There are a wide range of matters for employers to consider when it comes to payroll processing and payroll computation in the Philippines.
From gross/net salary computations to tax filings and payments to government contributions to end of year annualisation – the list is long! Combine this with the fact that it is quite standard in the Philippines for payroll to be processed twice every month – for employers in the Philippines, payroll really never sleeps!
For this reason, many PH businesses will opt to engage an expert provider of payroll services to manage their payroll function.
Below, we have outlined 6 key benefits and tangible value-adds gained by businesses in the Philippines that choose to outsource their payroll management function!
- 1 Always Stay Updated On Payroll Compliance
- 2 100% Accuracy on Payroll Computations
- 3 Payroll Tax – Ensuring Compliance
- 4 Payroll and Statutory Government Contributions
- 5 Set-Up and Management of a Payroll System
- 6 Streamlined Payroll Processes and Controls
- 7 CloudCfo – Expert Payroll Services for Businesses in Manila and the Philippines
Always Stay Updated On Payroll Compliance
First off, it’s important for employers to understand that the rules, requirements and guidelines regulating payroll in the Philippines originate from a number of different sources!
It’s not as easy as simply checking one piece of legislation when seeking to clarify your company’s payroll obligations.
Below are just some of the sources that dictate the rules and regulations when processing and managing payroll for Filipino employees:
- The Tax Code of 1997 (also known as the National Internal Revenue Code of 1997)
- The Labor Code of the Philippines (as amended)
- DOLE Labor Advisories and Memorandum Circulars (found on the DOLE website – www.dole.gov.ph)
- BIR Revenue Memorandum Circulars and Memorandum Orders (found on the BIR website)
It’s also important for PH employers to understand that labor laws, tax laws and any other laws that might affect payroll processing are not set in stone! Laws and regulations can be changed, updated, revised or removed at any point in time!
In light of all of the above, PH employers must remain vigilant when it comes to understanding your payroll obligations and understanding when those obligations might change or vary! It can be difficult for business owners or managers to stay on top of this all of the time – particularly when they are focused on running other elements of the business!
However, a payroll provider can support with this. With a payroll services provider on board, there is no need for employers to constantly monitor government announcements or DOLE issuances. It will be the role of the outsourced payroll provider to ensure that all payroll computations and payroll processing tasks are fully aligned with the most up-to-date application of labor law or “payroll law” and that their client companies are advised of any changes or updates immediately!
100% Accuracy on Payroll Computations
One thing is for sure when it comes to payroll – employees expect to be paid the correct amount in every payroll cycle. This is non-negotiable!
Businesses in the Philippines will find it very difficult to keep employees motivated or even retain employees if they cannot ensure that their employees will be paid the correct amount on the correct payment date for every payroll cycle.
Remember – just like a company – employees have bills to pay and financial obligations to fulfill! Some may even have their own personal budgets and financial forecasts for managing expenses and upcoming bills which will undoubtedly be grounded upon their monthly or bi-monthly salaries and income.
Payroll computation is not always straight-forward in the Philippines! There are a number of items that businesses must consider in order to ensure that payroll is computed accurately and in accordance with PH payroll requirements, including:
- Salary adjustments
- Withholding Tax on Compensation thresholds
- Mandatory Government contributions. This would also include the computation of deductions and employee loans relating to the statutory agencies (SSS, PhilHealth and Pag-IBIG)
- Leave credits
- Sick leaves
- Overtime worked
- 13th Month Pay
- Bonuses and benefits (including de-minimis benefits)
- Additional considerations depending on the individual circumstances of an employee
It is true to say that payroll computations can be a little more straight forward when employees work on a set bi-monthly or monthly salary basis (i.e. salary computations would remain constant each month) as opposed to paid hourly, daily or employees working on a shift basis. However, it is not always the case!
In light of the numerous considerations when computing payroll, many businesses in the Philippines will engage a provider of payroll services to perform this function on company’s behalf. A payroll provider should be able to provide an expert service and ensure that payroll is computed accurately 100% of the time.
Why? Because that is the core focus and specialisation of the payroll provider!
Payroll Tax – Ensuring Compliance
Payroll processing and payroll administration does not relate only to the computation of net salaries and ensuring that employees are paid on time!
In the Philippines, a payroll cycle does not end when payroll has been disbursed. There are various additional items that need to be considered by businesses at that point!
One key consideration for PH employers when processing payroll is the BIR tax implications and obligations that arise each month.
Below are just some of the payroll-related taxes that employers in the Philippines can expect to file, submit and pay on a regular basis and at regular intervals throughout the year:
- Withholding Tax on Compensation (monthly) (BIR Form 1601C);
- Annualisation of employee compensation income (annually) (BIR Form 2316);
- Annual Information Return of Income Taxes Withheld on Compensation (annually) (BIR Form 1604C).
As you will see from the above, payroll-related taxes due to the BIR can fall monthly and annually.
So, once payroll has been computed, employees have been paid and payslips have been sent, there is a still a significant level of compliance work to do by PH businesses from the perspective of payroll and BIR compliance!
