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Calling all PH Employers – January is coming! Time to focus on your yearly payroll compliance obligations and, in particular, payroll annualization for the 2022 calendar year!
Do you own, run or manage a company here in the Philippines? Did you have employees during 2022? If so, you need to start preparing for the annual filing of the BIR Form 2316. First submissions are due in January 2023!
The BIR has also recently released a new Revenue Memorandum Circular clarifying the method by which PH companies can file BIR Form 2316.
In this article, we explain the relevance and importance of payroll annualization and BIR Form 2316 under the Philippine tax compliance framework, we identify the details and inputs required for submission and we examine the implications of the BIR’s new Memorandum Circular on filing requirements!
There’s much to get through – so let’s get started!
Contents
What is BIR Form 2316?
In summary, BIR Form 2316 is an annual tax return form that must be submitted to the BIR by all companies in the Philippines that had engaged employees at any time during the previous calendar year.
BIR Form 2316, known by its longer form name as, the Certificate of Compensation Payment/Tax Withheld, must be prepared and filed by PH employers after first obtaining the necessary information and sign-offs from each of their individual employees.
A separate BIR Form 2316 has to be prepared, completed and issued by employers for each employee that received a salary, wage or any other form of remuneration from the employer during the previous financial year – in this case, during 2022. The Form must identify the total amount of compensation paid to each employee and the total taxes withheld from each employee during the previous calendar year – again, in this case, during 2022.
For more detailed information on compensation-related taxes for PH employees, check out our previous article on Withholding Tax on Compensation.
The annualization process is, therefore, the process of reviewing all compensation paid to and taxes withheld from each employee during the previous calendar year. The resulting data and output from this annualization process is what will be included in the BIR Form 2316 for verification by the employee and employer prior to submission of BIR Form 2316 to the BIR.
In summary, for the purposes of filing the BIR Form 2316 in 2022, the information contained within the Form should relate solely to the 2022 calendar year.
Why is BIR Form 2316 Important?
There are actually a number of reasons, involving a number of different stakeholders, for why BIR Form 2316 is such an important filing under the PH compliance framework.
First off, the submission of BIR Form 2316 by PH employers enables the BIR to enforce and monitor, in a more streamlined and consolidated fashion, the compliance activities of PH companies each year from the perspective of payroll-related taxes.
The BIR can review BIR Form 2316, once submitted, to understand if a PH employer has actually computed and paid the correct amount of payroll/compensation-related tax during the relevant calendar year.
Secondly, BIR Form 2316 also provides detailed information to employees, in a consolidated fashion, in relation to the amount of tax that has been withheld from their salaries during that year. Employees can review and verify to ensure that the correct amount of tax has been withheld from them and clarify if their net salaries have been correctly computed each month.
Finally, if an employee transitions from one employer to another employer during the same calendar year, the new employer will have to request the BIR Form 2316 that the employee should have received from the previous employer at the time they were leaving their previous employment. This is an important document that should be obtained by an employee when leaving employment as it is enables a new employer to understand the amount of the taxes that have already been withheld from that employee and use this information when computing withholding tax and completing BIR Form 2316 for that employee at the end of the year.
Employer or Employee? Who Must File BIR Form 2316?
In short, the onus and ultimate responsibility to file BIR Form 2316 remains with the employer at all times! It is the employer that must manage the annualization process and it is the employer that must ensure that the company has completed the form correctly and that the company has obtained signatures from each of its employees.
Both the employer and the employee are required to sign the form. However, it is the employer, usually the employer’s HR team or maybe the employer’s payroll services provider, that will manage the entire annualization process – from preparation, to signing, to filing with the BIR.
Employers must remember that they are required to file 3 original copies of BIR Form 2316 with the BIR – one copy for the BIR, one for the employer and then one for the employee!
Hopefully you can see now why we say, at the beginning of this article, that PH employers need to start preparing now for the submission of their BIR Form 2316!
Of course, it will be necessary to wait until the 2022 calendar year is over to start compiling the final data for validation and submission. However, if you are a PH employer and you suspect that there may be issues or process failures with the computation of employee compensation or taxes withheld during 2022, makes sure to start investigating this now! Don’t leave it until mid-January 2023!
What is the Date for Filing BIR Form 2316?
There are two key dates that employers need to consider when it comes to preparing and submitting BIR Form 2316 in 2023.
The first date is 31 January 2023.
BIR Form 2316 must be prepared, completed and sent to all relevant employees on or before 31 January of the year following the year in which the compensation was paid to (and the compensation tax withheld from) employees. So, the information that needs to be completed and issued to the employees by 31 January 2023 will relate to 2022 compensation and taxes withheld.
