Philippines
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Selecting the right payroll solution for your business here in the Philippines can be a daunting task.
Do you engage a Payroll Service only? Do you subscribe to a Payroll System only? Do you opt for both? Or neither?
It can be even more difficult for new business owners or new entrants from abroad to the Philippines market, who may not be fully aware of the various nuances and specific requirements when it comes to successfully processing payroll under the local Philippines payroll compliance framework. Without understanding what is required from an operational and compliance perspective, it is difficult to understand what payroll solution is right for your business!
As you will see below, Payroll in the Philippines requires a lot more than just paying employees and issuing payslips! The payroll compliance framework in the Philippines requires constant adherence on a bi-monthly, monthly and annual basis.
Payroll never sleeps in the Philippines!
So, within this article, you will learn why an End-to-End Payroll Solution – a solution that comprises both a Payroll Processing Service and a Payroll System (HRIS and Timekeeping) – can really support your PH business.
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Payroll in the Philippines
We will shortly be releasing A Definitive Glossary for Payroll Terms. This will include a list of the key payroll-related terms and concepts that businesses must understand if they are engaging employees here in the Philippines.
So watch this space in the coming weeks….!
In the meantime and for the purposes of this current article, we thought it might be helpful to list down just some of the key activities and questions that PH businesses need to be aware of from the perspective of payroll, particularly when exploring the options around payroll service providers and payroll system providers:
PH employers will regularly ask the following questions when either starting or running a business in the Philippines:
- How will employee data be managed and monitored on an ongoing basis? Manually? Via excel sheets? Using a payroll system?
- Who will have access to the payroll data? Just the management or HR Team? Will employees also have access or a portal where they can review and monitor their own payroll or HR records?
- How will the company monitor employee attendance and timekeeping?
- How will the company track and monitor employee leaves? Sick leaves, emergency leaves, vacation leaves?
- Who will process the payroll-related tax filings with the BIR every month? In particular, BIR Form 1601C.
- Who will process mandatory government contribution filings every month with SSS, Pag-IBIG and PhilHealth?
- Who will perform the company’s payroll annualization every year? In particular, BIR Form 2316 and BIR Form 1604-C.
The above are just some of the key items that arise for discussion when companies start exploring their payroll requirements and options.
For further insights and to understand a little more about the specifics and nuances of performing and processing payroll in the Philippines, check out our article on Payroll for Startups, Small Businesses and SMEs in the Philippines.
What Does an “End-to-End Payroll Solution” Actually Mean?
As mentioned above, there are a significant number of considerations when it comes to ensuring that payroll is managed effectively in the Philippines.
From the generation of accurate payroll data all the way up to the filing of payroll-related taxes and government contributions to the issuing of payslips, payroll in the Philippines is a constant and ongoing process that involves various tasks and activities.
Some of these activities can be automated (i.e. using a system), while some must be performed manually (i.e. by humans).
An End-to-End Payroll Solution is an option for companies which provides for both a payroll processing service (the human element) and a payroll system (the automated computer software element).
For ease, we have include below a brief explanation of these two concepts as well as confirming how the integration of both payroll service and payroll system can provide for the ultimate payroll experience!
Payroll Service
A payroll service, also known as a payroll processing service, is usually performed by a payroll services provider. The payroll service is performed by a team of payroll experts who have the experience and knowledge to ensure that payroll is computed accurately and in accordance with the local PH compliance framework.
In contrast to a payroll system (see below) or any type of computer software system, the payroll service will always have real payroll specialists (i.e. humans) performing the service on behalf of the client company.
This means that a company always has an actual person or Team to speak and liaise directly with if any questions or issues should arise during a particular payroll period.
Payroll System
A payroll system is a computer software system, nowadays, usually cloud-based, which companies can subscribe to from a third-party payroll system provider (or develop one in-house). A payroll system can enable a company to manage its payroll data and automate many parts of the overall payroll process. For example, this could include automation of computations for net salaries, taxes, mandatory government/social contributions and more.
Depending on the specific functionalities of the payroll system, it may be possible to also manage the 201 File within the payroll system (HRIS system) as well as capture employee leave and attendance data during each payroll cycle (Timekeeping system).
End-to-End Payroll Solution
If a company engages a payroll service only, they will have access to a team of payroll specialists who will ensure that payroll is computed and paid out to company employees during each payroll cycle. However, to enable the payroll specialists actually process payroll, they will first need to receive the raw payroll/hr data from the company.