By engaging a payroll services provider, they can take over this function from the company and ensure that your BIR compliance obligations are met every month and every year!
A common set-up for companies in the Philippines is to engage a payroll provider that performs the end-to-end service – from salary computation, to payslips, to BIR tax filings!
Payroll and Statutory Government Contributions
In the Philippines, it is not only payroll taxes that must be filed each month with the government after payroll has been processed! There are also other mandatory government filings that need to be submitted!
PH Employers have a mandatory obligation to submit contributions to three primary government agencies for every month in which they have employees.
These three government agencies are SSS, PhilHealth and Pag-IBIG.
Feel free to check out a full summary of the compliance obligations under each of these government agencies in a previous article published by CloudCfo – Government Mandatories in the Philippines – Explained!
Similar with BIR payroll taxes (see section above), an outsourced payroll services provider will be able to manage the computation and filing of your government mandatories on behalf of your business – just one less item for you and your team to consider each month!
Set-Up and Management of a Payroll System
Many businesses in the Philippines are now using payroll systems to manage their payroll function. There are certainly many benefits to using a payroll system, including:
- Cloud-based systems enable management or HR executives to review payroll and employee-related matters from anywhere and at anytime
- Management of the 201 File in one centralized system
- Automated computation of salary for each payroll cycle
- Document storage and security for HR-related information
- Employee portals for ease of access to payroll information such as payslips and historic payments
There is, however, a key consideration when using a payroll system (actually, when using any type of system!).
If your business opts to work with a payroll system, it is crucial to ensure that the individual (or team) in charge of operating the payroll system understands the system and is clear on what is required to ensure that the system actually adds-value for the business! Ensuring the system is set up properly to align with business operations, that the correct data is being inputted and that payroll is being processed through the system in accordance with the necessary procedures – these are tasks that need to be done right! Or else, what’s the point in having a system that can’t produce accurate payroll data?
A payroll services provider that performs an end-to-end payroll service can manage all of this so your team does not need to worry about data integrity, proper processing or system functionalities.
Leave it to the experts!
We will be exploring in much greater detail the advantages and potential shortcomings when using a payroll system in the Philippines in our next article – so don’t forget to check back in the coming weeks!
Streamlined Payroll Processes and Controls
In order to build and scale a company successfully, it is crucial to have the right processes and systems in place for all functions across the business.
Whether it is sales, marketing, finance, product or operations – the foundations to scaling with confidence is usually built around having the right systems and controls in place!
The importance of robust processes and systems is particularly crucial across the entire payroll function!
As you will note from above, payroll computation and compliance can be complex in the Philippines – there is a lot to consider for every payroll cycle! Without the right payroll processes, systems and controls in place, it will be difficult for a business to ensure 100% accuracy and 100% compliance for all things payroll-related!
So, what do we mean exactly by systems and controls for the payroll process? In short, a trustworthy process flow that identifies everything that needs to happen, from start to finish, for each payroll cycle, identification of the key personnel responsible for each deliverable and robust controls that ensures your payroll data, financial information and payment mechanisms (e.g. banks, payment gateways, etc) are always safe and secure.
Below are just some of the payroll-related processes that need to be considered by companies in the Philippines to ensure that the payroll function, from generation of data to payment of employees, runs smoothly and efficiently:
- How is the raw HR data (timekeep, leaves, etc) going to be generated? Will it be collected via a biometric system? Or time-in and time-out via a system? Or will it be done manually? If so, who will manage the manual input of timekeep data?
- How many days in advance of the payroll due date does the raw HR data need to be delivered? 3 days? 5 days? Remember – whoever is going to process payroll needs a sufficient period of time to validate the payroll data and perform the necessary computation tasks.
- How many days in advance does the payroll register need to be generated? The payroll register is the list of employees that need to be paid in each payroll cycle together with the salary, tax and other payroll related computations. Who is in charge of ensuring the payroll register is accurate?
- Who will approve the payroll register once it has been prepared?
- How will payroll be disbursed? Via bank transfer? In cash? Who is the approver and payor (i.e. who needs to have access to the company bank accounts or payment gateways)?
- What controls does the company have across all of its bank accounts and, in particular, user accesses?
By engaging an outsourced payroll provider, a business will not only be outsourcing the processing of payroll. The business will also benefit from a tried, tested and practised set of systems, processes and controls which the payroll services provider will have customized for the specific business or payroll function.
This is a significant value-add for companies that do not have the time, or perhaps the desire, to implement a full set of processes for their payroll function.
The payroll provider can instead manage both the processing and the process on behalf of the company!
CloudCfo – Expert Payroll Services for Businesses in Manila and the Philippines
As you will see from the above, there is a lot to consider when it comes to processing and computing payroll in the Philippines.
Have you considered outsourcing your company’s payroll function to an expert team of payroll specialists?
CloudCfo has built its own specialist payroll team to support startups, SMEs and larger enterprises across the Philippines with all their payroll needs.
Contact Our Specialist Payroll Team today and let us explain how we can add real value for your company’s payroll function!