PAYROLL ACCOUNTING

Payroll represents compensation paid to employees and workers. Employees are paid salaries based on a monthly or
semi-monthly rate while workers are paid wages based on a daily, hourly or piece rate.
The following are the agencies where taxes and contributions are required to be paid:
BIR - Bureau of Internal Revenue
SSS - Social Security System
PhilHealth - Philippine Health Insurance Corporation
HDMF - Home Development Mutual Fund or Pag-ibig

A payroll sheet is a tabular form prepared by the Accounting Department to determine the take home pay of employees
and workers. It consists of columns listing the following:
1. Employee’s or worker’s name
2. Gross pay representing compensation (salary/wage) earned for a certain period of time
3. Deductions for payroll liabilities
4. Net pay or take home pay
5. Signature signifying receipt of salary/ wage by the employee/ worker
Most businesses pay their employees semi-monthly salaries. In this module, we will be computing the payroll based on
their semi-monthly salaries.
DEDUCTIONS FROM GROSS PAY
The gross pay is not the actual amount to be received by an employee or worker because of the following payroll
liabilities which are deducted from their pay as required by law:
Income Tax. Based on earnings made, every employee or worker is required to pay taxes to the government. The amount
withheld form their salaries/ wages is based on the taxable income computed using a tax table and a list of exemptions
provided by the BIR which was just recently amended by the TRAIN LAW. Withholding tax tables are available for
various payroll periods, such as daily, weekly, semi- monthly and monthly. The Tax Table effective January 1, 2018 until
December 31, 2022 is shown below.

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SS. It is required that an employee or worker be a member of the Social Security System and must make monthly
contribution to this agency. Employers are required to pay SSS contributions on wages paid to employees in addition to
the SSS contributions they deduct from their employee’s paychecks.
Employees’ Compensation (EC) Program. It aims to assist workers who suffer work related sickness or injury resulting
in disability or death.

❖ Employee’s Compensation Benefits- payable only by the employer.

SSS mandatory Provident Fund. It is called WISP or “Workers’ Investment & Savings Program,” is an additional
retirement savings plan providing additional monetary benefit to members upon reaching the age of retirement, according
to the SSS.

❖ Starting January 2021, all employed SSS members with monthly salary credit of at least P24,750 will
need to contribute P650.00 to the mandatory SSS Provident Fund. This amount is to be shared by the
employee and employer, with the employee paying P225.00 and the employer paying P425.00 every
month.
To simplify, a contribution schedule is provided below. For a better resolution, open the picture of SSS Contribution
Table in your file.

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PhilHealth. Employees or workers are required to be members of the Philippine Health Insurance and enjoy sickness and
hospitalization benefits. PhilHealth monthly contributions shall be 3% computed straight based on the monthly basic
salary, with a salary floor of ₱10,000 and a ceiling of ₱60,000, to be equally shared by the employee and their employer.
Contribution for salaries amounting to ₱10,000 and below is fixed at ₱ 300 while contributions for salaries amounting to
₱60,000 and above is fixed at ₱1,800.

HDMF/ Pag-Ibig (Pagtutulungan sa kinabukasan: Ikaw, Bangko, Industriya at Gobyerno). RA 9679 also known as
HDMF Law 2009 requires mandatory coverage of all employees.

❖ Employees earning not more than ₱1,500 per month- 1%, or

Employees earning more than ₱1,500 per month- 2%

❖ Employers- 2% of the monthly compensation of the contributing employee

Note: The maximum monthly compensation to be used in computing employee and employer contributions shall not be
more than ₱5,000; the effect will be a maximum contribution of only ₱100.

Union Dues. An employee or worker may be a member of a labor union and us such is also required to make contribution
to the union.
Advances. In case of emergency or necessity, employees or workers are sometimes allowed to draw a cash advance
against their compensation.
PAYROLL SHEET ILLUSTRATED: SAMPLE PROBLEM 1
To illustrate, assume that the following are employees of Speedy Delivery Service owned and operated by John
Dimatulac:
Employees Position Monthly Salary Cash Advance
Danilo Cruz Driver/Messenger ₱12,400
Enrica Fajardo Delivery Clerk 14,600 ₱500
Stephanie Perez Delivery Manager 18,000

Assuming that Speedy Delivery Service pay their employees on a semi-monthly basis, we are required to prepare the
payroll sheet of Speedy Delivery Service for the period January 1 to 15, 2021.
The Payroll Sheet of Speedy Delivery Service will appear as follows:
SPEEDY DELIVERY SERVICE

