PAYROLL

ACCOUNTING
PAYROLL ACCOUNTING

• refers to the process of determining who among the

employees who have rendered their services during the
period, how many days and hours they rendered, how much
money is the equivalent conversion of these days and hours,
and which items are deductible from the gross amount to
arrive at the net amount to be disbursed as compensation.
THE EMPLOYEE'S PAY

• Salary is a fixed amount of compensation for service rendered covering a fixed period of
time, usually a month. Salary usually refers to the pay of managerial and administrative
employees.
• Wage is a 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.
• Commission is usually a wage given to a salesperson based on the amount of his sales. This
amount is usually added to the basic salary.
• Bonus is generally given to stimulate employees to work more efficiently and effectively.
 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, and

4. Additional deductions:
• Vales - amount deducted from gross pay due to salary/ wage advances made by an employee.
• Union dues - amount deducted from gross pay when the place of business has a 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’s 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 contributions to be made through payroll deductions.
WITHHOLDING INCOME TAX
• Section 57B of the National Internal Revenue Code (R.A. 8424) requires the employer to
withhold a portion of salaries earned by employees that will at least approximate the
income tax due of the earner relative to the income earned.
Monthly gross pay P50,000
Multiply by the number of months in a year rendered 12
Annual gross pay 600,000
Less: Exemptions 50,000
Net taxable compensation 550,000
Based on graduated tax rates (30,000+25%of the 67,500
excess over P400,000)
Divided by months rendered 12
Estimated monthly withholding tax P5,625
• Assume further that during the month the following additional deductions were made from the
salary of the employee and the contributions of the employee:

Employee Employer
SSS 500.00 910.00
PAG-IBIG 100.00 100.00
PhilHealth 187.50 187.50
Union dues 25.00 -
Employees pension - 150.00
 GENERAL JOURNAL
Date Particulars F Debit Credit
Aug 30 Salaries expense 50,000 00
Withholding tax payable 5,625 00
SSS payable 500 00
PAG-IBIG payable 100 00
PhilHealth payable 187 50
Union dues payable 25 00
Cash 43,562 50
To record payment of salaries for the month
including the withholding of their taxes and
other contributions to the government and to
the union.
 GENERAL JOURNAL
Date Particulars F Debit Credit
Aug 30 Employer’s contribution ***part of expense 1,347 50
SSS payable 910 00
PAG-IBIG payable 100 00
PhilHealth payable 187 50
Pension fund payable 150 00
To record the employer’s contribution for the month.
Or
SSS expense 910 00
PAG-IBIG expense 100 00
PhilHealth expense 187 50
Pension expense 150 00
SSS payable 910 00
PAG-IBIG payable 100 00
PhilHealth payable 187 50
Pension fund payable 150 00
To record the employer’s contribution for the month.
EXAMPLE:
A sole proprietorship has the following transactions related to its payroll:
• Payroll payment deduction to employee’s pay

Gross pay P15,000.00

Less: SSS 800.00
PAG-IBIG 100.00
Philhealth 187.50
Withholding tax 1,354.00
Pension 200.00
Net pay P12,358.50
 GENERAL JOURNAL
Date Particulars F Debit Credit
Aug 30 Salaries expense 15,000 00
Withholding tax payable 1,354 00
SSS payable 800 00
PAG-IBIG payable 100 00
PhilHealth payable 187 50
Pension fund payable 200 00
Cash 12,358 50
To record payment of salaries for the month
including the withholding of their taxes and
other contributions to the government and to
the retirement fund.
EXAMPLE:
A sole proprietorship has the following transactions related to its payroll:
• Employer’s share:

SSS 1,236.00
PhilHealth 187.50
PAG-IBIG 100.00
Employer’s contribution P1,523.50
 GENERAL JOURNAL
Date Particulars F Debit Credit
Aug 30 Employer’s contribution 1,523 50
SSS payable 1,236 00
PAG-IBIG payable 100 00
PhilHealth payable 187 50
To record the employer’s contribution for the month.
Or
SSS expense 1,236 00
PAG-IBIG expense 100 00
PhilHealth expense 187 50
SSS payable 1,236 00
PAG-IBIG payable 100 00
PhilHealth payable 187 50
To record the employer’s contribution for the month.
EXAMPLE:
A sole proprietorship has the following transactions related to its payroll:
• Remittance to BIR, SSS and PhilHealth

Employee’s share Employer’s share

SSS 500.00 1,236.00
PhilHealth 187.50 187.50
Withholding tax 1,354.00 -
 GENERAL JOURNAL
Date Particulars F Debit Credit
Aug 30 Withholding tax payable 1,354 00
SSS payable 1,736 00
PhilHealth payable 375 00
Cash 3,465 00
To record the remittance to BIR, SSS and
PhilHealth.