Module 1 Cat Level 3

Payroll Accounting
Module 1
LEARNING OBJECTIVES:
Careful study of this module should enable you to learn, explain and understand the:
1. Payroll computation whether on a daily, weekly, semi-monthly and/or monthly basis.

2. Computation of Withholding taxes due, SSS premium due, Phil Health, and other deductions.
3. Recording of payroll and present them to the corresponding financial statements.
4. Implement the necessary internal control measure in payroll processing.
I. PAYROLL CONCEPTS
Payroll Accounting -is the process of computing and recording of disbursement for wages and salaries and their
related payroll deductions such as Withholding Taxes, mandatory contributions to the Social Security System, Phil
health, Pag-ibig or Home Development Mutual Funds (HDMF), employees' advances and other allowable deductions.
Payroll administration starts with gathering individual employment requirements necessary such as obtaining the
following:
1. Taxpayer Identification Number (TIN) (require submission of BIR form 2316 for those employees transferring
from a previous employer); (duly stamped by the BIR form no. 1902 for new taxpayers or form 2305 for
employees who need to update their personal exemptions)
2. SSS Number
3. Phil health Number
4. Pag-ibig Number
This information is necessary when submitting quarterly/monthly contribution collection reports to SSS, Phil health
and HDMF. Recently, the Bureau of Internal Revenue has warned employers that the Annual Alphabetical Listing of
Employees from whom Taxes were withheld or ALPHALIST will no longer be accepted if this list includes some
employees who does not have TIN yet.
PAYROLL
Every employer shall pay his employees by means of payroll wherein the following information and data shall be
individually shown:
1. length of time to be paid;

2. the rate of pay per month, week, day or hours, piece, etc.;
3. the amount due for regular work;
4. the amount due for overtime work;
5. deductions made from the wages of the employees; and
6. amount actually paid.
Payroll is normally computed on the basis of the entries in their individual time records. Where employees are paid
on piece, “pakiao”, “takay”, task, commission, or other non-time basis, the employer shall keep and maintain their
production records showing their daily output, gross earning, and the actual number of working hours spent by the
employees on the job bearing the signature or thumb mark of the employees concerned.
Four Phases of Payroll Accounting:
1. Computation of total gross pay for each employee.

2. Determination of deductions for each employee.
3. Recording of gross earnings and deductions in the permanent payroll records.
4. Summarization of the total payroll activity to ease recording in the company's general records.
In general, there are two categories of people working for the business - (1) the employees, and (2) the contractors.
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A worker is called an EMPLOYEE if the person or business that hired him (the employer) has direct total control of
the work job to be performed in which he is hired. The supervision of the employer does not only cover the control
over time, but also on materials/supplies used in work, and the specific way of accomplishing the job.
On the other hand, a CONTRACTOR refers to an independent individual or a business hired by an enterprise to
perform a specific job for a limited period. The task is detailed, but the means and approach are left to the direction
of the independent contractor.
EMPLOYEE VERSUS CONTRACTOR
Example: Consider the security guards of a business. A business could either get the service of an independent
contractor (a security agency) of hire its own employees to function as security guards.
If the business hired a security agency for P50, 000 a month to guard the premises, the journal entry would be as
follows:
July 31 Security Expense 50,000.00

Cash 50,000.00
To record the payment for security service for the Month of July,20CY
It could be inferred from the journal entry that if the business hires the service of an independent contractor, it does
not keep records for supplies, manpower, equipment and other miscellaneous expenses in availing of the service
because these are the responsibility of the independent contractor.
On the other hand, if the employees of the business perform the security work, the recording would be very different.
The business needs to record not only the salaries of the security guards hired as employees but also on their supplies
and equipment used in securing the premises of the business. The business depreciates the equipment used for
security and maintains the records of each employee.
Salary is a fixed amount of compensation for service rendered covering a fixed period of time, usually a month. It
usually refers to the pay of managerial, administrative and rank and file employees.
Wage is fixed amount of compensation for service rendered covering a fixed period of time, usually hours, or a fixed
amount of work, usually by piece. It is usually a compensation given to skilled and unskilled labor.
Example: An employee is hired for P50 per hour and works 40 hours a week. His weekly gross earnings is P2, 000,
(P50 x 40). If an employee is hired for P100 for every piece of work and finished five (5) pieces a day, then his wage
for a day is P500 (P100 x 5).
Bonus refers to the supplemental pay given to employees to motivate employees to work more efficiently and
effectively. This compensation is usually given in the form of mid-year and year-end bonuses (14th month,
15thmonth pay. etc.).
ADDITIONS/DEDUCTIONS TO SALARIES:
OVERTIME PAY:
The Normal Hours of any employee shall not exceed eight (8) hours a day.
Hours Worked shall include (a) all time during which an employee is required to be on duty or to be at a prescribed
workplace, and (b) all time during which an employee is suffered or permitted to work.
In general, any employee who is required to work beyond eight (8) hours on ordinary working days shall be paid an
additional compensation for the overtime work in amount equivalent to his regular wage plus as least twenty-five
percent (25%)thereof.
The Labor Code of the Philippines provides a premium for extra hour's work of any employee. The extra hours worked
shall be given by computing the employee's basic rate per hour plus a premium of twenty-five percent (25%).
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Example: If an employee is hired for P50 per hour and he works for regular eight (8) hour plus six (6) hours overtime,
the computation of the day's gross pay would be:
Basic: (P50 x 8) P400.00

Add: Overtime basic (P50 x 6) P300.00
Overtime premium
(P50x6x25%) 75.00 375.00
Day's Gross Pay P775.00
Stipulated Overtime Rates
Generally, the premium pay for work performed on rest days, special days, or regular holidays is included as part of
the regular rate of the employee in the computation of overtime pay for overtime work rendered on said days,
especially if the employer pays only the minimum overtime rates prescribed by law.
The employees and employer, however, may stipulate in their collective agreement the payment for overtime work
at rates higher than those provided by law.
1. Night Shift Differential- An employee shall be paid night shift differentials of no less than ten percent (10%)
of his regular wage for each hour of work performed between 10 o' clock in the evening and six o'clock in the
morning. (Sec. 2, Rule II, Labor Code)
2. Additional Compensation on Night Shift Differential- When an employee is required or suffered to work on
period coverage after his work schedule, he shall be entitled to his regular wage plus at least twenty-five
percent (25%) and an additional amount of no less than ten percent (10%) of such overtime rate for each
hour of work performed between 10 p.m. to 6 a.m. (Sec. 3, Rule ll, Labor Code).
Example: Employee daily pay is P400 and worked 8 hours on ordinary day plus 2 hours on night shift.
Basic Wage P400.00