If a company subscribes to a payroll system only, they will be able to generate the raw hr/payroll data through the system in an efficient and centralised manner. However, once the raw hr/payroll data is generated, there is still a new for someone to actually complete the payroll cycle, file the taxes and ensure tht employees actually receive their salaries!
An End-to-End Payroll Solution brings together each of the tasks and activities outlined above under one centralized team and system. A payroll processing service that is fully integrated with and supported by a payroll system – the ultimate payroll experience!
The Benefits of an End-to-End Payroll Solution
You are now further informed on what actually compromises an End-to-End Payroll Solution!
It’s time to identify why such a comprehensive solution can be a significant value-add for your PH business.
Below, we have highlighted just 5 reasons why the end-to-end solution can really benefit your PH business and ensure that your payroll function has a solution that ensures payroll is processed accurately, on-time and compliantly – from start to finish – for every payroll cycle!
Benefit 1 – End-to-End Means End-to-End!
As mentioned above, there are various elements of the payroll cycle that can be automated. Under the local Philippine compliance framework, however, there remains a number of key payroll-related tasks that are still required to be performed manually (by humans).
For example, where a payroll system is being leveraged by a company, it can help to monitor and capture employee attendance, leaves, allowances, bonuses, salaries and other types of employee data necessary for processing payroll. This information can then be automated to compute net salaries, withholding tax on compensation, government mandatory contributions and even preparation and issuing of payslips.
However, there are still a number of human acts required to transition that data from the payroll system and ensure that employees are paid, submissions are made to government agencies and payroll is correctly transitioned to the accounting and finance department for updating the accounting books and even, allocating costs!
What kind of human intervention? Turning the payroll data into tax filing forms and filing them with the BIR. Turning the government contributions data into contribution filing forms and filing them with the various government agencies. Reviewing the payroll register for inaccuracies, errors and data integrity. Uploading the payroll file into the company bank account for final disbursement by the company. Annualization of all of these activities at the end of every calendar year. That’s to name just a few!
A provider that offers an End-to-End Payroll Solution will ensure that all of the above happens and that the employer has just one point of contact along the way! It will ensure that the entire payroll process – from data generation through the payroll system to pay-out of salaries by employers – can be performed via a one-stop-shop payroll provider!
Benefit 2 – Get Access to a Team of Payroll Experts
Technology and particularly, cloud-based systems, are fantastic tools and can add real value across every function of a business. More than ever, technology is helping companies and management teams to run more effective processes, ensure better data management, monitor performance and service delivery and in general, run leaner and more efficient business operations.
However, such business systems and cloud solutions are simply tools, that must first be understood and leveraged fully in order to achieve the best results.
Consider a carpenter using one of her key carpentry tools – the circular saw. In skilled and knowledgable hands, a circular saw can help a skilled carpenter to create a masterpiece. If, however, the circular saw is being used by someone without the necessary know-how or expertise, they will struggle to create anything (and, it could be quite dangerous too…!).
The need to understand the software or tool you are using is particularly important when it comes to payroll systems. Even moreso, when operating the payroll system under the sometimes complex Philippines compliance framework.
Of course, Payroll Systems will usually have a customer support team to assist customers. However, such customer support is usually just to ensure that the system is working properly, bug-free and also to respond to queries on different functionalities and modules within the system. The customer support team would not usually get involved in assisting a company on how to compute payroll, manage leaves and attendance, payroll policies, review data entry methods, advising on processes and controls, understanding changes in the payroll laws or support with government filings.
When a company engages a provider that offers an end-to-end payroll solution, they will have access to a payroll system as well as team of payroll experts that will not only support with the use of the system – those payroll experts can also monitor to ensure the payroll system is being used to its full potential, ensure that employees are entering their data correctly and importantly, ensure the employer has the most efficient and streamlined processes and controls in place within the company to ensure that the payroll function is running as smoothly as possible!
In summary, with an end-to-end payroll solution, a company gets access to a system together with ongoing expert support from industry professionals on how that system should be operated to ensure a world-class payroll function!
Benefit 3 – One Centralized Platform and Provider
No matter the business function, it will always be beneficial to have all related data and information across one platform and provider! This makes it easier for management and team leads to locate and process the necessary information with ease.
