Certified Accounting Technician

NIAT OFFICE
Payroll Accounting
Module 1 - Payroll Accounting

LEARNING OBJECTIVES:
1. Compute payroll whether on a daily, weekly, semi
monthly and/or monthly basis.

2. Learn to compute Withholding taxes due, SSS

premium due, Phil Health, and other deductions.

3. Record payroll and present them to the

corresponding financial statements.

4. Implement the necessary internal control measure

in payroll processing.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

PAYROLL ACCOUNTING:
Payroll Accounting is the process of determining the
employees who have rendered their services during a
pay 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 pay to arrive at the net amount to be
disbursed as compensation.

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 the company’s general records.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

EMPLOYEE VERSUS CONTRACTOR:

In general, there are two categories of people working for the
business - (1) the employees, and (2) the contractors.
A worker is called an EMPLOYEE if the person or business that
hired him (the employer) has direct and 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.
Certified Accounting Technician MCPA
Module 1 - Payroll Accounting

EMPLOYEE VERSUS CONTRACTOR:

To illustrate, consider the security guards of a business. A
business could either get the service of an independent contractor
(a security agency) or hire its own employees to function as
security guards.
If the business hired a security agency for P 50,000 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
to Madrigal Security Agency
for their service for the Month
of July, 20CY

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

EMPLOYEE VERSUS CONTRACTOR :

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 some other 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.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

EMPLOYEE’S PAY:
In calculating the employee’s pay, the following earnings should
be distinguished from one other:
1. Salary pay
2. Commissions
3. Bonuses
Salary is a fixed amount of compensation for service rendered
covering a fixed period of time, usually a month. It is usually
refers to the pay of managerial and administrative employees.
For example, if Mr. Rolando Drillon is hired as the manager of
Equitable PCI Bank, Ortigas 1 Branch with an annual gross
salary of P 480,000, then his monthly salary would be P 40,000,
(P 480,000/12).

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

EMPLOYEE’S PAY:
.

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.
For example:
An employee is hired for P 50 per hour and works 40 hours a
week. His weekly gross earnings is P 2,000, (P 50 x 40). If an
employee is hired for P 100 for every piece of work and finished
five (5) pieces a day, then his wage for a day is P 500 (P 100 x 5).

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

EMPLOYEE’S PAY:
Commission is usually a wage given to a salesperson based on
the amount of his sales. It is usually added to the basic salary.
For example, if a salesperson is hired based on a commission for
20% of sales and he sold P 100,000 his wage in the form of
commission will be P 20,000, (P 100,000 x 20%).

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

EMPLOYEE’S PAY:
Bonus is generally used to stimulate employees to work more
efficiently and effectively. This compensation can apply to all of
the above methods of calculating gross pay and are added to the
salary, wage, or commission.
A manager may receive a bonus based on his department’s
exceeding the normal productivity. An employee for a wage may
earn a bonus for exceeding a set number of tasks within a set
period of time. A salesperson that sells more than the average
amount of goods or services may receive an additional percentage
as bonus.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

EMPLOYEE’S PAY:
For example, a canteen manager-employee earns a basic salary of
P 15,000 per month plus a bonus 2% based on the net income of
the canteen, and the canteen’s net income P 500,000 for a month,
the gross pay is computed as follows:

Monthly basic salary P 15,000

Add: Bonus (P500, 000 x 2%) 10,000
Gross pay P 25,000

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

OVERTIME PAY:
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 an 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
hours work of any employee. The extra hours worked shall be
given the employee’s basic rate per hour a premium of twenty-
five percent (25%).

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

OVERTIME PAY:
For example, if an employee is hired for P 50 per hour and he
works for regular eight (8) hour plus six (6) hours overtime, the
computation of the days gross pay would be:

Basic: (P50 x 8) P 400.00

Add: Overtime basic (P50 x 6) 300.00
Overtime premium
(P50x6x25%) 75.00 375.00
Gross Pay P 775.00

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

OVERTIME PAY:

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).

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

OVERTIME PAY:

2. Additional Compensation on Night Shift Differential – When an

employee is required or suffered to work on period covered 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 II, Labor Code).

