ACCOUNTING

for LABOR
and PAYROLL ACCOUNTING
Payroll accounting
 is the process of computing and recording of disbursement for wages and salaries and their related statutory
deductions and other allowable deductions.
Payroll Function
 Primary responsibility is to compute the wages and salaries earned by the employees.
 Forms should include a payroll record and employees’ earnings records.
 A summary of the payroll is sent to accounting to record the payroll in the accounting records.
 The payroll record is sent to the treasurer’s department for making payments to employees.
LABOR COST
 Represents the human contribution to production
 Basic pay + other benefits
Direct Labor
 Represents payroll costs that are traceable to individual jobs worked on during the period.
 Direct labor costs are debited to the work in process account.
Indirect Labor
 Costs are incurred for a variety of jobs that are related to the production process, but are not readily
identifiable with the individual jobs worked on during the period.
 Indirect labor costs are charged to factory overhead.
Classification of earners
 Fixed monthly earners – are employees with fixed monthly basic pay as basis in computing salary.
 Daily wages earners – are employees with daily rate as basis for computing wages. The concept of “no work
no pay” applies to them.
Type of employees
 Regular (R) - monthly salary
 Probationary (P) – monthly salary/ daily wage
 Contractual (C)– daily wage / fixed contract fee
 Seasonal (S) – daily wage
 Apprentice (A) – with or without pay
 Learners (L) (75%)
Type of employees

Regular
Probationary
Contractual
Seasonal
Learners
3 6 9 12
Time (months)
SALARY
 – is a fixed amount of compensation for services rendered covering a fixed period of time usually a month.
 It generally refers to the pay of managerial, administrative and rank and file employees.
WAGE
 is fixed amount of compensation for services rendered covering fixed period of time, usually hours, or fixed
amount of work, usually by piece.
 It is generally given to skilled and unskilled labor.
Hourly Rate Plan
 The employee’s wages are calculated by multiplying the established rate per hour by the number of hours
worked.
 This plan does not provide an incentive for the employee to achieve a high level of productivity.
Piece-Rate Plan
  Employee’s wages based on the employer’s quantity of production.
 Number of units produced is multiplied by a predetermined rate.
 May be referred to as incentive wage plan or piece-rate plan.
 Quality may be sacrificed in order to maximize quantity.
Modified Wage Plan
 Minimum hourly wage is set even if an established quota is not attained.
 If quota is exceeded, a bonus is added to the minimum wage level.
 On days when the quota is not met, the difference (make-up guarantee) would be charged to factory
overhead.
 When production work teams are utilized, a single incentive for the group would be appropriate.
Minimum wage
 Includes basic plus COLA
 Regional minimum wage
Who are exempted from Wage Orders issued by the boards?
 distressed establishments
 deficit of >20% or with capital deficiency
 new business enterprises
 agri or <P5M total assets
 retail/service establishments employing not more than 10 workers
 establishments adversely affected by natural calamities
 losses of >20% of capital
BASIC PAY
 Regular pay for work rendered on a regular working day within regular working hours.
 Base rate or job rate
 monthly, or daily
 maximum working time is 8 hrs per day (phil) @ 5 days per week (LC#83)
Computation of daily rate for fixed monthly earners
Daily rate = Monthly Rate x 12 months
365 days
Gino, a regular employee has a monthly salary of P9,125. Assume that the company has a five-day work week
1. Compute his daily rate
Daily rate = P9125 x 12 /365
= P300
2. What is his salary for the month of July?
a. P6,600 = (300 x 22 days)
b. P9,125
c. P9,300 = (300 x 31 days)
Ans. B
A regular employee is being paid for based on his monthly salary as per employment contract.
He is also paid on rest days and holidays even if he did not work.
Gino, a regular employee has a monthly salary of P9,125. Assume that the company has regular working days of
Monday to Saturday
1. Compute his daily rate
Daily rate = P9125 x 12 /365
= P300
2. What is his salary for the month of July?
a. P7,800 = (300 x 26 days)
b. P9,125
c. P9,300 = (300 x 31 days)
Ans. B
A regular employee is being paid for based on his monthly salary as per employment contract.
He is also paid on rest days and holidays even if he did not work.
Gino, a probationary employee has a monthly salary of P9,125. Assume that the company has regular working days
of Monday to Saturday
a. Compute his daily rate
 b. What is his salary for the month of July?
Solution
a. Daily rate = P9125 x 12 /365
= P300
b. P9,125
A probationary employee who is a fixed monthly earner has the same treatment with the regular employees
Estimated Equivalent Monthly Rate
For monthly-paid employees
 EEMR = Applicable Daily Rate x 365 days
12
298 days - Ordinary working days
52 days - Sundays/Rest days
12 days - Regular Holidays
3 days - Special days
365 days - Total equivalent no. of days in a yr.
For daily-paid employees
a) For those who are required to works everyday including
Sundays or rest days, special days and regular holidays.
 EEMR = Applicable Daily Rate x 393.5 days
12
298.00 days - Ordinary working days
24.00 days - 12 Regular holidays x 200%
67.60 days - 52 rest days x 130%
3.90 days - 3 special days x 130%
393.50 days Total equivalent no. of days in a yr.
For daily-paid employees
b) For those who do not work and are not considered
paid on Sundays or rest days.
 EEMR = Applicable Daily Rate x 313 days
12
298 days - Ordinary working days
12 days - Regular holidays
3 days - Special days
313 days - Total equivalent no. of days in a year
For daily-paid employees
c) For those who do not work and are not considered paid on Saturdays and Sundays or rest days
 EEMR = Applicable Daily Rate x 261 days
12
246 days - Ordinary working days
12 days - Regular holidays
3 days - Special days
261 days - Total equivalent number of days

