What could be more cringe-worthy than a payslip with lots of salary deductions and a low net pay?
Times are tough these days with the rising inflation and the declining peso. If you're trying to stretch your monthly budget for the family, it's important to track your monthly take-home pay. Scrutinize the earnings and deductions on your payslip to make sure your salary isn't deducted more than what's authorized by the law.
In doing so, you might also catch errors in the computation of your payroll deductions. Also, some employers deduct the mandatory government benefits from their employees' payroll but fail to remit the contributions to the respective agencies. Keep an eye out for that, too.
Here's a basic guide to help you make sense of salary deductions in the Philippines and learn how to compute them.
Allowable Salary Deductions in the Philippines
Employers are required by law to deduct the following items from employee salaries every month:
- Employee's share of SSS, PhilHealth, and Home Development Fund (HDMF)/Pag-IBIG contributions
- Withholding tax
- Loan payments
- Other deductions from company-specific policies
Read more: Understanding Social Classes in the Philippines: Which Class Do You Belong to?
Mandatory Government Contributions
Employers and employees share the latter's total monthly contributions to SSS, PhilHealth, and Pag-IBIG. Only the employees' share of government contributions is deducted from their monthly salaries.
The salary deductions for SSS, PhilHealth, and Pag-IBIG contributions are computed based on an employee's monthly basic salary. The higher the pay is, the higher the deductions.
1. How to Compute the SSS Deduction
The amount deducted every month for the SSS contribution is 3.63% of an employee's monthly salary credit. Employees earning PHP 15,750 and above per month have a monthly salary credit of PHP 16,000, which means the SSS deduction per month is PHP 581.30.
Refer to the SSS contribution table below to check the correct amount that should be deducted from your payroll. For the employee share, look at the column under "EE".
2. How to Compute the PhilHealth Deduction
The PhilHealth premium contribution rate is 2.75% of the monthly basic salary, shared equally by employers and employees. Those who earn PHP 40,000 and above have the maximum PhilHealth deduction of PHP 550 per month.
Check this PhilHealth premium contribution table to see how much should be deducted from your payroll every month:
|Monthly Basic Salary||Monthly Premium||Employee Share||Employer Share|
|PHP 10,000.00 and below||PHP 275.00||PHP 137.50||PHP 137.50|
|PHP 10,000.01 to PHP 39,999.99||PHP 275.02 to PHP 1,099.99||PHP 137.51 to PHP 549.99||PHP 137.51 to PHP 549.99|
|PHP 40,000.00 and above||PHP 1,100.00||PHP 550.00||PHP 550.00|
3. How to Compute the Pag-IBIG Deduction
The maximum Pag-IBIG contribution is 2% or PHP 100 per month for members earning PHP 5,000 and above per month.
|Monthly Basic Salary||Employer Share||Employee Share|
|PHP 1,500 and below||2%||1%|
|Over PHP 1,500||2%||2%|
Withholding Tax on Compensation
Employers in the Philippines collect and withhold their employees' personal income tax through payroll deductions. This is why you have the "withholding tax" on your monthly payslip.
Among salary deductions, the withholding tax is the most painful to compute as much as it hurts the wallet—except for tax-exempt employees with a monthly salary of PHP 20,833 and less.
How to Compute Withholding Tax Using an Online Calculator
The easiest and fastest way to determine your withholding tax is to use an online withholding tax calculator. Simply enter your monthly gross income, click the button below it, and the tax calculator will automatically generate your income tax due.