A fully equipped payroll system will be able to generate the HR and payroll data needed to process payroll. However, that data still needs to be transitioned to the payroll provider, or indeed, the team tasked with completing the payroll processing for each payroll cycle.
However, if you have engaged a payroll provider that offers both a payroll service and a payroll system – the entire process becomes a lot more streamlined!
Once the processes and controls are set up within the payroll function and both company and payroll provider are aware of their tasks and responsibilities, each payroll cycle can run like clockwork. At each payroll cut-off before each payroll pay-out, the payroll provider can simply access the payroll system, review the payroll data for the relevant period, finalize the payroll register and seek the company’s final approval on the payroll register.
Once the payroll register is approved, the payroll provider can proceed to upload the payment file to the employer’s bank account for disbursement and then proceed to make the necessary tax filings and government contributions filings with the various PH government agencies.
Talk about efficiency!
The key benefit here is that when the payroll service provider requires the necessary information to move forward with the processing of payroll during each payroll cycle, they can find and process the information all in one place and move forward with ease due to the significantly more efficient interface between the provider and the company.
Benefit 4 – Improved Payroll Data Integrity
“Garbage In, Garbage Out”. A phrase you will hear quite often – particularly when dealing with technology and cloud-based systems!
This phrase is particularly relevant when it comes to managing and processing payroll data!
If a business in the Philippines subscribes to a Payroll System, that is undoubtedly a first step towards digitialization and automation – general all round efficiencies can be created. However, the payroll system will only be as good as the data being entered into that system in the first place (the “input data”). The payroll system will therefore only be a value-add for the business if the responsible person or team involved can ensure that the right data is being entered at the right time!
A provider that offers the End-to-End Payroll Solution will be continuously reviewing the client companies processes, controls and the quality of the data that is being processed through the system. In effect, the company will benefit from a more in-depth controllership type service that will identify any obstructions, pain-points, data errors or inaccuracies within the core data.
Why is this important? It gives a company’s management team confidence that whatever happens during a particular month or payroll cycle, there is a third party team reviewing all of the data and ensuring that the payroll system is being used properly and that the company data is secure and accurate.
Remember – many companies provide employees and staff to other companies as their core service (e.g. BPO, back-office, shared services, etc). As such, there is no room for error when it comes to payroll/employee data – revenue value will regularly be based on and need to be validated by payroll costs!
Benefit 5 – Updates on Payroll Laws and Regulations
Anyone running a business in the Philippines, or indeed in any country, will be aware that laws, regulations and legislation can change – sometimes with warning and sometimes without any warning at all.
Many of these changes may not be fundamental to your core business. However, for any company that engages employees here in the Philippines, any changes to payroll laws or regulations will have an impact on the business and will need to be considered and acted upon.
The Philippines, like any other countries, does have many legislative changes throughout any given year. From a payroll perspective, this could relate to any of the following (and more!):
- Working Holidays can often be declared, or at least confirmed, at various points throughout the calendar year, sometimes with little notice;
- Industry specific changes can also alter the way in which employers must consider payroll and payroll costs. For example, the Service Charge Law in the Philippines changed quite significantly in recent years, which required restaurants, hotels and other F&B establishments to change their processes and payroll computations.
- The level and value of Government contribution payments – SSS, Pag-IBIG, PhilHealth – can change every few years also. These changes are usually confirmed and scheduled a number of years in advance.
Unfortunately, a Payroll System will not inform your business when DOLE releases a new Memorandum or the BIR releases a new Regulation which might affect your payroll or labor function.
If, however, you have a team of payroll experts providing a payroll service, that Team can identify any changes that may be required to the payroll system and ensure that, going forward, the payroll system is fully aligned with the local PH payroll compliance framework!
Again, the added-value that a comprehensive payroll solution, that encompasses a payroll service and a payroll system, can provide, should not be underestimated!
About CloudCfo – The End-to-End Payroll Solution for the Philippines
CloudCfo offers an End-to-End Payroll Solution for the Philippines Market.
Our Payroll Solution compromises of 3 core elements:
- An expert payroll processing service performed by team of professionals with extensive experience processing payroll for companies in the Philippines
- A cloud-based HRIS System to maintain and manage all employe data in one place
- An online timekeeping and time-tracking tool to monitor and process employee attendance
Feel free to contact our Team today and Book a Free Demo today!