Add: Overtime (P400/8=P50.00x2x125%) P125.00
Night Differential (P125 x10%) 12.50 137.50
3. Additional Compensation on scheduled rest day/special holiday- An employee who required or permitted
to work on the period covered during the rest day and/or special holidays not falling on regular holidays,
shall be paid a compensation equivalent to his wage plus at least thirty percent (30%) and additional amount
of not less than ten percent (10%) of such premium pay rate for each hour of worked performed, between
10 P.M to 6 A.M (Sec.4 Rule II, Labor Code.)
Example: Employee daily pay is P400 and worked 8 hours on special day or rest day plus 1 hour on night shift.
Basic Wage (P275 x 130%) P520.00

Add: Overtime P520.00/8=P65.00x130%) P84.50
Night Differential (P84.50x10%) 8.45 92.95
4. Additional Compensation on scheduled special holiday falling on employees rest day-An employee who
required or permitted to work on the period covered during special holiday falling on employees rest day not
falling on regular holidays, shall be paid a compensation equivalent to his regular wage plus at least fifty
percent (50%) and an additional amount of not less than ten percent (10%) of such premium pay rate for
each hour of work performed between 10 P.M. to 6 A.M. (Sec. 4 Rule II, Labor Code.)
Example: Employee daily pay is P400 and worked 8 hours on special holiday falling on his rest day plus 2 hours on
night shift.
Basic Wage (P275x150%) P600.00

Add: Overtime P600.00/8=P75.00x2x130%) P195.00
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OTHER NOTES ON SPECIAL DAYS:
1. Special Days
Unless otherwise modified by law, order, or proclamation, the following are the three (3) special days in a year under
Executive Order No. 292, as amended by Republic Act 9849that shall be observed in the Philippines:
Ninoy Aquino Day Monday nearest August 21

All Saints Day November 1
Last Day of the Year December 31
The “no work, no pay" principle applies during special days and on such other special days as may be proclaimed by
the President or by Congress.
Workers who are not required or permitted to work on special days are not entitled to any compensation. This,
however, is without prejudice to any voluntary practice or provision in the Collective Bargaining Agreement (CBA)
providing for payment of wages and other benefits for days declared as special days’ even if unworked.
2. Special Work Days
For work performed on a declared Special Work Day, an employee is entitled only to his/her daily wage rate. No
premium pay is required since work performed on said day is considered work on an ordinary workday.
HOLIDAY PAY:
1. Every employee covered by the holiday Pay Rule is entitled to the minimum wage rate (daily basic wage and COLA).
This means that the employee is entitled to at least 100% of his/her regular wage rate even if he/she did not report
for work, provided he/she is present or is on leave of absence with pay on the work day immediately preceding the
holiday.
Work performed on that day merits at least twice (200%) the wage rate of the employee.
For work performed in excess of eight hours on regular holiday, an employee shall be paid an additional
compensation for the overtime work equivalent to his rate for the first eight hours on such holiday work plus at least
30% thereof. (Rule III, Sec. 5 Labor Code).
Example: Employee daily pay is P400 and worked 8 hours on regular holiday plus 1 hour on night shift.
Basic Wage (P400x200%) P800.00

Add: Overtime (P800/8=P100x130%) P130.00
Night Differential (P130x10%) 13.00 143.00
2. Where the holiday falls on the scheduled rest day of the employee, work performed on said day merits at least an
additional 30% of the employee's regular holiday rate of 200% or a total of at least 260%.
Any employee who is permitted or suffered to work on the scheduled rest day of the employee, he shall be paid an
additional compensation for the overtime work equivalent to his regular holiday-rest day for the first 8 hours plus
30% thereof.
Example: Employee daily pay is P400 and worked 8 hours on regular holiday falling on his rest day plus 2 hours on
night shift.
Basic Wage (P400x260%) P1,040.00

Add: Overtime (P1,040/8=P130.00% x 2hrs P130.00
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Day's Gross Pay P1,411.00
When a regular holiday falls on a Sunday, the following Monday shall not be a holiday, unless a proclamation is issued
declaring it a special day.
Unless otherwise modified by law, order, or proclamation, the following are the twelve (12) regular holidays in a
year under Executive Order No. 292, as amended by Republic Act 9849:
New Year's Day January 1

Maundy Thursday Movable Date
Good Friday Movable Date
Araw ng Kagitingan Monday nearest April 9
Labor Day Monday nearest May 1
Independence Day Monday nearest June 12
National Heroes ‘Day Last Monday of August
Eidl Fitr Movable Date
Eidl Adha Movable Date
Bonifacio Day Monday nearest November 30
Christmas Day December 25
Rizal Day Monday nearest December 30
When Araw ng Kagitingan falls on the same day as Maundy Thursday or Good Friday, a covered employee is entitled
to at least two hundred percent (200%) of his/her daily wage even if said day is unworked. Where the employee is
required to work on that day, he/she is entitled to an additional 100% of the daily wage.
Successive Regular Holidays
Where there are two (2) successive regular holidays, like Maundy Thursday and Good Friday, an employee may not
be paid for both holidays if he/she absents himself/herself from work on the day immediately preceding the first
holiday, unless he/she works on the first holiday, in which case he/she is entitled to his/her holiday pay on the second
holiday.
Absences
● All covered employees shall be entitled to holiday pay when they are on leave of absence with pay on the
workday immediately preceding the regular holiday. Employees who are on leave of absence without pay on
the day immediately preceding a regular holiday may not be paid the required holiday pay if they do not
work on such regular holiday.
● Employers shall grant the same percentage of the holiday pay as the benefit granted by competent authority
in the form of employee's compensation or social security payment, whichever is higher, if the employees
are not reporting for work while on such leave benefits.
● Where the day immediately preceding the holiday is a non-work day in the establishment or the scheduled
rest day of the employee, he/she shall not be deemed to be on leave of absence on that day, in which case
he/she shall be entitled to the holiday pay if he/she worked on the day immediately preceding the non-work
day or rest day.
Tardiness/Under time- these represent deductions from the salary which can be computed by multiplying the
number of minutes or hours late or under time by the hourly rate. Computation varies per company policy.
OT Work on Regular Day 125% x Rate per hour
OT Work Rest Day or Special Public Holiday

