Lesson 1:

EMPLOYEE
COMPENSATION
 EMPLOYEE COMPENSATION
• Employee Compensation refers to the remuneration or reward that an employee
gets from his or her employer for the services he or she gives the latter.An
employee,be it of a profit-making entity(business) or non-profit organization is
paid something in return for his or her services.
• This is the legal and and moral obligation of any business.
• This includes wages,salaries,employee benefits including sick leave and vacation
leave, and incentive pay ,which includes productivity
pay,commission,override,bonus and profit-sharing.
• Employment law does not specific definition of a wage or salary
earner.However,generally speaking the term“wages” is used where the amount of
money the employee receives may vary from one pay period to the next ,as the
ampount paid is directly dependent on the amount of hours worked ; the term
“salary” refers to the agreed and fixed annual amount of money the employee
receives regarfless of the hours worked.
WAGES

Basic pay in employee’s compensation package refers to the

wages or salaries they get.Wages refer to the earnings
received by a worker on a piece rate,hourly rate or daily rate.
PIECE RATE

A worker employed on a “piecework” basis is paid in

proportion to the quantity of work he or she finishes.The rate
usex can be fixed irrespective of the quantity produced ,in
which case it is called a fixed piece-rate plan.On the other
hand ,it can be graduated increasing as the quantity produced
increases ,in which case it is called differential piece-work
plan.
Example:
Timmy is paid on a per-piece basis at the rate of P1.20 per-piece.If she
finishes 360 pieces a week,how much is his total earnings?
Given: Rate= P1.20 per piece
Quantity produced =360 pieces(base)
Find: Total earnings
Solution: Total earnings= Quantity x Rate
= 360 x P1.20
= P 432.00
 Hourly Rate
Many employee are paid on an hourly basis.To compute for the pay,we simply
multiply the number of hours of work by the hourly rate.For example,if an
employee worked for 40 hours during the week his or her rate is P10.00 per
hour,his or her wage is 40 hours x P10.00/hour= P400.00.
Employees who work more than the required number of hours are entitled to
overtime pay.Overtime premium refers to the excess payment over the regular
rate.The following are the different articles of the Labor Code relevant to normal
hours and overtime work.
 EMPLOYEE BENEFITS
Employee benefits cover renumeration other than basic pay.It includes vacation
and sick leaves,medical and hospitalization benefits,meal allowance,transportation
allowance,clothing allowance,etc., and incentive pay for productivity such as
commission,overrides,bonuses and profit-sharing.For the Philippines,the following
benefits are given to employees.

• Vacation pay: Thirteen(13) vacation days,with additional one vacation day every
year starting on second year of service and convertible to cash at the end of each
year.Maximum total vacation leave is 18 days.
• Sick leave: Twelve(12) days per year for the first two years of service.With
additional one sick leave every year starting on second year of service.Maximum
total sick leave is 15 days.All unused leave day are convertible to cash in
December of each year.
• Holiday pay: (Please see Appendix F for the list of Philippine Holidays for 2016.
In lieu of vacation pay,Article 95 of the Labor Code provides for service incentive
leave for every employee who has rendered at least one year of service of 5 days
with pay.Some benefits are taxable,just like
wages,salaries,commission,royalties,etc.However,some benefits are non-
taxable.Revenue Regulations(RR) No.5-2011 dated March 16,2011 published in
Manila Bulletin March 18, 2011 cites the non-taxable benefits as follows.The BIR
issued Revenue Regulations No.5-2011 limiting the items of ‘de minimis' benefits
that are excempt from withholding tax on compensation (WTC) or to Fringe
Benefits Tax(FBT) to the following:
1.Monetized unused vacation leave credits of private employees not exceeding 10
days;
2.Monetized value of vacation and sick leave credits paid to government
employees;
3.Medical cash allowance to dependents of employeed,not exceeding P750.00 per
employee per semester of P125.00 per month;
4.Rice Subsidy of P1 500.00 or one (1) sack of 50 kg of rice per month
amounting to not more than P1 500.00;
5.Uniform and clothing allowance not exceeding P4 000.00 per annum;
6.Actual medical expenses not exceeding P10 000.00 per annum; 7.Laundry
allowance not exceeding P300.00 per month;
8.Annual achivement awards with an annual monetary value not exceeding 10
000.00;
9.Gifts during Christmas and major anniversaries not exceeding P5 000.00 per
annum; and
10.Daily meal allowance for overtime work and night shift not exceeding 25%
of the basic minimum wage.RR 5-2011 emphasized that other than the above
benefits,all other benefits given by employers to employees shall not be
considered “de minimis” benefits,and hence, shall be subject to income tax as
well as withholding tax on compensation or fringe benefits tax.
Lesson Summary
• Employee compensation refers to the renumeration given an employee in exchange of his or her
services.This can be in the form of a wage, a salary, employee benefits including sick leave and
vacation leave, and incentive pay, which includes productivity pay, commission, override, bonus,
and profit-sharing.
• Basic pay in an employee's compensation package refers to the wages or salaries that they get.
• Wages refer to earnings received by worker on a piece rate, hourly rate, or daily rate.
• Employees who work more than the required number of hours are entitled to overtime
pay.Overtime premium could be 25% or 50 % or any rate more than 25% as per company policy.
• Earnings of employees paid on a monthly or annual basis are generally referred to as salary.
• Income is a broader term than wages or salary.Wages and salaries are income to the people
receiving them.Income includes dividend income to stockholders, royalty to authors, rent
income to those owning properties for rent, etc.
• Employee benefits cover remuneration other than basic pay.These include vacation and sick
leaves, medical and hospitalization benefits, meal allowance, transportation allowance, clothing
allowance, and incentive pay for productivity such as commission, overrides, bonuses, and
profit-sharing.
 Lesson 2:
Payroll Deductions
PAYROLL DEDUCTIONS
An employee's gross earnings are not what he or she
takes home.The take-home pay of an employee is his or
her gross earnings less certain payroll deductions.In
short, he or she takes home less than his or her gross
earnings.
PAYROLL DEDUCTIONS

