WHAT IS PAYROLL?

The remuneration given by the business to its employees for their services rendered is termed
as SALARIES. The prepared list of names of these employees showing their corresponding earnings or
salaries called Payroll. The net amount given to them after some deductions is called Net Payroll or
Take Home Pay.

Payroll shows their basic salaries which include the integrated emergency cost of living
allowance (ECOLA). The 13th month and bonuses given to them during the month of December form is
part of the payroll. These remunerations are treated by the business as expense and being recorded as
Salaries Expense or a separate expense account as 13th month pay and bonuses.

Terminologies

Accounting treatment of the following terms related to Payroll:

Expenses

SSS Contribution – account title used for the employee’s share on SSS Contribution.

PhilHealth Contribution – account title used for employer’s share on PhilHealth Contribution.

Pag-ibig Contribution – account title used for the employer’s share on Pag-ibig Contribution.

Liabilities

SSS Premium Payable – refers to the amount due and payable by the business to the Social Security
System. This is composed of both employer and employee’s share on SSS Contribution

PhilHealth Premium Payable – refers to the amount due and payable by the business to the Philippine
Health Insurance Corporation. This is composed of both employer and employee’s share on
PhilHealth Contribution.

Pag-ibig Premiun Payable – refers to the amount due and payable by the business to the Home
Development Mutual Fund. This is composed of both employer and employee’s share on Pag-
ibig Contribution.

Withholding Tax Payable – refers to the amount due and payable by the business to the Bureau of
Internal Revenue for the tax withheld from employees.

SSS Salary Loan – refers to the amount deducted by the employer from the employee’s payroll the
amortization of his salary loan to be remitted to SSS.

USUAL PAYROLL DEDUCTIONS:

Government regulations subjected the salaries of these employees to the following deductions:
1. SSS
2. PhilHealth contribution
3. Pag-ibig contribution (Home Development Mutual Fund)
4. Withholding Tax
5. SSS Salary Loan

Other deductions:
1. Cash advances of employees’ deductible against their salaries
2. Labor union dues
3. Insurance, etc.

SSS CONTRIBUTION
Republic Act 1161 as amended requires every employee or laborer to be a member of the SSS.
In return of his monthly contribution to the SSS, he will receive some benefits such as sickness, death,
disability, maternity, salary and educational loans, pension benefits after retirement, burial expenses,
etc. Contributions to the SSS are shared between the employee and his employer. The share of the
employee is to be deducted from his monthly payroll. The employer’s share is treated as business
expense.
The contribution of the employee is determined based on the basic salaries which include the
emergency cost living allowance. Other remunerations such as 13th month pay and bonuses are not
included.

EMPLOYEES COMPENSATION CONTRIBUTION (ECC):

Presidential Decree 622 established a state insurance funding system effective January 1, 1975,
wherein each employee is insured against injury/death sustained in connection with his works. Only the
employer will contribute to the employee’s compensation and treated as business expense. No share
for the employee.
Both SSS employee and employer’s and EC employer’s share are to be remitted to the SSS. The
amount of SSS that is to be deducted from payroll as well as the employer’s counterpart for SSS and EC.

PHILIPPINE HEALTH INSURANCE PROGRAM (PHILHEALTH):

This program is designed to help employees in their needs of financial assistance whenever they
are hospitalized or any of their immediate dependents. They can avail of deduction from room and
boarding rates, medicines, operating rooms, surgeon and anesthesiologist’s fee, etc.
The administration of the Medicare program for private sector workers was transferred to the
Philippine Health Insurance Corporation (PHILHEALTH) effective October 1997 as mandated.

PAG-IBIG CONTRIBUTION:
This program is designed to help employees owned a home through financing scheme. It also
assured employees to get back the total contributions which are composed of both employee and
employer’s share upon retirement.
The contribution to Pag-ibig fund is equally shared between the employee and the employer at
a maximum amount of Ᵽ100. The employee can contribute more than the maximum, provided the
employer can match the contribution. However, the employer can only give what is required.
The employee is required to contribute at 2% of his monthly earnings of more than Ᵽ1,500 per
month and the employer at 2% monthly compensation of said employee.