First 8 hours
130% x Rate per hour
In excess of the 1st 8 hours
130% x Rate per hour + 30% of (130% of Rate/hr.)
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OT Work during Rest Day or Special Public Holiday
falling on employee’s rest day
First 8 hours 150% x Rate per hour
In excess of the 1st 8 hours 150% x Rate per hour + 30% of (150% of Rate/hr.)
OT work on Regular / Legal Holiday

First 8 hours 200% x Rate per hour
In excess of the 1st 8 hours 200% x Rate per hour + 30% of (200% of Rate/hr.)
Night – shift employees must be paid a differential
of not less than 10% of the regular wage for each
Night – Shift Differential Pay
hour of work performed between 10:00p.m and
6:00 a.m.
II.PAYROLL CALCULATION
FACTORS TO BE CONSIDERED IN COMPUTING THE GROSS EARNINGS OF AN EMPLOYEE:
1. Regular Pay
2. Overtime pay
3. Tardiness/Under time Deductions
4. LWOP (leave without pay)
5. Salary adjustments
6. Gross Pay
SUPPLEMENTAL WAGES
7. Vacation Leave or Sick Leave conversion (depending on Company policies)
Vacation Leave cash conversion is not taxable up to 10 days. In excess of 10 ten days, only the number of days
exceeding 10 should be considered when computing compensation taxes. Sick Leave conversions are all taxable.
8. Mandatory 13th month Pay and bonuses -these components are included in determining the separation
pay of an outgoing employee. For taxation purposes, only the amount (after summing up 13th month
and bonuses) exceeding P90,000.00 will be considered in computing income taxes.
De Minimis Benefits
Revenue Regulations Nos. 2-98 and 3-98 were amended by Revenue Regulations 5-2008, 5-2011,8-2012 and 1-2015
to reflect the current 'De Minimis' benefits.
De Minimis Benefits are facilities or privileges that are of relatively small value given to the employees by the
employer which are not subjected to income tax nor fringe benefit tax.
These include the following:
1. Monetized unused vacation leave credits of private employees not exceeding 10 days during the year;
2. Monetized value of vacation and sick leave credits to government official and employees;
3. Medical cash allowance to dependents of employees, not exceeding PHP 1,500 per employee per semester
or PHP 250 per month;
4. Rice subsidy of PHP 2,000 or 1 sack of 50kg of rice per month amounting to not more than PHP 2,000;
5. Uniform and clothing allowance not exceeding PHP 6,000 per annum;
6. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/
executive check-up, maternity assistance, and routine consultations, not exceeding PHP 10,000 per annum;
7. Laundry allowance not exceeding PHP 300 per month;
8. Employees achievement awards, e.g. for length of service or safety achievement, which must be in the form
of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding
PHP 10,000 received by the employee under an established written plan which does not discriminate in favor
of highly paid employees;
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9. Gifts made during Christmas and major anniversary celebrations not exceeding PHP 5,000 per employee per
annum;
10. Daily meal allowance for overtime work and night/ graveyard shift not exceeding 25% of the basic minimum
wage on a per region basis, and
11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity
incentive schemes provided that the total monetary value received from both CBA and productivity incentive
schemes combined do not exceed PHP 10,000 per employee per taxable year.
Any amount in excess of the stipulated de Minimis benefit may still be exempted from taxation under Republic Act
No. 10653, provided that the total exclusion shall not exceed P90,000.
Non Taxable Income Philippines
According to Republic Act No.10653, 13th-month pay, productivity incentives, Christmas bonus and other benefits
shall not be included in gross income and shall be exempt from taxation. The total exclusion shall not exceed ninety
thousand pesos (P90,000).
DEDUCTIONS FROM GROSS PAY:
A deduction from gross pay refers to the amount of money withheld from the employee's pay. Generally, the
payment of employee's earnings is subject to deductions, which are:
1. Withholding income tax

2. SSS or GSIS Premium
3. Phil Health Premium
4. Pag-ibig or Home Development Mutual Fund (HDMF) Contribution
Additional Deductions:
Vales are an amount deducted from gross pay due to salary/ wage advance made by an employee.
Union dues are the amount deducted from gross pay when the place of business has union to represent the
employees. The deduction may be based on the agreement between the union and the management to deduct the
union dues from the employee pay.
Pension Fund - Some employers provide a retirement/ pension fund, and the employees contribute additional funds
if they wish.
Charitable Contributions - many employers allow charitable contribution to be made through payroll deductions.
Credit union/cooperatives - if the business has a credit union, either savings or loan repayment can be made through
payroll deduction.
Upon duly informing the employees and depending on company policies, charges as follows could also be deducted
from their salaries:
1. Personal long-distance calls

2. Contributions for special activities or events advanced by the company
3. payment for services availed or goods bought from the company
WITHHOLDING INCOME TAX
Section 57B of the National Internal Revenue Code (R.A. 8424) requires the employer to withhold portion of salaries
earned by employees that will at least approximate the income tax due of the earner relative to the income earned.
The monthly (or semi-monthly) withholdings taxable could be obtained from the BIR to serve, as guide as to what
amount of tax is to withheld from the salary of the employee.
In the absence of withholding tax table, the approximate amount of tax to be withheld could be calculated as follows:
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Example: An employee's salary per month is P40,000. Assuming that he is married with two qualified dependents,
his withholding income tax is computed as follows:
Monthly gross pay P 40,000.00