Example: Employee daily pay is P275 and worked 8 hours on

ordinary day plus 2 hours on night shift.
Basic Wage P275.00
Add: Overtime (P275/8=P34.37x2x125%) P85.92
Night Differential (P85.95 x 10%) 8.59 94.51
Day’s Gross Pay P369.51

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

OVERTIME PAY:

3. Additional Compensation on scheduled rest day/special holiday – An

employee who required or permitted to work on the period covered
during rest day and/or special holidays not falling on regular holidays,
shall be paid a compensation equivalent to his regular wage plus at
least thirty percent (30%) 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 P275 and worked 8 hours on special

day or rest day plus 1 hour on night shift.
Basic Wage (P275 x 130%) P357.50
Add:Overtime P357.50/8=P44.68x130%) P58.08
Night Differential (P58.08x10%) 5.80 63.88
Day’s Gross Pay P421.38

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

OVERTIME PAY:
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 holiday, shall be paid on
compensation equivalent to his regular wage plus at least 50% and an
additional amount of not less than 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 pay is P275 and worked 8 hours on

special holiday falling on his rest day plus 2 hours on night shift.
Basic Wage (P275 x 150%) P412.50
Add: Overtime P412.50/8=P51.56x130%) P134.04
Night Differential (P67.02x10%) 13.40 147.44
Day’s Gross Pay P559.94

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

HOLIDAY PAY:
1. Any employee who is permitted or suffered to work on any
regular holiday, not exceeding eight (8) hours, shall be paid at
least two hundred percent (200%) of his regular daily wage. If
the holiday work falls on the scheduled rest day of the
employee, he shall be entitled to 260% based on his regular
wage rate.
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).

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

HOLIDAY PAY:
Where the regular work exceeding eight hours fall 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.
The regular holiday-rest day rate of an employee shall consist of
260% of his regular daily wage rate plus 30% thereof.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

HOLIDAY PAY:
For example, if an employee is hired for P50 per hour and he
works for regular eight (8) hours plus six (2) hours overtime
during his rest day which also falls during a regular holiday, the
computation of the day’s gross pay would be:

Regular holiday-rest day rate P 920.00

(P50 x 8 x 200% x 130%)
Add: Overtime 338.00
(P130 x 2 x 1.30%)
Gross pay P 1,258.00

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

DEDUCTION 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 deduction, which is:

1. Withholdings income tax

2. SSS or GSIS Premium
3. Phil Health Premium
4. Pagibig Contribution

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

DEDUCTION FROM GROSS PAY:

Additional Deductions

Vales is an amount deducted from gross pay due to salary/

wage advance made by an employee.

Union dues is 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.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

DEDUCTIONS FROM GROSS PAY:

Additional Deductions

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.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

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 tax able 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.

Example: An employee’s salary per month is P20,000.Assuming

that he is married with two qualified dependents, his withholding
income tax is computed as allow:

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

WITHHOLDING INCOME TAX:

In the absence of withholding tax table, the approximate amount
of tax to be withheld could be calculated as follows:

Monthly gross pay P20,000

Multiply by number of months in a year 12
Annual gross pay P240,000
Less: Personal Exemption (P50,000 + P50,000) 100,000
Net taxable compensation P140,000
Estimated annual tax per individual income tax rate
See graduated income tax rates below–tax on P140,000 P22,500
Divided by number of months in a year 12
Approximate monthly withholding tax P 1,875.00

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting
WITHHOLDING INCOME TAX:
Graduated Income Tax Rates:
Not over P10,000
Over P10,000 but not over P30,000
Over 30,000 but not over 70,000
Over 70,000 but not over 140,000
Over 140,000 but not over 250,000
Over 250,000 but not over 500,000
Over 500,000
Certified Accounting Technician
5%
P 500 + 10% of excess over P 10,000
2,500 + 15% of excess over P 30,000
8,500 + 20% of excess over P 70,000
22,500 + 25% of excess over P140,000
50,000 + 30% of excess over P250,000
125,000 + 32% of excess over P500,000
MCPA
Module 1 - Payroll Accounting

WITHHOLDING INCOME TAX:

The net income compensation payment to the employee with no
other deductions would be P18,125.00 computed as follows:

Gross Pay P20,000.00

Less: Withholding Income Tax 1,875.00
Net Pay P18,125.00

If the payment were on a semi-monthly basis, withholding tax is

normally deducted form the payroll for the second half of the
month.

