Prepared by: Kate Andrea Millan

Chapter 11

Payroll Summary

Payroll it is the total amount that has been paid out to employees for the

services they provided for the organization within a certain period of time. Employees

refers to an individual who works for the organization and receives compensation in

form of salary or wages and while the employer refers to a person or organization that

employs people and pays people to work for them. Payroll period a service period for

which the employer pays salaries or wages to the employees. The remuneration paid

or payable to employees for service performed for his employer is called salaries or

wages. The difference between a salary and wages is that the employee is paid a fixed

amount per pay period while a wage or a wage earner is paid by hour. The total

compensation earned by each employee is called gross pay. It consists wages,

salaries, commissions, bonuses and other type of earnings before taxes and related

deductions are taken out of it. Salary and wage rated are determined by the agreement

between the employer and employee subject to the Minimum Wage Law and the Labor

Code of the Philippines. Regular working hours should be not more done 40 hours in

a week or 8 hours in a day. In addition, if employees worked for more than 8 hours a

day, they should be additionally paid at least 25%compensation. For employees

worked a night shift between ten o’clock in the evening and six o’clock in the morning

shall be paid not less than 10% of his regular pay for each hour of work. Employees

that work on Sundays calls for overtime pay at a premium of 30% while work on

holidays requires a 100% premium.

Private employees, who is not over 60 years old, either permanent or temporary is

subject to compulsory coverage under the Social Security System (SSS) and the

National Health Insurance Program (NHIP) and the PAG-IBIG Fund.

SSS administered two programs namely: Social Security Program and the Employee’s

Compensation Program. Employees who are registered with the SSS can benefit the

Social Security and Employee’s Compensation program such as sickness, maternity,

disability, retirement and death benefits.

National Health Insurance Program (NHIP) or PhilHealth formerly known as the

Medicare. Employees also as an SSS members as well as their dependents can

benefit health insurance program whereby the healthy help pay for the care of the sick

and for those who can afford medical care to subsidize those who cannot. The program

ensures affordable, acceptable, available and accessible health care services.

PAG-IBIG Fund promotes the benefits of savings program as well as home ownership,

through affordable shelter financing of its members. It offers short-term loans and

access to housing programs.

Employees’ Payroll Deductions and Employer’s Payroll Expenses.

The employees’ monthly contributions are based on the compensation includes the

basic monthly salary plus cost of living allowance and payable under the 3 programs:

Social Security Benefits, Philhealth Benefits and Employee’s Compensation Benefits.

For Social Security Benefits the contribution is 8.4% of average monthly not exceeding

P12,000 and both are payable by employer 5.04% and employee 3.36%. And for

Philhealth Benefits, the contribution is 2.75% based on the monthly basic salary, with

a salary floor of P10,000 and salary ceiling of P40,000, and equally shared by the

employer and employee. The other one, is the contribution of Employee’s

Compensation Benefits of 1 % of monthly compensation not exceeding P1,000 and

payable only by the employer. In the other hand Pag-IBIG Fund Contributions, for

employees their contribution is 1% if earning not more than P1500 per month, if

earning more than P1500 the contribution will be 2%. And for the employers,

contribution also is 2% of the monthly compensation of the contributing employee.

Withholding Taxes is the amount that an employer withholds from employees’ salary

or wages and pays directly to the government. Withholding taxes are applied on gross

pay after deducting the mandatory contributions of employees and other non-taxable

benefits upon the recommendation of the Commissioner of the Bureau of Internal

Revenue.

The amount of pay remaining for issuance to an employee after deductions have been

taken from individual’s gross pay is called net pay. Net pay is the amount paid to each

employee on pay day.

Payroll System was developed by the accountants to make payroll accounting

accurate and timely. There are components of the payroll system, first is the time

cards, this may be filled in either manually or through time clocks in order to have

accurate and reliable record of employees’ work hours; regular and overtime. The

second one is the payroll register; it is a special journal where entity organizes the

payroll data of each employee. Next one is the employee earnings record, this form

designed to help the employer to keep a detailed record of earnings and withholdings

for each employee. Another one is the pay slip, check or ATM, if payments of salaries

or wages are made in cash, payroll slips should be prepared for every period of payroll.

Most employers use a bank account to disburse pay checks to employees having a

large number of employees. Other employers also pay their employees through their
automated teller machine (ATM) accounts. Moreover, employer shall collect

contributions of members through payroll deductions, at certain dates, the employer

is required to remit the employees’ contributions along with his counterpart

contributions. Might as well, the organization must also establish controls to ensure

that payroll disbursements are made only to legitimate employees and for correct

amounts. There should be a restricted access to personnel and payroll records, forms

and other documents to authorized personnel only to prevent the misappropriation of

cash and unauthorized labor payments.