An employee generally does not receive his or her gross earnings intact every
payday.There are certain deductions from gross earnings to arrive at or
compute for an employee's net pay or take-home pay.These deductions may
include, among others, the following:
1.Employee's SSS contribution for private employees
2.Employee's GSIS contribution for government employees
3.PhilHealth contribution for all employees
4.Withholding taxes for all employees
5.Salary advances or temporary values(IOUs)
6.Union dues
Rate of Contribution to SSS’
All employees of private enterprises are covered by the Social Security
Service.Self-employed individuals can also become members.The
monthly contributions are based on the compensation of members.The
current SSS contribution rate is 11% of the monthly salary credit not
exceeding P16 000.00 and this is being shared by the employer (7.37%)
and the employee (3.63%).
Self-employed and voluntary members pay the 11% of the monthly
salary credit (MSC) based on the monthly earnings declared at the time
of registration.For OFW's, the minimum monthly salary credit is pegged
at P5 000.00.For the non-working spouse, the contribution will be based
on 50% of the working spouses last posted monthly salary credit but in
no case shall it be lower than P1 000.00.
Rate of Contribution to PhilHealth’
All employees, whether of private entities or goverment entities, are to be
members of PhilHealth.This is basically intended to cover them and their
beneficiaries help in times of sickness.The first in the list shows:

Salary Bracket Salary Base Total Mo. Premium Employee Employer

1. 8 999.99** and 8 000.00 200.00 100.00 100.00

below

2. 9 000.00- 9 999.99 9 000.00 225.00 112.50 112.50

3.10 000.00- 10 10 000.00 250.00 125.00 125.00

999.99
Rate of Contribution to GSIS

All goverment employees holding permanent and non-permananent positions are

members of the GSIS.Premium contributions are based on monthly compensation.
There are two types of insurance coverage.
1.Regular- refers to compulsory premium payments on life insurance and
retirement benefits.
2.Employee Compensation Fund- refers to premium payments paid by your
government agency so you get full coverage in case of a work- related accident.
Rate of the premium contributions are as follows:

Types of Personal Personal Government Goverment

insurance Share Share Share Share
coverage Life Retirement Life Retirement

Regular 2% 7% 2% 10%

Employees 1% not to
Compensation none 0% none exceeding P100
Fund
Withholding Taxes
Withholding tax on compensation is the tax withhold from income payments to individuals
arising from an employer -employee relationship.Withholding tax table is also available from the
BIR and in the Internet.
How to compute your Philippine BIR Withholding Tax
To be able to compute your BIR Withholding Tax for the month, the following information are
needed.You may want to check out your payslips for the other information.
• Your BIR Tax Status(Single/Married)
• Do you have any dependents and how many?
• How much is your SSS/PhilHealth and Pagibig contributions?
• Allowances and other benefits(if any)
• Copy all the latest BIR Withholding Tax Table
Let us assume the following:
• Basic Salary: P15 000.00
• Status:Single (No dependents)
• Overtime Pay: P2 500.00
• Late/Undertime deduction: P500.00
• SSS Contribution: P500.00
• PhilHealth Contribution: P250.00
• PagIbig Contribution: P100.00
To get your taxable income,add the following basic salary and overtime pay then
deduct the late/undertime deduction, SSS, PhilHealth, and Pag Ibig Contributions.
Your taxable income for the month is P16 150.That would be the result of P 15
000+ P2 500 - P500 - P500 - P250 - P100.Your tax will be computed based on your
taxable income.The tax can be computed with the help of the BIR Withholding Tax
Table.
Using the BIR Withholding Tax Table,look for the nearest amount to your taxable
income which is P16 150.Look under the monthly category.
In this case, the nearest value is P15 833.Take note of the tax
rates above and the amount above it.Now, we got three
important factors in computing your BIR Withholding Tax Table:
P15,833, P1,875, and lastly the +25% over.

The tax computation would be:

P16 500.00(Taxable Income)- P15 833.00(Tax Base)= P137.00

P317.00 x 25%= P79.25
P79.25 + P1 875.00= P1 954.25 your BIR Withholding Tax for the
month
Pag-Ibig Fund Contributions

The Home Development Mutual Fund(HDMF), more popularly known as the Pag-
Ibig Fund,was established to provide a national savings program and affordable
shelter financing for the Filipino workers.The Fund offers its members short-term
loans and access to housing programs.It is mandatory for all SSS and GSIS covered
employees;uniformed members of the AFP, BFP, BJMP and PNP; as well as Filipinos
employed by foreign-based employers.With the signing of Republic Act No. 9679,
membership to the Fund shall be mandatory for the following:
a.All employees, workers, professionals, officers, and companies who are
compulsorily covered by the SSS and GSIS; b.Uniformed members of the Armed
Forces of the Philippines, the Bureau of Fire Protection, the Bureau of Jail
Management and Penology, and the Philippine National Police;c.Overseas Filipino
Workers(OFWs); and d.Filipinos employed by foreign-based employers,whether
deployed locally or abroad.