It’s the responsibility of the employer to accurately compute employee salary, and release it in a timely and orderly fashion.
Miscalculation and errors resulting to overpayment or underpayment of employees withholding taxes, Mandated statutory contributions such as SSS, HDMF and Philhealth, other income and deductions causes an inconvenience for both employee and employer. This can also result in the company coming under review and paying penalties to government agencies such as the Bureau of Internal Revenue.
You must ensure that you gathered the correct information of your employees such as their tax status, monthly rates, benefits, etc. You also need to determine which are the taxable and non-taxable income, regular and supplementary income, and the payment method for tax purposes.
Below are the steps on computing employee’s salary:
1. Compute for your Gross Taxable Income
- Gross Taxable Income are composed of the following:
o Basic Salary
o Overtime pay
o Holiday pay premiums
o Night Differentials
o Taxable allowances
o Taxable bonus or 13th month pay
o Other taxable income
o Less Absences, Undertime and Tardiness
2. Deduct Government Mandated Statutory contributions (SSS, HDMF, Philhealth) to arrive on the net Taxable Income
- Net Taxable income = Gross taxable income – SSS EE share – HDMF EE share – Philhealth EE share
3. Compute for the tax amount
Below is sample tax calculation for your reference:
The following is required information to compute your income tax.
• Status ( Single or Married)
• Do you have any dependents and how many? (maximum of 4 only)
• How much is your SSS, Philhealth and PagIbig contributions
• Allowances and other benefits if any
• Copy of the BIR Tax table
Sample information below:
• Basic Salary: Php 15,000.00
• Status: Single (No dependent)
• Overtime Pay: Php 3,000.00
• Late deduction: Php 1,000.00
• SSS Contribution: Php 500.00
• Philhealth Contribution: Php 250.00
• Pag-Ibig Contribution: Php 100.00
Taxable income = Monthly Basic Salary + Overtime Pay + Holiday Pay + Night
Differential – Tardiness- Absences – SSS/Philhealth/PagIbig deductions
Php 16,150.00 = 15,000 + 3,000 -1,000-500-250-100
Your tax for the month is Php 1,954.25.
BIR Tax Table is available on the following link:
Under S/ME (Single or married) look of the nearest figures with your taxable income and the nearest amount is 15,833 and the tax is Php 1,875.00 + 25% in excess of 15,833
So your tax for 15,833.00 = 1,875.00
Excess (16,150-15,833) = 317 X 25% = 79.25
Total Tax due is ( 1,875.00 + 79.25)= Php 1,954.25
4. Compute for the Gross Salary after tax
- Gross salary after tax = Gross Taxable income less Tax
5. Compute for the net salary
- Net salary = Gross pay after tax + non-taxable allowance and bonus (de minimis, non-taxable 13th month pay, referral fee, etc) – other deductions (loans, excess payments, etc)
Jhoe is a graduade of BS Accountancy from Jose Rizal University. With 14 years of experience handling various Accounting, Finance and HR works. He specializes in APAC payroll, Compensation and Benefits, Purchasing and Cash Management. He is currently working as the HR, Payroll and Office Administrator of a Software Development firm in Makati, CBD.