Jao, a probationary employee, has a daily rate of P320. Assume the company has regular working days of Monday
to Saturday
a. Compute his estimated equivalent monthly rate (EEMR)
b. What is his salary for the month of July?
Solution
a. EEMR = P320 x 313/ 12
= P8,346.67
c. P320 x 26 = P8,320
“no work no pay” concept is applied to a probationary employee who is a daily wage earner
Mikay has a daily rate of P320 Compute her estimated equivalent monthly rate (EEMR) assume the company has
required her to work on Mondays to Sundays and all holidays.
 EEMR = 320 x 393.5/12
EEMR = 10,493.33

Mikay has a daily rate of P320 Compute her estimated equivalent monthly rate (EEMR) assume that the company
has required her to work six times a week but not on all holidays.

EEMR = 320 x 313/12

EEMR = 8,346.67
Mikay has a daily rate of P320 Compute her estimated equivalent monthly rate (EEMR) assume that the company
has required her to work five times a week but not on all holidays.
EEMR = 320 x 261/12
EEMR = 6,960
Time of payment (LC103)
 Wages shall be paid at least once every two (2) weeks or twice a month at intervals not exceeding sixteen
(16) days.
 If on account of force majeure, the employer shall pay the wages immediately after such force majeure or
circumstances have ceased.
 No employer shall make payment with less frequency than once a month.
Additional pay
 COLA (cost of living allowance)
 Holiday pay
 Overtime pay
 Fringe benefits
Types of holiday
1. special holiday or rest day
2. special holiday falling on a rest day
3. regular holiday
4. regular holiday falling on a rest day
Nationwide special holiday
Holiday Date

Edsa 1 (all schools) February 25

Ninoy Aquino day August 21

All Saints Day November 1

Last day of the year December 31

Regular holidays - 2013

 Jan. 1 New Years Day
 March 28 Maundy Thursday
 March 29 Good Friday
 Apr 9 Araw ng Kagitingan
 May 1 Labor Day
 June 12 Independence Day
 August 9 Eid’l Fitr
 August 26 National Heroes Day
 October 15 Eidul Adha
 Nov. 30 Bonifacio Day
 Dec. 25 Christmas Day
 Dec. 30 Rizal Day

Basic and Holiday

Holiday Premium
pay
Regular working day 100% none
Special holiday or rest 130% 30%
day
Special holiday and rest 150% 50%
day
Regular holiday 200% 100%
Regular holiday and rest 260% 160%
day

Overtime pay
 premium pay for service rendered beyond 8 hours
 Regular rate x 125% x no. of hours

Art. 88. Undertime not offset by overtime

 Undertime work on any particular day shall not be offset by overtime work on any other day.
 Permission given to the employee to go on leave on some other day of the week shall not exempt the