How to Compute Withholding Tax Manually
If you want to better understand how your employer computes your taxes, you can try to calculate them manually. Here are the steps to computing your withholding tax manually:
1. Get Your Taxable Income
Taxable income is the gross income minus any salary deductions and tax exemptions. Follow this formula to compute your taxable income:
Taxable Income = (Monthly Basic Salary + Overtime Pay + Holiday Pay + Night Differential) - (SSS, PhilHealth, and Pag-IBIG Contributions + Tardiness + Absences)
An employee who earns PHP 30,000 monthly (including the OT pay, holiday pay, and night differential) has the following salary deductions:
- SSS contribution: PHP 581.30
- PhilHealth contribution: PHP 412.50
- Pag-IBIG contribution: PHP 100
The total deductions (assuming that the employee has no tardiness and absences during a pay period) is PHP 1,093.80. When you subtract that from the PHP 30,000 income, the taxable income would be PHP 30,000 - PHP 1,093.80 = PHP 28,906.20
Read More: Here’s How to Compute Your Holiday Pay
2. Compute Your Tax Using the BIR Withholding Tax Table
|Tax Bracket||Monthly Salary||Tax Rate (2018-2022)|
|1||PHP 20,833 and below||0%|
|2||PHP 20,833 - PHP 33,332||20% of the excess over PHP 20,833.33|
|3||PHP 33,333 - PHP 66,666||PHP 2,500 + 25% of the excess over PHP 33,333|
|4||PHP 66,667 - PHP 166,666||PHP 10,833.33 + 30% of the excess over PHP 66,667|
|5||PHP 166,667 - PHP 666,666||PHP 40,833.33 + 32% of the excess over PHP 166,667|
|6||PHP 666,667 and above||PHP 200,833.33 + 35% of the excess over PHP 666,667|
Check the Bureau of Internal Revenue's (BIR) revised withholding tax table and look for the tax bracket where your taxable income falls. In our example above, the taxable income of PHP 28,906.20 is under bracket 2. Using the tax rate formula for bracket 2 (20% of the excess over PHP 20,833.33), here's how to compute your withholding tax:
(PHP 28,906.20 - PHP 20,833.33) x 0.20 = PHP 1,614.57
Certain sources of income other than the basic salary are excluded from the withholding tax computation. According to BIR revenue regulations, the following are tax exempt:
- 13th month pay and other benefits not exceeding PHP 90,000, including Christmas bonus, loyalty award, productivity incentive bonus, etc.
- De minimis benefits within the prescribed maximum amount (PHP 2,000 monthly rice subsidy, PHP 6,000 monthly uniform and clothing allowance, PHP 250 monthly medical cash allowance, etc.)
- Non-taxable retirement benefits and separation pay
If your 13th month pay and/or de minimis benefits go beyond the prescribed limit, the excess amount is already taxable and added to your withholding tax computation.
Other Salary Deductions
In addition to government contributions and withholding taxes, deductions due to lates, absences, and loan payments are also applied to a paycheck.
1. Tardiness and Undertime
Most companies in the Philippines deduct from the salaries of employees who come late to work or leave work early. Employers vary in the way they deduct tardiness. They may compute it by the minute, quarter of an hour, or half an hour of work.
To know if you're deducted correctly for your lates and undertime, check your company's attendance policy and how the deductions for tardiness and undertime are computed. When you see a discrepancy, don't hesitate to approach your HR department for a clarification and a possible salary adjustment on the next payday.
When you've used up all your available paid leaves within a pay period, any absence will be unpaid and will incur a salary deduction. This is also the case when you forget to file your leaves and when your boss doesn't approve your filed leaves.
Avoid a huge deduction from your payroll by planning your leaves well, making sure you file them correctly and get your boss' approval, and checking with your HR team the number of leave credits you can still use.
3. Pag-IBIG and SSS Loan Payments
When you avail of an SSS salary loan or Pag-IBIG multi-purpose loan, your employer is responsible for collecting your loan payments via monthly salary deductions and remitting them to SSS or Pag-IBIG.
Both Pag-IBIG and SSS loans are paid over two years, which means your payroll gets deducted for 24 months until your loan is fully paid off. When you move to a new job, inform your new employer immediately about your outstanding balance. This will ensure that you continue your loan payments through salary deductions and avoid accumulating penalty fees for late payments.
4. Deductions from Specific Company Policies
Payroll deductions in the Philippines may include those that fall under company policies such as union dues, company loan payments, and additional insurance premiums that companies provide to their employees.
You don't have to be a math whiz to understand the salary deductions on your payslip. If you have questions or disputes about certain deductions from your pay, discuss your concerns immediately with your HR department.