How Employers Compute and Process Payroll in the Philippines

Payroll is one of the most important administrative tasks for any business. It ensures employees are paid accurately and on time while keeping your business compliant with government regulations. Payroll also ensures that employee contributions to government agencies such as the SSS, PhilHealth, and Pag-IBIG are paid on time, giving them access to essential social security benefits.

In the Philippines, payroll processing involves several components, which we will guide you through.

What Is Payroll?

Payroll refers to the total compensation a business must pay its employees for a specific period. It includes calculating salaries, overtime, benefits, and deductions (including government-mandated contributions). 

Efficient payroll management helps businesses:

• Avoid penalties from non-compliance
• Maintain employee satisfaction
• Keep clear and accurate financial records

Payroll Sample Sheet

A payroll sheet is a spreadsheet or document that summarizes employee earnings and deductions for a given period. It can be manual (using Excel or Google Sheets) or generated through payroll software. A basic payroll sample sheet typically includes:

This sheet helps employers track how each employee’s salary is computed and what deductions are applied. For businesses with only a few employees, manually inputting figures into a spreadsheet can be a good idea. 

However, once a business reaches 50 or more employees, manually processing payroll becomes increasingly prone to errors. A simple typographical mistake or incorrect tax computation can lead to errors that may result in costly penalties. For medium to large businesses, outsourcing payroll is highly recommended. Our accounting experts, combined with advanced payroll software, ensure that your payroll is processed accurately, efficiently, and in full compliance with government regulations.

How to Compute Payroll

To compute payroll in the Philippines, follow these key steps:

• Determine the Pay Period
  Decide whether you will pay employees weekly, bi-weekly, or monthly. In our example, we will use monthly.
• Calculate Gross Pay
  Gross pay includes basic salary, overtime pay, night differential, holiday pay, commissions, and allowances.

Example:

• Basic Monthly Salary: ₱20,000
• Overtime: ₱2,000
• Allowance: ₱1,500
• Gross Pay = ₱23,500
• Apply Statutory Deductions
  Deduct government-mandated contributions based on current rates. Always check the most recent rates for the year.
• SSS: 5% of monthly compensation (including overtime and taxable allowances), capped at MSC

1. 1. • PhilHealth: 2.5% of basic salary only

• Pag-IBIG: 2% of monthly compensation, capped at ₱10,000 (max ₱200 employee share)

• Taxable Income:
• • Gross Pay: ₱23,500
  • Less Total Deductions: ₱1,875
• Taxable Income: ₱23,500 – ₱1,875 = ₱21,625
• Compute for Withholding Tax

Withholding Tax is based on BIR tax tables (progressive rates), ₱21,625 falls in the ₱20,833–₱33,333 bracket.

• Calculation:

• • Excess over ₱20,833: ₱21,625 – ₱20,833 = ₱792
  • Tax: 15% of ₱792 = 0.15 × ₱792 = ₱118.80

• Total Withholding Tax: ₱0 (base tax) + ₱118.80 = ₱118.80
• Compute Net Pay
  Subtract Withholding tax from Taxable Income

Example:

• Taxable Income: ₱21,625
• Withholding Tax: ₱118.80
• Net Pay = ₱21,506.20

Make sure to use updated rates from each government agency to ensure compliance.

Computing payroll for multiple employees presents significant challenges due to its complexity and time requirements. Our professional services can streamline your payroll processes, ensuring accuracy and compliance. Don’t hesitate to contact us to discuss how we can support your business.

How to Process Payroll

Processing payroll is not just about computation. It includes documenting, paying, and reporting.

1. Gather Timesheets and Attendance Records
   Ensure all leave, absences, and overtime are accounted for.
2. Prepare the Payroll Sheet
   Use a spreadsheet or payroll software to summarize the computations. For business with many employees, consider using dedicated payroll software or contacting us to ensure accuracy.
3. Disburse Salaries
   Transfer salaries via bank, check, or e-wallet. Many companies now prefer direct bank deposits for convenience.
4. Remit Government Contributions
   Submit employer and employee shares to:
   • SSS through the R3 program or My.SSS
   • PhilHealth via the Electronic Premium Remittance System (EPRS)
   • Pag-IBIG using the Virtual Pag-IBIG portal
   • BIR via eFPS or manual filing for tax withholding
     • Ensure your payroll is correct and on time, or you may get penalized by these government agencies.
5. Issue Payslips
   • Provide payslips to employees to show how their salary was computed and what deductions were made.

Summary

Payroll in the Philippines involves multiple components, from accurate timekeeping and salary computation to government compliance and employee communication. Here’s a quick recap:

• Payroll includes salaries, deductions, and contributions.
• A payroll sample sheet helps track computations.
• To compute payroll, calculate gross pay and deduct statutory contributions.
• To process payroll, gather records, prepare sheets, disburse salaries, remit contributions, and issue payslips.

For growing businesses, investing in a payroll system or hiring a professional payroll service can save time, reduce errors, and ensure full compliance with Philippine labor laws.

Are You Looking for a Simple Way to Compute and Process Payroll? Our Services Ensure Accuracy, Timeliness, and Full Compliance.

Managing payroll and government-mandated contributions can be complex and time-consuming. Employers must implement a reliable payroll system that accurately computes salaries, deducts the correct contributions, remits payments on time, and maintains up-to-date employee records. Failure to comply with payroll regulations can result in costly fines and penalties. 

That’s where Triple i Consulting comes in. We’re among the best accounting outsourcing companies in the Philippines, offering bookkeeping, payroll outsourcing, auditing, and tax consultation services. Let our experienced lawyers and accountants provide comprehensive support for your business, so you don’t have to stress over the paperwork.

Contact us today to schedule a consultation with one of our experts:

• Fill out the form below
• Call us at: +63 (02) 8540-9623
• Send an email to: info@tripleiconsulting.com