Multiply by number of months in a year 12.00
Annual gross pay subject to tax P 480,000.00
Estimated annual income tax per individual income tax rate
Basic tax - First P400,000 P 30,000.00
Additional tax-25% of the excess over P400,000 20,000.00
Estimated annual income tax P 50,000.00
Divided by number of months in a year 12
Approximate monthly withholding tax P 4,166.67
NEW TAX SCHEDULE – JANUARY 1, 2018 to DECEMBER 31, 2022

Annual Taxable Income Tax Rate
0-250,000 0%
Over 250,000 – 400,000 20% of the excess over 250,000
Over 400,000 – 800,000 30,000 + 25% of the excess over 400,000
Over 800,000 – 2,000,000 130,000 + 30% of the excess over 800,000
Over 2,000,000 – 5,000,000 490,000 + 32% of the excess over 2,000,000
Over 5,000,000 1,450,000 + 35% of the excess over 5,000,000
The net income compensation payment to the employee with no other deductions would be P35,833.00 computed
as follows:
Gross Pay P40,000.00

Less: Withholding Income Tax 4,167.00
Net Pay P35,833.00
If the payment were on a semi-monthly basis, withholding tax is normally deducted from the payroll for the second
half of the month.
Gross Pay (semi-monthly P40,000/2) P20,000.00

Less: Withholding Income Tax 4,167.00
Net Pay P15,833.00
Take note that under Republic Act No. 10953, Tax Reform for Acceleration and Inclusion(TRAIN)Law, exemptions
have already been eliminated and cannot be used to reduce the taxable compensation income. Therefore, taxable
compensation income is equal to final taxable compensation income. Here is a summary of the changes made for the
said exemptions:
Tax Particulars National Internal Revenue Code of 1997 R.A.No 10963

Deduction of premium Sec. 34 (M) Allowed deduction of PHP2,400 per year or Repealed
payments on health PHP200 per
and/or hospitalization month worth of premium payments on health and/or
insurance hospitalization
insurance of an individual provided that the family has a
gross income
not exceeding PHP250,000 for the taxable year.
On personal and Secs.35 and 79 (D) Exemptions on the following: Repealed
additional exemptions ● PHP50,000 worth of basic personal exemption
● PHP25,000 worth of additional exemption per
qualified dependent
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not exceeding four.
● Personal exemption allowable to nonresident
alien individual
Exemption allowed to Sec.62 Exemption of PHP20,000 allowed from the Repealed
estate and trust income of the
estate or trust.
Income tax collected Sec. 79 (F) Husband deemed head of the family and Repealed
at source-husband proper claimant
and wife of the additional exemption.
Taxes to be withheld from the wages of the wife must be
in
accordance with the table for zero exemption of the
withholding tax
table.
PAYROLL CYCLE AND DEADLINES
1. Gathering of Payroll Data such as:
● Attendance records (absences, tardiness, under time and leaves without pay (LWOP)
● Salary adjustments data coming from the person in-charge of post-payroll reviewing
● Information on changes in employment status, personal status (exemptions & number of dependents) that
could affect the computation of the Basic Salary, contributions and withholding taxes
2. Payroll Computation and recording in the individual Payroll Ledger
● Compute the Total Compensation or Gross Salary or Gross Earnings by summing up the following:
1. Basic Salary
2. Overtime Pay
3. Under time/Tardiness deduction
4. Absences in excess of leave credits (leave without pay)
5. Salary adjustments
● Compute the total Deductions from Salary which should include the following:
1. SSS / GSIS contributions
2. Phil health Contributions
3. Pag-ibig Fund or HDMF Contributions
4. Withholding taxes
5. Other allowable deductions
3. Preparation of Entries to be recorded in the Books of Accounts
● To summarize the payroll
SALARIES EXPENSE XXX

SSS PREMIUM CONTRIBUTION PAYABLE XXX
PHILHEALTH CONTRIBUTION PAYABLE XXX
PAG-IBIG CONTRIBUTIONAL PAYABLE XXX
WITHHOLDING TAXES XXX
CASH XXX
● To record the employer’s share in the contributions
SSS PREMIUM EXPENSE XXX

PHILHEALTH PREMIUM EXPENSE XXX
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PAG-IBIG CONTRIBUTION PEXPENSE XXX
SSS PREMIUM PAYABLE XXX
PHILHEALTH PREMIUM PAYABLE XXX
PAG-IBIG CONTRIBUTION PAYABLE XXX
● To remit the contributions on due date
SSS PREMIUM PAYABLE XXX

PHILHEALTH PREMIUM PAYABLE XXX
PAG-IBIG CONTRIBUTION PAYABLE XXX
WITHHOLDING TAXES PAYABLE XXX
CASH IN BANK XXX
4. Recording of Payroll Data every after payday from January to November summarizing the following data
separate worksheets to facilitate preparation of the Alphabetical Listing of Employees from whom Taxes
were withheld:
● Basic Pay (including all taxable salary adjustments)

● Total Deductible Contributions (SSS, Phil health and Pag-ibig)
● Total Taxes Withheld
5. Preparation of Remittance Schedules and Accomplishment of Payment Returns for each of the following
agencies of the Government:
Forms to Fill up Deadline of Payment

SSS Contributions R–5 If the 10th digit of the 13-digit ER number
Ends in:
● 1 or 2- 10th day of the month
● 3 or 4 - 15'" day of the month
● 5 or 6-20'th day of the month
● 7 or 8-25'" day of the month
● 9 or 0 - last day of the month
Phil health Contributions M1A Employers with PENS ending in:

● 0 to 4-Every 11th-15th day of
the month following the
applicable period
● 5-9-Every 16th-20th day of the
month following the applicable
period.
Pag-ibig Contributions Remittance Form Due date depends on the first letter of the
Registered Name of the Company
● A to D -10th to 14th of the
following month
● E to L-15th to 19th of the
following month
● M to Q-20th to 24th of the
following month
● R to Z, number - 25th to 315t of
the following month.
Taxes withheld 1601-C If manual:

● On or before the 10th day of the
following month
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If EFPS:
● Group A: Fifteen (15) days
following end of the month
● Group B: Fourteen (14) days
● Group C: Thirteen (13) days
● Group D: Twelve (12) days
● Group E: Eleven (11) days
following end of the month.
6. Quarterly, SSS and Phil health require submission of Quarterly Collection lists for posting of
individual contributions.
7. Annually, the Bureau of Internal Revenue requires submission of an Alphabetical List of Employees from
whom taxes were withheld or ALPHALIST which is due to be submitted, usually on the last day of the month
following the calendar year (January 31). Please take note that prior to submission of this Return, the
employers expected to have made the necessary
adjustments as regards the taxes withheld.
TAXES WITHHELD=TAXES DUE
DEDUCTIBLE MEMBERSHIP FEE

Private employees, who are not over 60 years old, whether permanent, temporary or provisional, are subject
to compulsory coverage of SSS, Phil Health, and Pag-ibig deductible membership contribution.
Please See Attached Table
SOCIAL SECURITY SYSTEM

SSS CONTRIBUTION TABLE
Contribution Schedule Effective January 1, 2018
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The monthly contributions are based on the compensation of members. (The current SSS contribution rate is11% of
the monthly salary credit not exceeding P16,000 and this is being shared by the employer (7.37%) and the
employee (3.63%).
PHILIPPINE HEALTH INSURANCE CORPORATION
PHILHEALTH CONTRIBUTION TABLE

Contribution Schedule Effective January 1,2018
Basic Monthly Salary 2.75% Monthly Premium Personal Share Employer Share
PHP 10,000 and below PHP 275.00 PHP 137.50 PHP 137.50
PHP 10,000.01 to PHP PHP 275.02 to PHP
PHP 137.51 to PHP 549.99 PHP 137.51 to PHP 549.99
39,999.99 1,099.99
PHP 40,000O and above PHP 1,100.00 PHP 550.00 PHP 550.00
Effective January 2018 and onwards, the monthly premium contributions shall be at the rate of 2.75%computed
straight based on the monthly basic salary, with a salary floor of P10,000 and a ceiling of P40,000, to be equally
shared by the employees and employer. With the removal of the salary brackets, computation shall be based on
the following table:
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PAG-IBIG OR HOME DEVELOPMENT MUTUAL FUND(HDMF)
PAGIBIG FUND CONTRIBUTIONS

As per Republic Act No.9679
Monthly Compensation Percentage of Monthly Compensation

Employee Employer Share
P 1,500 and below 1% 2%
Over P 1,500 2% 2%
Note: The maximum monthly compensation used in computing the employee contributions is currently set
at P5,000. This means that the maximum member contribution and employer counterpart per month are
both currently P100.
Contribution Share
Contributions Employee’s Employer’s
SSS P 581.30 P 1,178.70
PHIC 481.25 481.25
Pag-ibig (P5,000 × 2%) 100.00 100.00
Employee’s Compensation 30.00
Total employee’s/employers share P 832.50 P 1,422.50
Employee's shares are normally deducted from payroll for the first half of the month.
The journal entry to effect the payment of salary and employee's share for membership contributions
assuming there is no withholding tax would be:
Salary Expense
SSS premiums payable 35,000.00 581.30
PHIC premiums payable 481.25
Pag-ibig premiums payable 33,837,45
Cash
To record the deductible membership fees and payment salary
The journal entry to record the employer's share for membership contributions assuming there is no
withholding taxes would be:
SSS premiums expense 1,178.70

PHIC premiums expense 481.25
Pag-ibig premiums expense 100.00
Employee's compensation premium expense 30.00
SSS premium payable 1,178.70
PHIC premium payable 481.25
Pag-ibig premium payable 100.00
Employee's Compensation premiums payable 30.00
To record share of employer
COMPREHENSIVE APPLICATION ON PAYROLL:
The following persons are under the employment of A & B Enterprises:
Employees Monthly Salary Overtime Work

Alexander Menlo P 30,000.00 Reg. Holiday – 8hrs.
Haydee Flores 25,000.00 Rest Day – 10hrs.
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Marie Sarmiento 50,000.00 Reg. Day – 10hrs.
A & B is paying its employees on a semi-monthly basis. The membership fees are deducted on the first half of the
month payroll, and the withholding tax is deducted on the second half of the month payroll. The employees did not
incur any tardiness and absence during the month. They are all entitled to overtime pay. The enterprise is using the
314 working days in a year as basis with 8 regular working hours in a day.
The employee's gross pay is computed as follows:
Alexander Menlo:
Basic Pay(P30,000/2) P 15,000.00
Holiday overtime [(P30,000x12)/314x100%] 1,146.50
Gross Pay P 16,146.50
Haydee Flores:
Basic Pay(P25,000/2) P 12,500.00
Rest day overtime[(P25,000x12)/314x130%] 1,242.04
Overtime excess of hours during rest day
[(P25,000x12)/314x130%x130%)/8x2hrs.] 403.66
Marie Sarmiento:
Basic Pay(P50,000/2) P 25,000.00
Overtime[(P50,000x12)/314x125%/8x10hrs.] 2,985.67
The payroll sheet of A & B for the first half of the month will appear as follows:
PAYROLL
For the Period January 1 to 15,20CY
Employees Gross Pay SSS PHC Pag-ibig Net Pay

Alexander Menlo P 16,146.50 P 581.30 P 412.50 P 100.00 P 15,052.70
Haydee Flores 14,145.70 581.30 343.75 100.00 13,120.65
Marie Sarmiento 27,985.67 581.30 550.00 100.00 26,754.37
Total P 58,277.87 P 1,743.90 P 1,306.25 P 300.00 P 54,927.72
The journal entry for the payroll would be:
Salary expense 58,277.87

SSS premiums payable 1,743.90
PHIC premiums payable 1,743.90
Pag-ibig premiums payable 1,306.25
Cash 300.00
To record payroll 54,927.72
The recorded overtime for the second half of the month and status is as follows (no absences and tardiness);
Employees Status Overtime Work