Overtime Pay
(In excess of 8 hours )
Regular working day Hourly rate x 125% x hours of overtime
Special holiday or rest day Hourly rate x 130% x 130% x hours of overtime
Special holiday and rest day Hourly rate x 150% x 130% x hours of overtime
Regular holiday Hourly rate x 200% x 130% x hours of overtime
Regular holiday and rest day Hourly rate x 260% x 130% x hours of overtime

employer from paying the additional compensation required

Illustration 6
Night Shift Differential
 10% - premium 10pm to 6am
Jerome Delgado who worked at SR Inc. has a daily rate of P320. On his first month at the company, he worked on a
second shift (2pm to 10pm). But now he was assigned to work on a night shift (10 pm to 6 am).
 Requirement: Compute for his new hourly rate.

Daily rate P 320

Divided by regular working hours 8
Hourly rate on regular shift 40
Night shift differential (P40 x 10%) 4
Hourly rate P 44

Jerome Delgado who worked at SR Inc. has a daily rate of P320. His regular work schedule is on a second shift (2pm
to 10 pm). But he was requested to work overtime starting 10 pm to 12 midnight.
 Requirement:
Compute for his (a) overtime pay and (b) day’s gross pay under each independent cases:
Case 1 – regular working day
 Case 2 – special holiday
Case 3 – special holiday falling on his rest day
Case 4 – regular holiday
Case 5 – regular holiday falling on his rest day
Case 1 – regular working day
 a. (320/8 x 1.25 x 1.1 x 2 ) = 110
 b. 110 +320 = 430
Case 2 – special holiday
 a. (320/8 x 1.3 x 1.3 x 1.1 x 2 ) = 148.72
 b. 148.72 + (320 x 1.3) = 564.72
Case 3 – special holiday falling on his rest day
 a. (320/8 x 1.5 x 1.3 x 1.1 x 2 ) = 171.60
 b. 171.60 + (320x1.5) = 651.60
Case 4 – regular holiday
 a. (320/8 x 2 x 1.3 x 1.1 x 2 ) = 228.80
 b. 228.80 + (320x2) = 868.80
Case 5 – regular holiday falling on his rest day
 a. (320/8 x 2.6 x 1.3 x 1.1 x 2 ) = 297.44
 b. 297.44 + (320x2.6) = 1,129.44
13TH MONTH PAY
 requires employers with more than 10 employees to give 13th month pay to all employees who have
rendered service for at least a month.
 This shall be paid on or before December 24.
 Employees who have rendered a full year will be given an average of a full month pay.
 For those who rendered less than a year will have a pro-rated average one month pay.
TH
13 Month vs. Bonus
 13th month is mandatory while Bonus is optional
Samantha Imperial worked a full year. Her fixed monthly salary is P10,000 starting January up to December. How
much is her 13th month pay?
 Answer 5a: P10,000
Samantha Imperial worked a full year. Her fixed monthly salary as a probationary accounting clerk is P10,000
starting January 1 to June 30. On July 1 her salary has increased to P12,000 after being promoted as a regular
employee. How much is her 13th month pay?

Solution
 Monthly rate x months outstanding =Ave
P10,000 6 P60,000
12,000 6 72,000
 Total P132,000
Divided by months in year 12
 13th month pay P11,000
FRINGE and OTHER BENEFITS
 Other wages benefits given to employees
 SSS/ PHIC/ HMDF employer’s share
 Vacation leave
 Sick Leave /Maternity leave
 Personal/Emergency Leave
 Medical and Dental benefits
 Christmas bonus
 Gratuity pay – years of service
 Insurance Fund / Retirement Fund
 Education, Housing, etc….
Payroll deductions
 1. Withholding tax
 2. SSS/PHIC/HMDF employee share (see table)
  3. Union dues
 4. Undertime/ Tardiness
 5. Cash Advances
WITHHOLDING TAXES
 minimum wage earners exempted
 Greater than minimum wage but less than P10,000 with tax but employer may withhold or not; if not
employee will file ITR annually.
Tax type
 S – single
 ME – married
 S1/ME1 – single /married with one qualified dependent child
 S2/ME2 – single /married with two qualified dependent children
 S3/ME3 – single /married with three qualified dependent children
 S4/ME4 – single /married with four qualified dependent children
Personal exemptions
Each working employee single or married is entitled to P50,000 personal exemption with an additional
P25,000 for every qualified dependent child but not exceeding four children

