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Thursday, January 23, 2025

Managing Benefits-Focused Payroll: Best Practices for HR Teams

Managing Benefits-Focused Payroll: Best Practices for HR Teams

Managing benefits-focused payroll can be a complex task, but with the right practices and tools, your HR team can ensure compliance, efficiency, and employee satisfaction. This guide will walk you through essential practices for managing payroll and benefits seamlessly while keeping your workforce happy and motivated.


How is Payroll Calculated in the Philippines?


Payroll calculation in the Philippines starts with an employee’s gross salary and factors in various additions and deductions. Gross salary includes the basic pay, allowances, overtime pay, night differentials, and other compensations. From this, mandatory deductions are subtracted, such as contributions to Social Security System (SSS), PhilHealth, Pag-IBIG, and income tax withholding.


Here’s a simple formula:


Net Salary = Gross Salary - Deductions


Under The Labor Code of the Philippines, employers are mandated to comply with labor standards, which include proper computation of salaries and benefits to ensure fair treatment of employees. This law serves as the foundation for payroll regulations in the Philippines and emphasizes:


  1. Mandatory Deductions: Employers are required to accurately deduct contributions for SSS, PhilHealth, and Pag-IBIG based on government-specified rates. These deductions are aimed at providing social security, healthcare benefits, and financial assistance to employees.


  2. Overtime Pay and Night Differentials: Employees who work beyond 8 hours a day or during night shifts (10 PM to 6 AM) are entitled to additional pay. The Labor Code specifies that overtime pay must include an additional 25% of the hourly rate (or 30% on rest days and holidays), and night differential pay must include an extra 10% of the hourly rate.


  3. Compliance with Tax Laws: Employers must withhold income tax based on the TRAIN Law guidelines, ensuring compliance with tax regulations while protecting employees from overtaxation.


What Are Some Types of Payroll Options Available for Employees in the Philippines?


To meet diverse workforce needs, employers can choose from various payroll options. Each approach has its unique benefits and challenges:


Remote Payroll


Ideal for companies with remote workers, this system ensures employees working from home or different locations are compensated accurately, with clear breakdowns of deductions and allowances.


Internal Payroll


An in-house team manages the payroll process, handling everything from salary computation to government compliance. This option requires skilled personnel and reliable software for efficiency.


Local Payroll Administration


This option focuses on region-specific requirements, ensuring compliance with local labor laws, tax regulations, and social security contributions.


Fully Outsourced Payroll & Employment


Outsourcing payroll to a third-party provider allows companies to focus on core activities. This option covers all payroll tasks, including compliance, record-keeping, and benefits-focused payroll management.


Choosing the right payroll option depends on your organization’s size, budget, and specific needs.


How is Payroll Processed in the Philippines?


Payroll processing involves multiple steps to ensure accurate and timely compensation. Here’s an overview of the process:


Steps in Payroll Processing


  1. Gather Employee Information: Collect complete data, including Tax IDs, bank details, and employment contracts.

  2. Determine Payment Frequency: Decide whether salaries will be disbursed weekly, bi-monthly, or monthly.

  3. Calculate Gross Pay: Include basic salary, allowances, overtime, and other compensations.

  4. Apply Deductions: Subtract mandatory contributions and income tax.

  5. Disburse Payments: Ensure sufficient funds and transfer salaries to employees’ bank accounts.

  6. Maintain Records: Keep detailed records of payroll transactions for compliance and audits.


Regular updates on tax rates and labor laws are vital to prevent errors and ensure compliance.


How Does HR and the Payroll Process Work Together in the Philippines?


HR and payroll departments work hand-in-hand to manage benefits-focused payroll effectively. Their collaboration ensures compliance, accurate data management, and seamless operations.


Key Areas of Collaboration


  1. Data Privacy Compliance: HR ensures that payroll processes align with the Data Privacy Act of 2012. Implementing secure systems for data encryption and access controls is essential.


  2. Employee Benefits Administration: HR determines and communicates benefits such as health insurance and retirement plans, while payroll calculates and disburses these benefits accurately.


  3. Government Reporting: Both teams ensure timely submission of tax filings, SSS contributions, and other required reports to regulatory authorities.


  4. Workforce Planning: Payroll data provides insights into labor costs, enabling HR to make informed decisions on hiring, promotions, and compensation strategies.


Managing benefits-focused payroll doesn’t have to be daunting. By understanding payroll calculation, exploring different payroll options, and fostering collaboration between HR and payroll teams, you can streamline processes and enhance employee satisfaction.


Enhance Your Employee Benefits with Earned Wage Access


Looking to ease your payroll challenges and empower your workforce? Consider integrating an Earned Wage Access like Paywatch. This innovative solution allows employees to access a portion of their earned wages before payday, improving financial wellness and reducing stress.


With Paywatch, you can enhance your benefits-focused payroll system while staying compliant and efficient. Contact us and take your payroll management to the next level!


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