Alexander Menlo Single Reg. Holiday –10 hrs.
Haydee Flores Single Rest day –8 hrs.
Marie Sarmiento Married Reg. Holiday –8 hrs.
The employee's gross pay is computed as follows:
Alexandro Menlo:
Basic Pay(P30,000/2) P 15,000.00
14 | Page
Holiday overtime[(P30,000x12/314x100%] 1,146.00
Overtime excess of 8 hours during Holiday
(30,000x12)/314x200%x130%)/8x2 hrs. 745.22
Haydee Flores:
Basic Pay(P25,000/2) P 12,500.00
Rest day overtime [(P25,000 x 12)/314x130%] 1,242.04
Marie Sarmiento:
Basic Pay(P50,000/2) P 25,000.00
Holiday overtime (50,000 x 12)/314 x100% P 1,910.83
The computation of withholding tax on employees' income would be (assuming annualized):
Alexandro Menlo:
Estimated annual income tax per individual income tax
Rate
Basic Tax-First P250,000 P -
Additional tax - 20% of the excess over P250,000 22,000.00
Haydee Flores:

rate
Basic tax-First P250,000 P -
Approximate monthly withholding tax P 833.33
Marie Sarmiento:
Rate
Basic tax-First P400,000 P 30,000.00
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PAYROLL
Employees Gross Pay Withholding tax Net Pay
Alexander Menlo P 16,891.72 P 1,833.33 P 15,058.39
Haydee Flores 13,742.04 833.33 12,908.70
Marie Sarmiento 26,910.83 6,666.67 20,244.16
Total P 57,544.59 P 9,333.33 P 48,211.25

Withholding taxes payable 9,333.33
Cash 48,211.25
To record payroll
The table showing the employer's share would be:
Employees Gross Pay SSS PHIC Pag-ibig

Alexander Menlo P 30,000.00 P 1,208.70 P 15,058.39 P 100.00
Haydee Flores 25,000.00 1,208.70 12,908.70 100.00
Marie Sarmiento 50,000.00 1,208.70 20,244.16 100.00
Total P 105,000.00 P 3,626.10 P 48,211.25 P 100.00
To set up the employer's share on the membership fee of the employees, the journal entry would be:

PHIC premiums expense 1,306.25
PHIC premium payable 1,306.25
The journal entry to record the remittance to SSS, Phil health, Pag-ibig, and BIR would entry would be:

Pag-ibig premiums payable 600.00
Cash
To record remittances 17,915.83
The computation of withholding tax on employees' income would be (assuming based on monthly tax table):
If withholding is done monthly:
Alexandro Menlo:
Monthly taxable compensation income P 33,038.22
Estimated monthly income tax per
individual:
Basic Tax-First P20,833 P 685.00
Additional tax-20% of the excess
16 | Page
over P20,833 2,441.04
Estimated income tax due P 3,126.00
Haydee Flores:
individual:
Basic Tax-First P20,833 P 685.00
Additional tax-20% of the excess
over P20,833 P 1,410.95
Marie Sarmiento:
individual:
Basic Tax-First P33,333 P 2,500.00
Additional tax- 25% of the excess
over P33,333 5,390.87
PAYROLL
Employees Gross Pay Withholding tax Net Pay

Alexander Menlo P 16,891.72 P 3,126.04 P 13,765.68
Haydee Flores 13,742.04 2,095.95 11,646.09
Marie Sarmiento 26,910.83 7,890.87 19,019.95
Total P 57,544.59 P 9,333.33 P 44,431.72

Withholding taxes
payable 13,112.87
Cash 44,431.72
To record payroll
The table showing the employer’s share would be (same as annualized)
Employees Gross Pay SSS PHIC Pag-ibig

Alexander Menlo P 30,000.00 P 1,208.70 P 15,058.39 P 100.00
Haydee Flores 25,000.00 1,208.70 12,908.70 100.00
Marie Sarmiento 50,000.00 1,208.70 20,244.16 100.00
Total P 105,000.00 P 3,626.10 P 48,211.25 P 100.00
The journal entry to record the remittances to SSS, Phil health, Pag- ibig and BIR would entry would be:

PHIC premiums expense 1,306.15
PHIC premium payable 1,306.25
17 | Page
The journal entry to record the remittance to SSS, Phil health, Pag-ibig, and BIR would entry would be:

Pag-ibig premiums payable 600.00
Cash
To record remittances 21,698.37
MONTHLY -PAID EMPLOYEES Vs. DAILY -PAID EMPLOYEES
Monthly-paid employees are those who are paid every day of the month, including unworked rest days, special days,
and regular holidays. Factor 365 days in a year is used in determining the equivalent monthly salary of monthly-paid
employees.
Daily-paid employees are those who are paid on the days they actually worked and on unworked regular holidays.
Computation of the Estimated Equivalent Monthly Rate (EEMR) of Monthly-Paid and Daily-Paid Employees
For monthly-paid employees:
Factor 365 days in a year is used in determining the equivalent annual and monthly salary of month-paid employees.
To compute their Estimated Equivalent Monthly Rate (EEMR), the procedure is as follows:
Where 365 days/year = 298 ordinary working days

52 rest days
12 regular holidays
3 special days
365 Total equivalent no. of days/year
For daily-paid employees:
The following factors and formula may be used in computing the EEMR of different groups of daily-paid employees
for purposes of entitlement to minimum wages and allied benefits under existing laws:
1. For those who are required to work every day, including Sundays or rest days, special days and regular holidays
Where 365 days/year 298 ordinary working days

67.60 52 rest days × 130%
24.00 12 regular holidays × 200%
3.90 3 special days × 130%
393.50 Total equivalent no. of days/year
2. For those who do not work and are not considered paid on Sundays or rest days

12.00 regular holidays
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3.00 special days (if considered paid; if actually worked,
this equivalent to 3.90 days)
*Factor 310 may be used instead of 313 if the 3 special days are not considered paid
3. For those who do not work and are not considered paid on Saturdays and Sundays or rest days