PAYROLL SHEET

Names Position Gross Pay Withholding Tax Social PhilHealth HDMF Total Cash Net Signature
Security Deductions Advance Pay
Danilo Cruz Driver/ Messenger ₱6,200.00 ₱- ₱281.25 ₱93.00 ₱50.00 ₱424.25 ₱5,775.75

Enrica Fajardo Delivery Clerk 7,300.00 - 326.25 109.50 50.00 485.75 ₱500.00 6,314.25

Stephanie Perez Delivery Manager 9,000.00 - 405.00 135.00 50.00 590.00 8,410.00

₱22,500.0 - ₱1,012.5 ₱337.50 ₱150.00 ₱1,500.00 ₱500.00 ₱20,500.00

0 0

Note: For a better presentation of the payroll sheet, open the file entitled PAYROLL SHEET.
*Net Pay = Gross Pay-Total Deductions – Cash Advance (if there is any)
JOURNAL ENTRY TO RECORD THE PAYROLL:
Date Particulars F Debit Credit

2021

Jan. 1 Salary Expense ₱ 2 2 50 0

5
SS Premiums Payable ₱ 1 0 1 2 50

PhilHealth Premiums Payable 3 3 7 50

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 HDMF Premiums Payable 1 5 0

Advances to Employees * 5 0 0

Cash 2 0 5 0 0

To record payroll for the first half of

January

* Entry and analysis on January 10 assuming Enrica got a cash advance on this date:
Date Particulars F Debit Credit

2021

Jan. 10 Advances to Employees ₱ 50 0

Cash on Hand ₱ 5 0 0

To record cash advance for Enrica

Computations:
GROSS PAY:
Since the given salaries are their monthly gross pay, semi-monthly salaries are computed as follows:

Danilo Cruz- ₱ 12,400

÷ 2_
₱ 6,200

Enrica Fajardo- ₱ 14,600

÷ 2_
₱ 7,300

Stephanie Perez- ₱ 18,000

÷ 2_
₱ 9,000
SS CONTRIBUTION:
Note that SS contribution depends on where the employee’s salary falls within the range of compensation.

Danilo Cruz - SS Contribution (Monthly) ₱562.50

÷ 2_ SS
Contribution (Semi- Monthly) ₱281.25

Explanation: Since Danilo Cruz’ salary is ₱12,400, in the SS table his range of compensation is ₱12,250 and ₱12,749.99.
His monthly SS contribution is ₱562.50 (found under Regular Social Security, EE column).

Enrica Fajardo- SS Contribution (Monthly) ₱ 652.50

÷ 2_
SS Contribution (Semi- Monthly) ₱ 326.25

Explanation: Since Enrica Fajardo’s salary is ₱14,600, in the SS table her range of compensation is ₱14,250 and
₱14,749.99. Her monthly SS contribution is ₱652.50 (found under Regular Social Security, EE column).

Stephanie Perez- SS Contribution (Monthly) ₱ 810

÷ 2_
SS Contribution (Semi- Monthly) ₱ 405

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Explanation: Since Enrica Fajardo’s salary is ₱18,000, in the SS table her range of compensation is ₱17,750 and
₱18,249.99. Her monthly SS contribution is ₱810 (found under Regular Social Security, EE column).

PHILHEALTH CONTRIBUTION:

Danilo Cruz-
Monthly Salary ₱12,400
X 3% PhilHealth
Contribution (Monthly) ₱ 372

The PhilHealth contribution of ₱372 is equally shared by employer and employee, thus:

Monthly Share of Danilo Cruz- (₱372÷ 2) ₱186

Semi- monthly share of Danilo Cruz (₱186÷2) ₱93

Enrica Fajardo-
Monthly Salary ₱14,600
X 3%
PhilHealth Contribution (Monthly) ₱ 438
The PhilHealth contribution of ₱438 is equally shared by employer and employee, thus:

Monthly Share of Enrica Fajardo- (₱438÷ 2) ₱219

Semi- monthly share of Enrica Fajardo (₱219÷2) ₱109.50
Stephanie Perez-

Monthly Salary ₱18,000

X 3%
PhilHealth Contribution (Monthly) ₱ 540
The PhilHealth contribution of ₱438 is equally shared by employer and employee, thus:

Monthly Share of Stephanie Perez- (₱540÷ 2) ₱270 Semi- monthly share of

Stephanie Perez (₱270÷2) ₱135

HDMF/PAG-IBIG CONTRIBUTION:
Danilo Cruz-

Since the monthly salary of Danilo Cruz amounting to ₱12,400 is higher than ₱5,000, ₱5,000 will be used in computing
employee and employer contributions which is the maximum monthly compensation, the computation will be as follows:

Maximum monthly compensation ₱5,000

X 2%
Pag-Ibig Contribution (monthly) ₱ 100
÷ 2
Pag-Ibig Contribution (semi-monthly) ₱ 50

Enrica Fajardo-

Since the monthly salary of Enrica Fajardo amounting to ₱14,600 is higher than ₱5,000, ₱5,000 will be used in
computing employee and employer contributions which is the maximum monthly compensation, the computation will be
as follows:

Maximum monthly compensation ₱5,000

X 2%
Pag-Ibig Contribution (monthly) ₱ 100
÷ 2
Pag-Ibig Contribution (semi-monthly) ₱ 50

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Stephanie Perez-
Since the monthly salary of Stephanie Perez amounting to ₱18,000 is higher than ₱5,000, ₱5,000 will be used in
computing employee and employer contributions which is the maximum monthly compensation, the computation will be
as follows:
Maximum monthly compensation ₱5,0
00
X 2
%
Pag-Ibig Contribution (monthly) ₱
100
÷ 2
Pag-Ibig Contribution (semi-monthly) ₱ 50

WITHHOLDING TAX:
In order to compute for the withholding tax, taxable net income should be computed
first. Thus,
Danilo Cruz Semi-monthly
Gross Pay ₱ 6,200
Less: SS ₱ 281.25
PhilHealth 93.00
Pag- Ibig 50.00 424.25
Net Taxable Income ₱5,775.75

Note: Since the net taxable income of Danilo Cruz is within the 10,417 exempt level (refer to the withholding tax table) ,
the prescribed minimum withholding tax of Danilo Cruz is
0.
Scenario: Assuming that the net taxable income of Eric Lee is ₱11,001.22, tax for Eric Lee is ₱116.84 based on
₱11,001.22- ₱10,417.00 exempt level= ₱584.22 x 20%= ₱116.84.
(please refer to the withholding tax table)
Enrica Fajardo Semi-monthly
Gross Pay ₱ 7,300.00
Less: SS ₱326.25
PhilHealth 109.50
Pag- Ibig 50.00 485.75
Net Taxable Income ₱ 6,814.25
Note: Since the net taxable income of Enrica Fajardo is within the 10,417 exempt level (refer to the withholding tax table)
, the prescribed minimum withholding tax of Enrica Fajardo is 0.
Stephanie Perez Semi-monthly
Gross Pay ₱ 9,000.00
Less: SS ₱405.00
PhilHealth 135.00
Pag- Ibig 50.00 590.00
Net Taxable Income ₱ 8,410.00

Note: Since the net taxable income of Stephanie Perez is within the 10,417 exempt level (please refer to the withholding
tax table), the prescribed minimum withholding tax of Stephanie Perez is 0.

EMPLOYER’S CONTRIBUTIONS

The law also requires the employer (business) to make corresponding contributions for SS, PholHealth, HDMF or Pag-
Ibig and EC premiums for and in behalf of their employees and workers. A schedule of total employer’s contributions,
based on the given illustration, will appear thus:
SS PhilHealth EC HDMF TOTAL

Danilo Cruz ₱1,062.50 ₱186.00 ₱10.00 ₱100.00 ₱1,358.50

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Enrica Fajardo 1,232.50 219.00 10.00 100.00 1,561.50

Stephanie Perez 1,530.00 270.00 30.00 100.00 1,930.00

₱3,825.00 ₱675.00 ₱50.00 ₱300.00 ₱4,850.00

SS:
Can be found in the SSS CONTRIBUTION TABLE under Regular Social Security, ER column

Philhealth:

Danilo Cruz (12,400*3%)/2

Enrica Fajardo (14,600*3%)/2
Stephanie Perez (18,000*3%)/2
EC:
Can be found in the SSS CONTRIBUTION TABLE under Employee's Compensation,
ER Column
HDMF:
The maximum monthly compensation to be used in computing employee and employer contributions shall not be
more than ₱5,000; the effect will be a maximum contribution of only ₱100.
Based on this, an added entry will be prepared but only at the end of the month.