays, Sundays or Rest Days;
• 313 days – for those who do not work and are not considered paid on Sundays or Rest Days;
• 365 days – for those who do not work but are considered paid on rest days, special days, and regular holidays;
• 392.5 days – for those required to work everyday including Sundays, and Rest Days;

Please refer to the Annex “B” of Revenue Regulations No. 10-2008 for further details of such denominator.

Example: Is 12,546.08 monthly basic salary covering Monday to Saturday work with regular and special holidays considered paid taxable? For this purpose, let us use P481.00 a day statutory minimum wage in Metro Manila, Philippines effective April. 4, 2015.

First step – Determine the applicable denominator.

In this case, let us assume its 313 – for those who do not work and are not considered paid on Sundays or Rest Days using Annex “B” of Revenue Regulations No. 10-2008.

Second step – determine equivalent monthly rate (EMR) of the statutory minimum wage

To determine the equivalent monthly rate (EMR) simply multiply the statutory daily minimum wage by the denominator in Step 1. – P481.00 a day multiplied by 313 days divided by 12 months equals P12,546.08.

Alternatively, you can convert the employee’s actual monthly rate to daily rate to check whether or not such daily rate is equivalent to the minimum wage. To do so, multiply the employees actual monthly rate by 12 months divided by denominator in Step 1 (12,546.08 x 12)/313 or P480.999 a day or simply P481 a day.

Third step – compare converted employee actual ate with minimum wage rate

Based on the computation P481.00 actual daily rate or P12,546.08 actual monthly rate of such emloyee is statutory minimum wage.

Conclusion:

Employee with a monthly basic salary of P12,546.08 under 313 denominator is statutory minimum wage. As such, the employee is exempted from income tax and consequently, exempted from withholding tax on compensation with respect to the following, B-HON:

• Basic salary;
• Holiday pay;
• Hazard pay;
• Overtime pay; and,
• Night shift differential

Finally, it is strongly suggested that you adopt in strict terms the rules for statutory minimum wage so as to avoid the implications of misapplications. Should you fail to withhold the withholding tax on compensation, then, the tax authority or BIR will assess deficiency tax based on the amount of withholding tax that you should have withheld as employer plus penalties. The corresponding salaries expense will likewise be disallowed for failure to withhold under Section 34(k) of the Tax Code of the Philippines, as amended.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.