12.00 regular holidays
3.00 special days (if considered paid; if actually worked,
this equivalent to 3.90 days)
*Factor 258 may be used instead of 261 if the 3 special days are not considered paid
Without prejudice to existing company policies, practices and/or agreements, the above formula are merely
suggestions and may be used as guides in determining the equivalent monthly minimum wage rates.
SPECIAL TREATMENT OF FRINGE BENEFITS
The tax on fringe benefits at the rate of thirty-five percent (35%) shall be imposed on the grossed-up monetary value
of fringe benefits furnished or granted to an employee (except rank and file employees) by the employer, whether
an individual or a corporation (unless the fringe benefit is required by the nature of, or necessary to tire trade,
business or profession of the employer, or when the fringe benefit is for the convenience of or advantage of the
employer). The tax herein imposed is payable by the employer, which tax shall be paid in the same manner as
provided for under Section57 (A) of the Tax Code' as amended.
The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of
the fringe benefit by SIXTY - FIVE PERCENT (65%), effective January 1,2018 and onwards: Provided, that the grossed-
up value of the benefit shall be determined by dividing the actual monetary value of the fringe benefit by the
difference between one hundred percent (100%) and the applicable tax rates under the aforesaid
subsections.
Fringe Benefits means any good, service or other benefit furnished or granted in cash or in kind other than the basic
compensation, by an employer to an individual employee (except rank and file employee as defined herein) such as,
but not limited to the following:
1. Housing;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel, such as maid, driver and others;
5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual
rate granted;
6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic
clubs or other similar organizations;
7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Education assistance to the employee or his dependents; and
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law
allows.
19 | Page
Illustration 1:
MRU Company (a domestic employer/company) granted Ms. Tagumpay (a Filipino branch manager employee), in
addition to her basic salaries, P5,000 cash per quarter for her personal membership fees at Any Time Fitness Gym.
The fringe benefits tax (FBT) shall be computed as follows:
Monetary value of fringe benefit P 7,000.00

Percentage divisor applicable 65%
FBT rate 35%
FBT = (Monetary value of fringe benefits/65%)x35%

FBT= (P7,000/65%)x35%
FBT=P10,769.23x35%
FBT=P3,769.23
Illustration 2:
Use the same facts as illustration 1 but this time, assume that the employee is a non-resident alien individual not
engaged in trade or business within the Philippines:
Monetary value of fringe benefit P 7,000.00

Percentage divisor applicable 75%
FBT rate 25%
FBT = (Monetary value of fringe benefits/65%) x35%

FBT= (P7,000/75%)x25%
FBT=P9,333.33x25%
FBT=P2,333.33
MINIMUM WAGE EARNERS
Minimum wage earner (MWE) refers to a worker in the private sector who is paid with a statutory minimum wage
(SMW) rates, or to an employee in the public sector with compensation income of not more than the statutory
minimum wage rates in the non-agricultural sector where the worker/employee is assigned. Such statutory minimum
wage rates are exempted from income tax. Likewise, the exemption covers the holiday pay, overtime pay, night shift
differential pay, and hazard pay earned by an MWE.
Illustration: Mr. Magsaysay, a minimum wage earner, works for MODA, Inc. He is not engaged in business nor has
any other source of income other than his employment. For 2018, Mr. Magsaysay earned a total compensation
income of P 144,000.00.
a. The taxpayer contributed to the SSS, Phil health, and HDMF amounting to P5,000.00 and has received
13th month pay of P12,000.00. His income tax liability will be computed as follows:
Total compensation income P 144,000.00

Less: Mandatory contributions P 5,000.00
Nontaxable benefits 12,000.00 17,000.00
Taxable income P 127,000.00
Note: Taxpayer is tax exempt as an MWE. The statutory minimum wage as well as the holiday pay, overtime pay.
night shift differential pay and hazard pay' received by such MWE are specifically exempted from income tax
under the law.
20 | Page
21 | Page
Problem 1
SSS Enterprises hired lan Rey Pagaduan as an Accounting Clerk. He accepted a monthly basic pay of P10,000. For the
first six months, it was a company policy that he will be under probationary employment status and as such will be
paid on a daily basis. No work no pay applies to him.
Assuming that the company observes a 262-working days per year and lan Rey works for 22 days for the month of
January 20XX with 18 hours of overtime rendered, compute his salary, net of all mandatory deductions. Ian is single.
Problem 2
22 | Page
ECC Corporation provided the following information to you for computation of withholding taxes on compensation.
Determine the taxes due A) in the absence of withholding tax table 2) Using the Monthly Tax Table.
Employee Name Status Basic Pay/Month Overtime SSS PHIC HDMF SSS/HDMF LOANS
Cassandra Belista Single 20,000.00 1,234.00 ? ? ? 750.00
Noemi Lascona M1 24,000.00 5,678.00 ? ? ? 750.00
Ellaisa Madrid M3 22,000.00 2,345.00 ? ? ?
Explain which is more beneficial to both company and employees in relation to the preparation of payroll and the
annualization of compensation at year-end.
Problem 3
Prepare the 1) payroll registers 2) remittance schedules 3) payment remittances (please use attached forms) for
Cornerstone Inc. For the month of January 20XX using the payroll information below:
Company Name: Cornerstone Inc.

