MODULE 2

PAYROLL ACCOUNTING

Payroll represents compensation paid to employees and workers. Employees are

paid salaries based on a monthly or semi-monthly rate while workers are paid wages
based on a daily, hourly or piece rate.

The following are the agencies where taxes and contributions are required to be
paid:

BIR - Bureau of Internal Revenue

SSS - Social Security System
PhilHealth - Philippine Health Insurance Corporation
HDMF - Home Development Mutual Fund or Pag-ibig

A payroll sheet is a tabular form prepared by the Accounting Department to

determine the take home pay of employees and workers. It consists of columns listing the
following:

1. Employee’s or worker’s name

2. Gross pay representing compensation (salary/wage) earned for a certain period of

time

3. Deductions for payroll liabilities

4. Net pay or take home pay

5. Signature signifying receipt of salary/ wage by the employee/ worker

Most businesses pay their employees semi-monthly salaries. In this module, we will be
computing the payroll based on their semi-monthly salaries.

DEDUCTIONS FROM GROSS PAY

The gross pay is not the actual amount to be received by an employee or worker
because of the following payroll liabilities which are deducted from their pay as required
by law:

Income Tax. Based on earnings made, every employee or worker is required to pay taxes
to the government. The amount withheld form their salaries/ wages is based on the
taxable income computed using a tax table and a list of exemptions provided by the BIR
which was just recently amended by the TRAIN LAW. Withholding tax tables are available
for various payroll periods, such as daily, weekly, semi- monthly and monthly. The Tax
Table effective January 1, 2018 until December 31, 2022 is shown below.
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https://www.bir.gov.ph/index.php/tax-information/withholding-tax.html#index

pls. refer to the above link on the revised Withholding tax table effective Jan. 1, 2023
onwards.
Effective January 1, 2023 and onwards
DAILY 1 2 3 4 5 6
₱685 and ₱1,096 - ₱21,918 and
Compensation Range ₱685 -₱1,095 ₱2,192 - ₱5,478 ₱5,479 - ₱21,917
below ₱2,191 above
Prescribed Withholding 0.00 +15% ₱61.65 +20% ₱280.85 +25% ₱1,102.60 +30% ₱6,034.30 +35%
0.00
Tax over ₱685 over ₱1,096 over ₱2,192 over ₱5,479 over ₱21,918
WEEKLY 1 2 3 4 5 6
₱4,808
₱4,808 - ₱7,692 - ₱38,462 - ₱153,846 and
Compensation Range and ₱15,385 - ₱38,461
₱7,691 ₱15,384 ₱153,845 above
below
Prescribed Withholding 0.00 +15% ₱432.60 +20% ₱1,971.20 +25% ₱7,740.45 +30% ₱42,355.65 +35%
0.00
Tax over ₱4,808 over ₱7,692 over ₱15,385 over ₱38,462 over ₱153,846
SEMI-MONTHLY 1 2 3 4 5 6
₱10,417
₱10,417 - ₱16,667 - ₱83,333 - ₱333,333 and
Compensation Range and ₱33,333 - ₱83,332
₱16,666 ₱33,332 ₱333,332 above
below
Prescribed Withholding 0.00 +15% ₱937.50 +20% ₱4,270.70 +25% ₱16,770.70 +30% ₱91,770.70 +35%
0.00
Tax over ₱10,417 over ₱16,667 over ₱33,333 over ₱83,333 over ₱333,333
MONTHLY 1 2 3 4 5 6
₱20,833
₱20,833 - ₱33,333 - ₱66,667 - ₱166,667 - ₱666,667 and
Compensation Range and
₱33,332 ₱66,666 ₱166,666 ₱666,666 above
below
₱1,875.00
Prescribed Withholding 0.00 +15% ₱8,541.80 +25% ₱33,541.80 +30% ₱183,541.80 +35%
0.00 +20% over
Tax over ₱20,833 over ₱66,667 over ₱166,667 over ₱666,667
₱33,333

BAC 2 – Dr. P. De Guzman,CPA

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SSS. It is required that an employee or worker be a member of the Social Security System
and must make monthly contribution to this agency. Employers are required to pay SSS
contributions on wages paid to employees in addition to the SSS contributions they
deduct from their employee’s paychecks.