Gross Pay (semi-monthly P20,000/2) P10,000.00

Less: Withholding Income Tax 1,875.00
Net Pay P 8,125
Certified Accounting Technician MCPA
Module 1 - Payroll Accounting

WITHHOLDING INCOME TAX:

Supposing that the monthly pay of a married employee is
P20,000.00, and the withholding tax is deducted on the 2nd half
of the month, the net pay for the 2nd half of the employee is
computed as follows:

Gross Pay P 10,000.00

(semi-monthly: P20,000/2)
Less: Withholding Income Tax 2,916.66
Net Pay P 7,083.33

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

WITHHOLDING INCOME TAX:

The computation of the withholding tax would be:

Estimated annual earnings P240,000.00

(P20,000.00 x 12)
Less: Personal Exemption-Married 50,000.00
Net Taxable Compensation P190,000.00

Income tax on P140,000 P 22,500.00

Excess: (190,000-140,000)x25% 12,500.00
Estimated Annual Income Tax P 35,000.00
Divided by # of months in a year 12
Monthly Withholding Tax P 2,916.66

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

DEDUCTIBLE MEMBERSHIP FEES:

Private employees, who are not over 60 years

old, whether permanent, temporary or
provisional are subject to compulsory
coverage of the SSS, Philhealth, and Pag-ibig
deductible membership.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

SOCIAL SECURITY SYSTEM (SSS):

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

PHILIPPINE HEALTH INSURANCE CORP.:

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

PAG-IBIG FUND:

Pag-ibig Fund Contributions

Employee's Monthly Salary

P1,500 monthly salary = 1%

Exceeding P1,500 but not to exceed P5,000 = 2%
In excess of P5,000, optional = 2%

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

DEDUCTIBLE MEMBERSHIP FEES:

For example, an employee earned total salary of P10,000 for
the month. The corresponding computation and journal
entries pertaining to the deductible membership based on the
tables given would be:
Contribution Share
Contribution Employee’s Employer’s
SSS P 333.30 P 706.70
PHIC 125.00 125.00
Pag-ibig (P5,000 x 2%) 100.00 100.00
Employee’s Compensation - 10.00
Total employee’s/employers share P 558.30 P 941.70

These are normally deducted from payroll for the first half of
the month.
Certified Accounting Technician MCPA
Module 1 - Payroll Accounting

DEDUCTIBLE MEMBERSHIP FEES:

The journal entry to effect the payment of salary and
employee’s share for membership fee would be:

Salary Expense 10,000.00

SSS Payable 333.30
NHIP Payable 125.00
Pag-ibig (P5,000 x 2%) 100.00
Cash 9,441.70
To record the deductible membership
fees and payment of salary

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

DEDUCTIBLE MEMBERSHIP FEES:

Using the tables given, the employer’s share is computed as
follows;

Employer’s share:
SSS P 706.70
NHIP 125.00
Pag-ibig (P5,000 x 2%) 100.00
Employee’s Compensation 10.00
Total employer’s share P 941.70
Employer’s contribution 941.70
SSS Payable 706.70
PHIC Payable 125.00
Pag-ibig Payable 100.00
Employee’s Compensation 10.00
To record share of employer.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The following persons are under the employment of A&B
Enterprises:

Employees Monthly Salary Overtime Work

Alexander Menlo 8,000.00 Reg. Holidays - 8 hrs
Haydee Flores 10,000.00 Reg. Day - 10 hrs
Marie Sarmiento 15,000.00 Reg. Day - 10 hrs

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 hour in a day.
Certified Accounting Technician MCPA
Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The employees gross pay is computed as follows:
Basic Pay(P8,000/2) 4,000.00
Holiday overtime [(P8,000 x 12)/314 x 100%] 305.73
Gross Pay 4,305.73

Haydee Flores
Basic Pay(P10,000/2) 5,000.00
Restday - overtime [(P7,000 x 12)/314] x 130% 496.82
Overtime in excess of 8 hours during rest day
[(P10,000 x 12)/314] x (130% x 130%)/8 x 12)] 161.46
Gross Pay 5,658.28

Marie Sarmiento
Basic Pay (P15,000/2) 7,500.00
Overtime [(P15,000 x 12)/314] x (125%/8) x 10] 895.70
Gross Pay 8,395.70

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The payroll sheet of A&B for the first half of the month will
appear as follows:

D&E Enterprises
PAYROLL SUM M ARY
For the period January 1 to 15, CY

Employees Gross Pay SSS, EC PHIC Pag-ibig Net Pay

Alexander Menlo 4,305.73 266.70 100.00 100.00 3,839.03

Haydee Flores 5,658.28 333.30 125.00 100.00 5,099.98
Marie Sarmiento 8,395.70 500.00 187.50 100.00 7,608.20
18,359.71 1,100.00 412.50 300.00 16,547.21

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The journal entry for the payroll would be:

Salary Expense 18,359.71

SSS Payable 1,100.00
PHIC Payable 412.50
Pag-ibig 300.00
Cash 16,547.21
To record payroll.