WITHHOLDING TAX PAYABLE:

The Bureau of Internal Revenue (BIR) requires every employer to deduct or withhold from his
employees, income taxes in accordance with the Withholding Tax Payable under the new law on gross
income taxation which took effect on January 1, 1982. This is further discussed in Taxation subjects.
ILLUSTRATION OF PAYROLL

PAYROLL
Covering the period from January 1 to January 31, 20A
DEDUCTIONS
Employee’s Gross Cash With- Phil- Total Take
Name Pay Advance holding SSS Health Pag- Deductions Home Pay
Tax ibig
Abo, Khado Ᵽ6,000 - Ᵽ 358 Ᵽ 218.00 Ᵽ100.00 Ᵽ100 Ᵽ 776.00 Ᵽ 5,224
Baya, Bas Ᵽ8,000 Ᵽ 500 Ᵽ 475 Ᵽ 290.17 Ᵽ100.00 Ᵽ100 Ᵽ1,465.17 Ᵽ 6,534.83
Cai, Meto Ᵽ7,500 - Ᵽ 580 Ᵽ 272.50 Ᵽ100.00 Ᵽ100 Ᵽ1,052.50 Ᵽ 6,447.50
Dho, Hat Ᵽ9,000 Ᵽ 300 Ᵽ 670 Ᵽ 327.00 Ᵽ112.50 Ᵽ100 Ᵽ1,509.50 Ᵽ 7,490.50
Lan, Zones Ᵽ6,500 Ᵽ 200 Ᵽ 385 Ᵽ 236.20 Ᵽ100.00 Ᵽ100 Ᵽ1,021.20 Ᵽ 5,478.80
Mha, Dang Ᵽ7,000 Ᵽ 415 Ᵽ 254.30 Ᵽ100.00 Ᵽ100 Ᵽ 869.30 Ᵽ 6,130.70
Total Ᵽ44,000 Ᵽ1,000 Ᵽ2,883 Ᵽ1,598.17 Ᵽ612.50 Ᵽ600 Ᵽ6,693.67 Ᵽ37,306.33

Journal Entry:
Salaries and Wages Ᵽ 44,000
Advances to Employees Ᵽ 1,000.00
With-holding Tax Payable 2,883.00
SSS Premium Payable 1,598.17
Phil-Health Premium Payable 612.50
Pag-ibig Premium Payable 600.00
Cash in Bank 3,7306.33
To record salaries and wages for the month of January 20A.

NOTE:
The amount of take home pay represented by Cash in Bank in the amount of Ᵽ37,306.33 is the
amount of the “Net Payroll”.
Whenever a check is issued intended for the payroll, there should be an accompanying Cash
Voucher and is recorded in the Cash Disbursements Journal which in effect being journalized.

The SSS/ECC, Phil-Health and Pag-ibig contributions of the employer as determined in the given
table are as follows:
 Employer’s Share

Employee’s SSS Phil-Health ECC Pag-ibig Total

Name
Abo, Khado Ᵽ 442.00 Ᵽ 100.00 Ᵽ 10 Ᵽ 100 Ᵽ 652.00
Baya, Bas 589.30 100.00 10 100 799.30
Cai, Meto 552.50 100.00 10 100 762.50
Dho, Hat 663.00 112.50 10 100 885.50
Lan, Zones 478.80 100.00 10 100 688.80
Mha, Dang 515.70 100.00 10 100 725.70
Total Ᵽ 3,241.30 Ᵽ 612.50 Ᵽ 60 Ᵽ 600 Ᵽ 4,513.80

NOTE:
The employer’s share on the SSS and ECC Premium, Phil-Health Premium and Pag-ibig Premium
payments are recorded in the General Journal regardless of the use of the Special Journals.