Employees’ Compensation (EC) Program. It aims to assist workers who suffer work related
sickness or injury resulting in disability or death.

 Employee’s Compensation Benefits- payable only by the employer.

SSS mandatory Provident Fund. It is called WISP or “Workers’ Investment & Savings
Program,” is an additional retirement savings plan providing additional monetary benefit
to members upon reaching the age of retirement, according to the SSS.

 Starting January 2021, all employed SSS members with monthly salary
credit of at least P24,750 will need to contribute P650.00 to the
mandatory SSS Provident Fund. This amount is to be shared by the
employee and employer, with the employee paying P225.00 and the
employer paying P425.00 every month.

To simplify, a contribution schedule is provided below (next page). For a better resolution,
open the picture of SSS Contribution Table in your file.

PhilHealth. Employees or workers are required to be members of the Philippine Health

Insurance and enjoy sickness and hospitalization benefits. PhilHealth monthly
contributions shall be 3% computed straight based on the monthly basic salary, with a
salary floor of ₱10,000 and a ceiling of ₱60,000, to be equally shared by the employee
and their employer. Contribution for salaries amounting to ₱10,000 and below is fixed at
₱ 300 while contributions for salaries amounting to ₱60,000 and above is fixed at ₱1,800.

HDMF/ Pag-Ibig (Pagtutulungan sa kinabukasan: Ikaw, Bangko, Industriya at Gobyerno).

RA 9679 also known as HDMF Law 2009 requires mandatory coverage of all employees.

 Employees earning not more than ₱1,500 per month- 1%, or

Employees earning more than ₱1,500 per month- 2%

 Employers- 2% of the monthly compensation of the contributing employee

Note: The maximum monthly compensation to be used in computing employee and

employer contributions shall not be more than ₱5,000; the effect will be a maximum
contribution of only ₱100.

Union Dues. An employee or worker may be a member of a labor union and us such is
also required to make contribution to the union.

Advances. In case of emergency or necessity, employees or workers are sometimes

allowed to draw a cash advance against their compensation.

BAC 2 – Dr. P. De Guzman,CPA

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BAC 2 – Dr. P. De Guzman,CPA

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PAYROLL SHEET ILLUSTRATED: SAMPLE PROBLEM 1

To illustrate, assume that the following are employees of Speedy Delivery Service
owned and operated by John Dimatulac:

Employees Position Monthly Salary Cash Advance

Danilo Cruz Driver/Messenger ₱12,400
Enrica Fajardo Delivery Clerk 14,600 ₱500
Stephanie Perez Delivery Manager 18,000

Assuming that Speedy Delivery Service pay their employees on a semi-monthly basis, we
are required to prepare the payroll sheet of Speedy Delivery Service for the period
January 1 to 15, 2022.

The Payroll Sheet of Speedy Delivery Service will appear as follows:

SPEEDY DELIVERY SERVICE
PAYROLL SHEET
Names Position Gross Pay Withholding Tax Social PhilHealth HDMF Total Cash Net Signature
Security Deductions Advance Pay
Danilo Cruz Driver/ Messenger ₱6,200.00 ₱- ₱281.25 ₱93.00 ₱50.00 ₱424.25 ₱5,775.75
Enrica Fajardo Delivery Clerk 7,300.00 - 326.25 109.50 50.00 485.75 ₱500.00 6,314.25
Stephanie Perez Delivery Manager 9,000.00 - 405.00 135.00 50.00 590.00 8,410.00
₱22,500.00 - ₱1,012.50 ₱337.50 ₱150.00 ₱1,500.00 ₱500.00 ₱20,500.00

Note: For a better presentation of the payroll sheet, open the file entitled PAYROLL SHEET.