The recorded overtime for the second half of the month is as

follows (no absences and tardiness);

Employees Status Overtime Work

Alexander Menlo Single Reg. Holiday - 10 hrs
Haydee Flores Head of the family Rest day - 8 hrs
Marie Sarmiento Married Reg. Holiday - 8 hrs

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The gross pay of the employees is computed as follows

Alexander Menlo
Regular Pay (8,000/2) 4,000.00
Holiday Overtime[(P8,000x12/314x100%] 305.73
Overtime excess of 8 hours during Holiday
(8,000x12)/314x200%x130%)/8x2 hrs 198.72
Gross Pay 4,504.45

Haydee Flores
Basic Pay (10,000/2) 5,000.00
Restday - overtime [(P10,000 x 12)/314] x 130% 496.80
Gross Pay 5,496.80

Marie Sarmiento
Basic Pay (15,000/2) 7,500.00
Regular Holiday work [(P15,000 x 12)/314] x 100% 573.24
Gross Pay 8,073.24

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The computation of withholding tax on employees’ income would be:
Alexander Menlo
Annual compensation (P3,839.03 + 4,504.45) x12 100,121.76
Less: Personal Exemption - single 20,000.00
Net taxable Income 80,121.76

Income tax on P70,000 8,500.00

Excess over 70,000 (10,121.76 x 20%) 2,024.35
Estimated annual income tax 10,524.35
Divide by # of months in a year 12
Monthly w ithholding tax 854.52

Haydee Flores
Annual compensation (P5,099.98 + 5,496.80) x 12 127,161.36
Less: Personal Exemption - head of the f amily 25,000.00
Net taxable Income 102,161.36

Income tax on P70,000 8,500.00

Excess over 70,000 (32,161.36 x 20%) 6,432.27
Estimated annual income tax 14,932.27
Divide by # of months in a year 12
Monthly w ithholding tax 1,244.36

Marie Sarmiento
Annual compensation (7,608.20 + 8,073.24) x 12 188,177.28
Less: Personal Exemption - married 32,000.00
Net taxable Income 156,177.28

Income tax on P140,000 22,500.00

Excess over 140,000 (16,177.28 x 25%) 4,044.32
Estimated annual income tax 26,544.32
Divide by # of months in a year 12
Monthly w ithholding tax 2,212.03

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The payroll sheet of D&E for the second half of the month
will appear as follows:

D&E Enterprises
PAYROLL SUM M ARY
For the period January 16 to 31, CY

Employees Gross Pay Withholding Tax Net Pay

Alexander Menlo 4,504.45 854.52 3,649.93

Haydee Flores 5,496.80 1,244.35 4,252.45
Marie sarmiento 8,073.24 2,212.02 5,861.22
18,074.49 4,310.89 13,763.60

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The journal entry for the second half of the month payroll
would be:
Salary Expense 18,074.49
Withholding Tax Payable 4,310.89
Cash 13,763.60
To record payment of salary and
withholding tax on compensation.

Certified Accounting Technician MCPA

Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The table showing the employer’s share would be:

Employee SSS EC NHIP Pagibig Total

Alexander Menlo 565.30 10.00 100.00 100.00 775.30
Haydee Flores 706.70 10.00 125.0 100.00 941.70
Marie Sarmiento 1,060.00 10.00 187.50 100.00 1,377.50
Total 2,332.00 50.00 412.50 300.00 3,094.50

To set up the employer’s share on the membership fee of the

employees, the journal entry would be:
Employer’s contribution 3,094.50
SSS Payable 2,332.00
EC Payable 50.00
PHIC Payable 412.50
Pag-ibig payable 300.00
To record employer’s share.
Certified Accounting Technician MCPA
Module 1 - Payroll Accounting

COMPREHENSIVE APPLICATION ON PAYROLL:

The journal entry to record the remittance to SSS, Philhealth,

Pag-ibig, and BIR would be:

SSS payable 3,432.00

NHIP payable 825.00
EC payable 30.00
Pag-ibig payable 600.00
Withholding Tax payable 4,309.64
Cash 9,216.64
Payment of withheld payables

Certified Accounting Technician MCPA

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