Journal Entry:
SSS Contribution Ᵽ 3,241.30
Phil-Health Contribution 612.50
Pag-ibig Contribution 600.00
SSS Premium Payable Ᵽ 3,241.30
Phil-Health Premium Payable 612.50
Pag-ibig Premium Payable 600.00
To record employer’s share on the above contribution for the month of January
20A.

The SSS Premium Payable, Phil-Health Premium Payable and Pag-ibig Premium Payable Ledgers
will show the following postings and balances:

SSS Premium Payable

Ᵽ 1,598.17 – Employee’s Contribution

3,241.30 – Employer’s Share
Ᵽ 4,839.47

Phil-Health Premium Payable

Ᵽ 612.50 – Employee’s Contribution

612.50 – Employer’s Share
Ᵽ 1,225.00
 Pag-ibig Premium Payable

Ᵽ 600.00 – Employee’s Contribution

600.00 – Employer’s Share
Ᵽ 1,200.00

Upon remittance, the recording in the Cash Disbursements Journal is in effect journalized as
follows:

SSS Premium Payable Ᵽ4,839.47

Cash in Bank Ᵽ4,839.47
To record remittance of SSS Premium for the month of January 20A.

Phil-Health Premium Payable Ᵽ1,225.00

Cash in Bank Ᵽ1,225.00
To record remittance of Phil-Health Premium for the month of January 20A.

Pag-ibig Premium Payable Ᵽ1,200.00

Cash in Bank Ᵽ1,200.00
To record remittance of Pag-ibig Premium for the month of January 20A.

NOTE:
The payment is again accompanied with a Cash Voucher and the check is payable to the Social
Security System, Phillippine-Health Insurance Corporation and Home Development Mutual Fund.

Closing:
SSS Premium Payable

Ᵽ 1,598.17 – Employee’s Contribution

Remittance - Ᵽ4,839.47 3,241.30 – Employer’s Share
Ᵽ4,839.47 Ᵽ 4.839.47

Phil-Health Premium Payable

Ᵽ 612.50 – Employee’s Contribution

Remittance - Ᵽ612.50 612.50 – Employer’s Share
Ᵽ612.50 Ᵽ1,225.00

Pag-ibig Premium Payable

Ᵽ 600.00 – Employee’s Contribution

Remittance - Ᵽ1,200.00 600.00 – Employer’s Share
Ᵽ1,200.00 Ᵽ1,200.00
NOTE:
The Withholding Tax Payable account will also be closed upon remittance to the Bureau of
Internal Revenue. Again, a Cash Voucher is prepared. The payment will also be recorded in the Cash
Payments Journal and in effect is journalized as follows:

Journal Entry:
Withholding Tax Payable Ᵽ2,883.00
Cash in Bank Ᵽ2,883.00
To record withholding tax remittance for the month of January 20A.

Closing:
Withholding Tax Payable

Remittance - Ᵽ2,883.00 Ᵽ2,883.00 – Employee’s Contribution

Ᵽ2,883.00 Ᵽ2,883.00

NOTE:
The same holds true with Labor Union Dues and Insurance deductions and remittances. The
check is payable to the union and to the insurance company.

Problem:
The partial payroll of D. Paterio Trading is presented below. The proprietor/manager, Doris
Marie Paterio seeks your assistance in completing the said payroll.

DEDUCTIONS
Employee’s Gross Pay SSS Phil- Withholding Cash Total Take
Health Tax Advance Deductions Home
Pay
1. Mr. X Ᵽ 7,000 Ᵽ 115.00 Ᵽ 300.00
2. Mr. Y 8,000 110.00 500.00
3. Mr. Z 9,000 120.00 800.00

Required:
1. Compute the SSS and Philhealth deductions from the gross pay of each employee. (Use the given
table.)
2. Determine the share of D. Paterio Trading on the above contributions. (Use the given table.)
3. Journalize the above payable which you have completed.
4. Journalize your remittance to the SSS and Philhealth for the premium contribution of BIR for the
Wthholding Tax.