Processing Payroll and Related Statutory Deductions
From gross to net
Payroll processing moves from gross pay to net pay by deducting statutory and other authorised deductions. Gross pay includes basic pay plus overtime, night differential, holiday pay, and allowances, computed from time records and the applicable rates. Candidates must understand the difference between employee deductions (withheld from the employee) and employer contributions (an additional cost borne by the employer).
Statutory framework (Philippines)
Key agencies are SSS, PhilHealth, Pag-IBIG, and the BIR. Contributions are shared between employer and employee at prescribed rates and salary bases set by regulation; income tax is withheld using the BIR withholding table. Because rates and ceilings change, always apply the schedule in force for the payroll period rather than memorised figures.
Traps to watch for
- Employer share treated as an employee deduction: the employer share is an expense and liability, not a reduction of the employee's pay.
- Overtime and night differential: overtime is paid at a premium over the hourly rate; night differential is an additional percentage for work within the prescribed night window.
- Net pay errors: net pay = gross pay − total employee deductions; do not subtract employer contributions.
- Timing: contributions and withheld tax are liabilities at payroll date and are remitted on their statutory deadlines.
Worked example (illustrative rates only)
Gross pay ₱20,000. Employee deductions: SSS ₱900, PhilHealth ₱500, Pag-IBIG ₱200, withholding tax ₱1,200. Total employee deductions = ₱2,800. Net pay = 20,000 − 2,800 = ₱17,200. The employer's matching contributions are recorded separately as employer expense and payable. Rule of thumb: build the payroll register gross-to-net, then post the employer share as a separate journal entry.