*Net Pay = Gross Pay-Total Deductions – Cash Advance (if there is any)

JOURNAL ENTRY TO RECORD THE PAYROLL:

Date Particulars F Debit Credit
2021
Jan. 15 Salary Expense ₱ 2 250 0
SS Premiums Payable ₱ 1 0 1 2 50
PhilHealth Premiums Payable 3 3 7 50
HDMF Premiums Payable 1 5 0
Advances to Employees * 5 0 0
Cash 2 0 5 0 0
To record payroll for the first half of
January

* Entry and analysis on January 10 assuming Enrica got a cash advance on this date:
Date Particulars F Debit Credit
2021
Jan. 10 Advances to Employees ₱ 50 0
Cash on Hand ₱ 5 0 0
To record cash advance for Enrica

BAC 2 – Dr. P. De Guzman,CPA

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Computations:

GROSS PAY:

Since the given salaries are their monthly gross pay, semi-monthly salaries are computed
as follows:

Danilo Cruz- ₱ 12,400

÷ 2_
₱ 6,200

Enrica Fajardo- ₱ 14,600

÷ 2_
₱ 7,300

Stephanie Perez- ₱ 18,000

÷ 2_
₱ 9,000

SS CONTRIBUTION:

Note that SS contribution depends on where the employee’s salary falls within the range
of compensation.

Danilo Cruz - SS Contribution (Monthly) ₱562.50

÷ 2_
SS Contribution (Semi- Monthly) ₱281.25

Explanation: Since Danilo Cruz’ salary is ₱12,400, in the SS table his range of compensation
is ₱12,250 and ₱12,749.99. His monthly SS contribution is ₱562.50 (found under Regular
Social Security, EE column).

Enrica Fajardo- SS Contribution (Monthly) ₱ 652.50

÷ 2_
SS Contribution (Semi- Monthly) ₱ 326.25

Explanation: Since Enrica Fajardo’s salary is ₱14,600, in the SS table her range of
compensation is ₱14,250 and ₱14,749.99. Her monthly SS contribution is ₱652.50 (found
under Regular Social Security, EE column).

Stephanie Perez- SS Contribution (Monthly) ₱ 810

÷ 2_
SS Contribution (Semi- Monthly) ₱ 405

BAC 2 – Dr. P. De Guzman,CPA

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Explanation: Since Enrica Fajardo’s salary is ₱18,000, in the SS table her range of
compensation is ₱17,750 and ₱18,249.99. Her monthly SS contribution is ₱810 (found
under Regular Social Security, EE column).

PHILHEALTH CONTRIBUTION:

Danilo Cruz-

Monthly Salary ₱12,400

X 3%
PhilHealth Contribution (Monthly) ₱ 372
The PhilHealth contribution of ₱372 is equally shared by employer and employee, thus:

Monthly Share of Danilo Cruz- (₱372÷ 2) ₱186

Semi- monthly share of Danilo Cruz (₱186÷2) ₱93

Enrica Fajardo-

Monthly Salary ₱14,600

X 3%
PhilHealth Contribution (Monthly) ₱ 438
The PhilHealth contribution of ₱438 is equally shared by employer and employee, thus:

Monthly Share of Enrica Fajardo- (₱438÷ 2) ₱219

Semi- monthly share of Enrica Fajardo (₱219÷2) ₱109.50

Stephanie Perez-

Monthly Salary ₱18,000

X 3%
PhilHealth Contribution (Monthly) ₱ 540
The PhilHealth contribution of ₱438 is equally shared by employer and employee, thus:

Monthly Share of Stephanie Perez- (₱540÷ 2) ₱270

Semi- monthly share of Stephanie Perez (₱270÷2) ₱135

HDMF/PAG-IBIG CONTRIBUTION:

Danilo Cruz-

Since the monthly salary of Danilo Cruz amounting to ₱12,400 is higher than ₱5,000, ₱5,000
will be used in computing employee and employer contributions which is the maximum
monthly compensation, the computation will be as follows:

Maximum monthly compensation ₱5,000

X 2%
Pag-Ibig Contribution (monthly) ₱ 100
÷ 2

BAC 2 – Dr. P. De Guzman,CPA

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Pag-Ibig Contribution (semi-monthly) ₱ 50

Enrica Fajardo-

Since the monthly salary of Enrica Fajardo amounting to ₱14,600 is higher than ₱5,000,
₱5,000 will be used in computing employee and employer contributions which is the
maximum monthly compensation, the computation will be as follows:

Maximum monthly compensation ₱5,000

X 2%
Pag-Ibig Contribution (monthly) ₱ 100
÷ 2
Pag-Ibig Contribution (semi-monthly) ₱ 50

Stephanie Perez-

Since the monthly salary of Stephanie Perez amounting to ₱18,000 is higher than ₱5,000,
₱5,000 will be used in computing employee and employer contributions which is the
maximum monthly compensation, the computation will be as follows:

Maximum monthly compensation ₱5,000

X 2%
Pag-Ibig Contribution (monthly) ₱ 100
÷ 2
Pag-Ibig Contribution (semi-monthly) ₱ 50

WITHHOLDING TAX:

In order to compute for the withholding tax, taxable net income should be computed
first. Thus,

Danilo Cruz Semi-monthly

Gross Pay ₱ 6,200
Less: SS ₱ 281.25
PhilHealth 93.00
Pag- Ibig 50.00 424.25
Net Taxable Income ₱5,775.75

Note: Since the net taxable income of Danilo Cruz is within the 10,417 exempt level (refer
to the withholding tax table) , the prescribed minimum withholding tax of Danilo Cruz is
0.

Scenario: Assuming that the net taxable income of Eric Lee is ₱11,001.22, tax for Eric Lee
is ₱116.84 based on ₱11,001.22- ₱10,417.00 exempt level= ₱584.22 x 20%= ₱116.84.
(please refer to the withholding tax table)

Enrica Fajardo Semi-monthly

BAC 2 – Dr. P. De Guzman,CPA

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Gross Pay ₱ 7,300.00

Less: SS ₱326.25
PhilHealth 109.50
Pag- Ibig 50.00 485.75
Net Taxable Income ₱ 6,814.25
Note: Since the net taxable income of Enrica Fajardo is within the 10,417 exempt level
(refer to the withholding tax table), the prescribed minimum withholding tax of Enrica
Fajardo is 0.

Stephanie Perez Semi-monthly

Gross Pay ₱ 9,000.00
Less: SS ₱405.00
PhilHealth 135.00
Pag- Ibig 50.00 590.00
Net Taxable Income ₱ 8,410.00

Note: Since the net taxable income of Stephanie Perez is within the 10,417 exempt level
(please refer to the withholding tax table), the prescribed minimum withholding tax of
Stephanie Perez is 0.

EMPLOYER’S CONTRIBUTIONS

The law also requires the employer (business) to make corresponding contributions
for SS, PholHealth, HDMF or Pag-Ibig and EC premiums for and in behalf of their
employees and workers. A schedule of total employer’s contributions, based on the
given illustration, will appear thus:

SS PhilHealth EC HDMF TOTAL

Danilo Cruz ₱1,062.50 ₱186.00 ₱10.00 ₱100.00 ₱1,358.50
Enrica Fajardo 1,232.50 219.00 10.00 100.00 1,561.50
Stephanie Perez 1,530.00 270.00 30.00 100.00 1,930.00
₱3,825.00 ₱675.00 ₱50.00 ₱300.00 ₱4,850.00

SS:

Can be found in the SSS CONTRIBUTION TABLE under Regular Social Security, ER column

Philhealth:
Danilo Cruz (12,400*3%)/2
Enrica Fajardo (14,600*3%)/2
Stephanie Perez (18,000*3%)/2

EC:

Can be found in the SSS CONTRIBUTION TABLE under Employee's Compensation,

ER Column

BAC 2 – Dr. P. De Guzman,CPA

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HDMF:

The maximum monthly compensation to be used in computing employee and

employer contributions shall not be more than ₱5,000; the effect will be a maximum
contribution of only ₱100.

Based on this, an added entry will be prepared but only at the end of the month.
31 SS Premium Expense 3 82 5
PhilHealth Premium Expense 67 5
EC Premium Expense 5 0
HDMF Premium Expense 30 0
SS Premium Payable 3 8 2 5
PhilHealth Premium Payable 6 7 5
EC Premium Payable 5 0
HDMF Premium Payable 3 0 0
To record liabilities

BAC 2 – Dr. P. De Guzman,CPA