*Charlot Kim, married with one qualified dependent child has a monthly gross pay of P15,000. Her salary is paid on
a semi-monthly basis.
Requirement
 Compute the withholding tax for one pay period using the tax table
 Compute the withholding tax for one pay period using the annualized method
Monthly gross pay P 15,000.00
Divided by pay periods 2
Semi-monthly gross pay 7,500.00

Fixed tax P 354.17

Variable tax (7,500-6,042) x 20% 291.60
Total withholding tax for one pay period 645.77

Monthly gross pay P 15,000.00

Multiplied by number of months in a year 12
Annual gross pay P 180,000.00
Less: Personal exemption (50,000+25,000) 75,000.00
Net taxable compensation P 105,000.00

Please refer to graduated tax rates below

Fixed tax P 8,500.00

Variable tax (105,000 - 70,000) * 20% 7,000.00
Estimated annual income tax 15,500.00
Divided by number of pay period in a year (12 months x 2) 24
Withholding tax for one pay period 645.83

 There is a difference of P 0.06 (P645.83 - 645.77).

 The differences are adjusted at year-end such that total taxes withheld will be equal to taxes due.
David John Gabayan, a newly hired computer programmer, has a EEMR of P20,000. He is still under probationary
employment status and is paid on a daily basis. No work no pay applies to him.
 Assume that David John worked for 22 days in March with 15 hours overtime on regular working days. He is
single.
  Required:
 a. Compute his daily rate.
 b. What is the amount (1) overtime premium and (2) overtime pay?
 c. What is his gross pay?
 d. What is his net pay?
a) DR = 20,000 x 12 /261
 = 919.54
 B1) 919.54/8 x .25 x15 = 431.03
 B2) 919.54/8 x 1.25 x 15 = 2,155.17
 c) Basic 919.54 x 22 = 20,229.88
 Overtime pay 2,155.17
 Gross Pay 22,385.05

Gross pay 22,385.05

Deductions:
SSS ( 500 )
PHIC ( 250 )
HDMF ( 100 )
Wtax (3,513.01)
Net pay 18,022.04

Michael Gabayan, a certified public accountant, has a monthly basic pay of P25,000. He is under regular status and
is paid on a monthly basis. Assume that Michael worked for 26 days in March with 20 hours overtime on regular
working days. He is married with one dependent child.
Required:
a. Compute his daily rate.
b. What is the amount (1) overtime premium and (2) overtime pay?
c. What is his gross pay?
d. What is his net pay?
a) DR = 25,000 x 12 /365 = 821.92
B1) 821.92 /8 x .25 x 20 = 513.70
B2) 821.92/8 x 1.25 x 20 = 2,568.50
c) Basic 25,000.00
Overtime pay 2,568.50
Gross Pay 27,568.50

Gross pay 27,568.50

Deductions:
SSS ( 500 )
PHIC ( 312.50)
HDMF ( 100 )
Wtax (4,312.32)
Net pay 22,343.68

Kring-kring Call Center operates on a three-shift basis. The uniform hourly rate per call center agent is P100 per
hour. The accumulated working hours during the week follows:
First shift, 6 am to 2 pm - 5,410 hours
Second shift, 2 pm to 10 pm - 3884 hours
Third Shift, 10 pm to 6am - 4227 hours

Requirement:
a. How much is the total regular earnings of the call center agents?
b. How much is the shift premium?
c. How much is the gross pay?
a. (5410+3884+4227) x 100 = 1,352,100
 b. 4227 x 100 x .1 = 42,270
c. 1,352,100 + 42,270 =1,394,370

Tre Sy, has the following employment record in 2010

Date Status Rate
1/1 – 2/28 Trainee P180/day
3/1 – 8/31 Probationary P250/day
9/1 – 12/31 Regular P8,500/mo.

The company she is working with operates on an average of 26 days per month.

Requirement:
Compute her 13th month pay.
Trainee 4,680 x2/12 = 780
Proba 6,500 x 6/12 = 3,250
Reg. 8,500 x 4/12 = 2,833.33
Total 13th month pay 6,863.33