How to Compute Salary Deductions?

When it comes to your salary, have you ever wondered why your pay differs from your employer's suggested gross income? It's impossible to imagine anything more annoying than a payslip with multiple deductions and a ridiculously small net pay.

Tracking your monthly take-home pay is imperative with rising inflation and the declining peso. You should carefully examine your payslip to ensure you aren't deducting more than what's allowed. Furthermore, you might catch errors in payroll deduction computations. Employers sometimes deduct mandatory government benefits from their employees' payrolls but fail to remit the monthly contributions to the agencies.

Lumina Homes, a credible residential developer in the country, believes that it is important to know payroll deductions, especially if you're saving money to look for a house and lot in the Philippines as an investment. An employee's monthly basic salary and allowance are computed based on a few things. So, if you need help understanding the salary deductions on your payslips, read on.

8 Kinds of Payroll Deductions You Can See in Your Payslip

1. Late/Undertime Deduction

A deduction can be imposed on employee salaries for tardiness. The amount that will be deducted from late arrivals at work is typically decided by your company. In fact, late fees are sometimes deducted based on half an hour's work. To avoid confusion, be sure to review your company handbook. Having employees aware of such a policy in the company plays a vital role.

2. Absences

Absences from work do not count as paid leave. Depending on your company's policy, this will differ from case to case. As an employee, you can receive paid leaves either in a month or a year. Therefore, make sure you know how many paid leaves or service incentive leaves you can earn. As soon as you exceed this number, your salary will be deducted.

3. Social Security System or SSS

A Social Security System (SSS) provides benefits to its members and beneficiaries, whereas GSIS provides benefits for government employees. SSS members are eligible for benefits such as maternity, sickness, disability, retirement, funerals, and death pensions. Furthermore, qualified SSS members are able to borrow money for a variety of purposes, such as wages, housing, business, and education.

Keeping up with the payment schedule is the employer's responsibility. Employees' monthly contributions are calculated based on their salary credit. The Philippine salary deduction for SSS contribution should not exceed P16,000, as of 2022. Employees' monthly contribution rate is 3.63% of their monthly salary credit, while the remaining 7.37% is shouldered by the employer.

4. PhilHealth Contributions

In order to provide decent health insurance coverage to Filipinos and make healthcare affordable and accessible, the National Health Insurance Program was established. And as of January 2018, PhilHealth no longer has salary bands as part of its updated contribution structure. Therefore, if you're hospitalized, you can receive financial support from PhilHealth.

5. PAG-IBIG Contributions

As the primary savings vehicle for its members, the Home Development Mutual Fund (HDMF), is also known as the Pag-IBIG Fund Regular Savings Program. The yearly dividend profits are distributed here, as well as the monthly contributions of members. PAG-IBIG members, however, have the opportunity to obtain a housing loanas a benefit of membership. It also provides an affordable financing alternative for average-income Filipinos to own homes through the PAG-IBIG Fund. Therefore, you will benefit from every PAG-IBIG contribution if you plan to obtain a mortgage.

It is possible for employees to determine whether their employers have made their contributions to SSS, PhilHealth, and PAG-IBIG. It is their right to file complaints against their employers if they find out that they are not being paid. The employer may be punished and imprisoned for violating Philippine labor laws if it is found that they are not paying their workers.

6. Insurance Payments

Another payroll deduction that can show up on your payslip is insurance. Employees may be able to pay insurance premiums through your company. However, the monthly or annual payment schedule will need to be known.

7. Deductions from Specific Company Policy

This type of deduction varies from company to company. Hence, payroll deductions should be reviewed to ensure there are no additional deductions. Ensure that your manager and your department are on the same page regarding this. It may be additional premiums or payments by your company.

8. Loan Payments

Those who take out SSS salary loans or Pag-IBIG multi-purpose loans have to pay their monthly contributions to SSS or Pag-IBIG through their employers. Then, it's the employer's responsibility to collect and remit your monthly salary deductions to pay off the loan. The two-year repayment period for Pag-IBIG and SSS loans means that you will have to withhold wages for 24 months until your debt is totally paid off.

Be sure to inform your new employer about your outstanding debt whenever you change jobs. Consequently, you will be able to make loan payments through payroll deductions and avoid penalty payments for late payments. On the other hand, there are in-house financing programs that employees can take advantage of. Hence, the company loan payments will also appear on your payslip.

The Computation of Withholding Tax

There are a lot of numbers and tables involved in withholding tax computation, but most of them are only used as a reference during the tax computation process. It is not unexpected for some people to be content with just making money, while others prefer to know how their income ended up with the numbers it does after withholding taxes are deducted.

Computation for Taxable Income

You’re not going to take away your income tax from the get-go. Before anything else, you’ll need to compute your taxable income (your basic salary plus additional pay for holiday and overtime) minus your contributions.

Computation for Income Tax

Tax computation in the Philippines was officially amended last January 2018 called the Tax Reform Bill. This was approved and enforced by the Duterte Administration. The existing tax table is rather simpler and provides employees the chance to take home more money than before.

Non-Taxable Income

Withholding tax is not calculated on certain sources of income other than basic salaries. In accordance with BIR revenue regulations, the following are tax-exempt:

• A 13th-month bonus and other benefits that don't exceed 90,000 PHP, such as a Christmas bonus, loyalty award, and productivity incentive bonus.

• Among the de minimis benefits that can be offered are the rice subsidy of PHP 2,000 per month, the uniform and clothing allowance of PHP 6,000 per month, and the medical cash allowance of PHP 250 per month.

• Retirement benefits and separation pay

Calculating your salary deductions doesn't require mad math skills. Also, your HR department should be notified immediately if you have questions or concerns about certain deductions from your pay. After all, it is the fruit of your hard work that is on the line.

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