The second date is 28 February.
Once BIR Form 2316 has been signed by each employee and then by the employer, the employer must then collate all of the information and documents together and proceed to submit to the BIR before 28 February 2023.
How to File BIR Form 2316
The BIR has just recently released Revenue Memorandum Circular No. 117 of 2021.
RMC No.117 of 2022 has been issued by the BIR to clarify certain provisions of prior BIR Regulations (RR No. l6-2022 and RR No. 2-201S). In short, RMC No. 117 of 2022 clarifies that scanned copies, or soft copies, of BIR Form 2316 can be submitted to the BIR by employers using a USB memory stick (USB) or other similar type storage devices, instead of the DVD-R format (a previously commonly used format for submitting of electronic data/information to the BIR).
Taxpayers and filers need to ensure that they are using the correct file format (for any documents/data, etc) and the correct naming conventions as prescribed by the BIR when submitting. So, make sure to consult your accountant or bookkeeper to understand and apply these requirements.
It should also be noted that under RMC No.117, where a specific format (e.g. USB) is used for submitting BIR Form 2316, the same format of submission should also be for certain other submissions (e.g. Form 2307) in the same period.
RMC. No 117 of 2022 is dated 19 November 2022 and is stated as taking effect immediately.
How Do We Deal with Terminated or Resigned Employees?
Employers can sometimes face difficulties during the annualization process when they look for information and documentation regarding employees that left the company during the previous financial year. In the current circumstances, this would relate to employees that left employment during 2022.
In circumstances where an employee is terminated by an employer or resigns from employment, they will not be in employment at the time that the employer is completing the annualization process (i.e. at the end of the year or the beginning of the next year). As such, they will not be available to receive, sign and return their BIR Form 2316.
So, what happens in that case?
If an employee has been terminated by an employer or resigned themselves, BIR Form 2316 should generally be issued to that employee at the time when they are receiving their final pay, also known as back pay in the Philippines.
As mentioned in the section above (Why is BIR Form 2316 Important?), the new employer will then request their previous BIR Form 2316 (which relates to the same calendar year) from their new employee during the onboarding process.
What Information Must be Included in BIR Form 2316?
Completing BIR Form 2316 is a process that can require significant time and resources to be allocated from a company.
Of course, this will depend on how many employees a company has and the level of process and compliance adhered to by the company during the previous calendar year.
Remember, the requirement is that there must be a separate BIR Form 2316 for each individual employee. Further, each employee is required to sign and return their form to the employer. The employer must also be sure that all details and inputs included in the form (salary paid, tax withheld, dates, etc) is 100% accurate! If not, the employer may open itself up to potential examinations by the BIR and also possible financial penalties for breach of compliance.
Below are some of the key details that need to be obtained and included in BIR Form 2316. You can find the full list of details on the actual BIR Form 2316 on the BIR website.
- Employer Details – Much of this information can be located on the company’s BIR Form 2303, commonly known as the Certificate of Registration (COR). Here’s our article which explains everything you need to know about BIR Form 2303.
- Employee Details – Employee’s name, Tax Identification Number or TIN, address, date of birth, contact number, salary, etc
- Total compensation paid – A computation of the total amount of compensation paid by an employer to an employee during the previous calendar year.
- Total tax withheld – A computation of the total amount of tax withheld from a particular employee during that same year.
- Non-Taxable/Exempt Compensation Income – E.g. De minimis benefits, contributions for SSS, Philhealth, Pag-IBIG, etc.
Preparing for the Submission of BIR Form 2316
Below are some essential tips for employers when preparing the filing of BIR2316 this January 2023!
- Start the preparations early! As outlined above, depending on the size and compliance levels of a company, there can be a significant level of work required to successfully complete the annualization process and file BIR Form 2316.
- Make sure you are using the correct version of BIR Form 2316. The correct version should say “January 2021 (ENCS)” in the top left corner. The form can also be completed using the BIR’s online module (provided the online module is functional).
- Make sure that the information for each employee is accurate and up to date.
- Make sure that each employee signs and returns their own respective form to your HR or Administration Team
- The employer must also sign a BIR Form 2316 for each of their individual employees.
- The completed BIR Form 2316 must be completed and issued to each employee by 31 January 2023.
- Once signed by both employee and employer, 3 original signed versions of the BIR Form 2316 must be filed with the BIR by 28 February 2022. The BIR retains one, the employer keeps another and each of the respective employees will be provided with their own copy.
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