Company Address:2502Z Tektite East Tower, Exchange Road, Ortigas, Pasig City
TIN:185-003-465-000
PHIC:20-047460145-3
SSS:03-9118146-9
All employees are monthly rated except for Larry Enriquez, the messenger who is paid at a rate per day. Larry
reported 19 days in January. Unauthorized absences and tardiness are deducted from payroll using 312 working days
per year. The company withholds all mandatory deductions and remits accordingly to the different agencies.
Rest Unauthorized
Reg OT SSS/HDMF
Employee Name Status Monthly Rate day Absence (No Tardiness
Hours LOANS
OT Pay)
Cassandra Belista Single 20,000.00 10 hours 8 hours 1 day 45 mins 350.00
Noemi Lascona M1 25,000.00 5 hours 8 hours 2 days 40 mins 350.00
Ellaisa Madrid M3 22,000.00 24 hours 8 hours 4 days 35 mins 700.00
Larry Enriquez M P600 per day 15 hours 8 hours
Problem 4
Case 1
Jaime Legaspi is a Marketing and Research Manager at the C7C Advertising Inc. and was hired on October 2013.He is
single and is receiving P35,000 per month. On April 1,2018 he tendered his resignation with effect on April 30,2018.
Given the following information, provide the Final Pay computation for Jaime Legaspi and determine the following:
a. Net Final Pay

b. Taxable Income
c. Taxes Payable(Refund)
23 | Page
Additional Information:
1. As of April 30, 2018, unpaid cash advance is P3,500 to be deducted from final pay.
of 8 per day. 2. Regular overtime for April is 96 hours. C7C's working days per year is 262 days and working hours of
8 per day.
Case 2
Amor de Jesus is a Research Head from C7C Advertising Inc. She is also receiving P45,000 per month and is still single.
She also tendered resignation effective on April 30, 2018. Opposite to Jaime Legaspi, her basic pay for the Month of
April was put on hold and will be released only after her resignation's effectivity. The following are her payroll
registers from January - April of the current year. Compute for the final pay and determine the following:
a. Net Final Pay

b. Taxable Income
C. Taxes Payable(Refund)
Case 3
Tricia works as an executive assistant of Cola Bottlers, Inc. She receives the minimum rate of P512 per day for the
eight-hour work. The following are the timekeeping summary for the cut off period from April 1-30,2018.
8:00 AM - 5:00 PM 214 hours

5:00 PM - 10:00PM 46 hours
10:00 PM - 11:00PM 17 hours
The summary includes Tricia's 8 hours work on April 9, 2018.
Employee Name: Tricia Bernardo E076

Status: Single
TIN: 123-456-789-000
Requirements:
1.Compute Tricia's payroll for April.

2. Determine the SSS, PHIC, HDMF and withholding tax dues for both employee and employer. Monthly
workings for purposes of establishing salary bracket is 26 days
3. Provide the journal entries for the computation including the recognition/accrual of employer share in the
statutory deductions.
Case 4
Elena works as an accounting assistant of Cola Bottlers, Inc. She is being paid for a monthly rate of P15,000. The
following are the timekeeping summary for the cut off period from April 1-30, 2018.
5:00PM-10:00PM 46 hours
10:00PM - 11:00PM 17 hours
Lates/Under time 3 hours
Elena enjoyed the holiday at home.
Employee Name: Elena Cruz E067
Status: Single
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TIN: 456-789-000-000
Requirements:
1. Compute Elena's payroll for April assuming that the company's working days per year is 262.
2. Determine the SSS, PHIC, HDMF and withholding tax dues for both employee and employer.
3. Provide the journal entries for the computation including the recognition/accrual of employer share in the
statutory deductions.
Case 5
Year-end activities in payroll preparation include the annualization of salaries to determine the year-end
adjustments. Company B would like to qualify in the substituted filing of Income Tax Returns. To qualify, the tax due
of the employees must be equal to the amount of tax deducted and remitted by the employer.
Below are two payroll summaries. Check and compute the following:
1. 13th month pay, assume release date is December 31, payroll.

2. Taxes due for the year
3. Tax Payable or Refund to be included in December 31 payroll
4. Net Pay for December 31,2018.
Summary 1 Employee is Head of the Family with (One) qualified dependent
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Summary 2 Employee is single
26 | Page

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Payroll Accounting

1. Payroll computation whether on a daily, weekly, semi-monthly and/or monthly basis.

1. length of time to be paid;

Four Phases of Payroll Accounting:

1. Computation of total gross pay for each employee.

EMPLOYEE VERSUS CONTRACTOR

July 31 Security Expense 50,000.00

Basic: (P50 x 8) P400.00

Stipulated Overtime Rates

Basic Wage P400.00

Basic Wage (P275 x 130%) P520.00

Basic Wage (P275x150%) P600.00

OTHER NOTES ON SPECIAL DAYS:

Ninoy Aquino Day Monday nearest August 21

2. Special Work Days

Basic Wage (P400x200%) P800.00

Basic Wage (P400x260%) P1,040.00

New Year's Day January 1

Successive Regular Holidays

OT Work on Regular Day 125% x Rate per hour

OT Work Rest Day or Special Public Holiday

OT work on Regular / Legal Holiday

FACTORS TO BE CONSIDERED IN COMPUTING THE GROSS EARNINGS OF AN EMPLOYEE:

7. Vacation Leave or Sick Leave conversion (depending on Company policies)

These include the following:

Non Taxable Income Philippines

DEDUCTIONS FROM GROSS PAY:

1. Withholding income tax

1. Personal long-distance calls

WITHHOLDING INCOME TAX

Monthly gross pay P 40,000.00

NEW TAX SCHEDULE – JANUARY 1, 2018 to DECEMBER 31, 2022

Gross Pay P40,000.00

Gross Pay (semi-monthly P40,000/2) P20,000.00

Tax Particulars National Internal Revenue Code of 1997 R.A.No 10963

PAYROLL CYCLE AND DEADLINES

1. Gathering of Payroll Data such as:

2. Payroll Computation and recording in the individual Payroll Ledger

3. Preparation of Entries to be recorded in the Books of Accounts

● To summarize the payroll

SALARIES EXPENSE XXX

● To record the employer’s share in the contributions

SSS PREMIUM EXPENSE XXX

● To remit the contributions on due date

SSS PREMIUM PAYABLE XXX

● Basic Pay (including all taxable salary adjustments)

Forms to Fill up Deadline of Payment

Phil health Contributions M1A Employers with PENS ending in:

Taxes withheld 1601-C If manual:

TAXES WITHHELD=TAXES DUE

DEDUCTIBLE MEMBERSHIP FEE

Please See Attached Table

SOCIAL SECURITY SYSTEM

PHILIPPINE HEALTH INSURANCE CORPORATION

PHILHEALTH CONTRIBUTION TABLE

PAGIBIG FUND CONTRIBUTIONS

Monthly Compensation Percentage of Monthly Compensation

withholding taxes would be: