Thursday, November 15, 2007 Ng: Payroll and withholding tax By Wilson Ng Wired Desktop
ONE of the popular business process applications that local businesses computerize is payroll. And it is no wonder—there are probably so many issues that one has to deal with in doing so, which are probably caused by Filipino flexibility and creativity.
In the last 12 years of developing payroll software, we have probably encountered almost every possible imaginative situations and complaints possible. After all, our software generate almost 30,000 pay slips every pay period.
Remember the time when a president decreed that there is a half-day holiday? (For a time, we cringed in horror last All Saints’ Day when it was almost re-introduced).
Remember another time when there was a proclamation, valid only for that year, which mandated companies to pay three or four times the normal salary workers who report on Maundy Thursday or Good Friday?
And we now have shifting holidays to the weekend plus last-minute special holiday announcements. More and more, you see people working on night shifts. What if you work on the night of Oct. 31 (starting at 10 p.m.) and go home at 10:00 a.m. on Nov 1? How many hours will get holiday pay, how many for regular pay, and overtime pay on top of your holiday pay? How much of the hours you put in will get night differential pay?
The business press outsourcing and contact center boom has created an additional complication—there are now companies that work on US holiday or Japanese holiday calendars.
The other side of the issue revolves around the numerous cash advan-ces that our people normally take as well as the various deductions (be it housing fund, PhilHealth, Social Security or withholding tax) that we are mandated to do. As it is nearing yearend, one of the more contentious issues that companies face is the one on withholding income tax and its reimbursements.
Numerous companies deduct withholding tax based on the weekly, bi-monthly or monthly tax table provided. The important thing to note is that withholding tax tables are based on the presumption that the person earns the same roughly every month.
Let us imagine a scenario: You hire a new person last June. You offer him a salary of P6,500 a month. If you deduct his withholding tax according to the tax table, he would have a big reimbursement coming at the end of the year because the monthly withholding tax table presumes he has been earning P6,500 per month for the whole year. But the reality was that he was not earning anything from January to May.
What about an employee, who is married with children and earns P10,000 in the first three months but is out of work for the next five months? What happens if he finds a job and is employed in the last four months of the year with a salary of P11,000 a month? He could be exempted (after deducting the mandatory allowances) from paying income tax because he earned less than P80,000 for the whole year.
These issues are not easy to resolve and companies must carefully weigh available options.
One way is to go for the annualized withholding tax table – compute all the income that you have earned so far for that year, and look at the tax table, and determine how much deduction should be gotten. After all, what the Bureau of Internal Revenue wants is for you to withhold the right amount (the semi-monthly and monthly tax table being guides and assume that you are earning roughly the same every month of the year) so that at the end of the year, what you need to pay and what you have paid are equal.
If you are not paying enough, or are paying too much, then that creates a lot of problems on both sides. It also creates dissatisfaction on the part of the employee, who may feel his salary has been unnecessarily taxed.
There are numerous issues in human resource and payroll. Some of them we have documented in our website (www.esprint.org). At the upper right portion of the site, you will see HR handbook.
