About Kieran Peppiatt

Head of Client Success at PayrollHero

Updated: Leave Management

We’re all about automation here at PayrollHero, so we’ve added some new features that will help you automate your leave policies. These will be available immediately for all existing and new Leave Management customers.

Require Advance Notice for Leave Requests

Companies need to plan their workforce and resources carefully. This can some times be a careful balancing act, especially if your employees are requesting time off.

To combat this some companies have policies that stipulate the amount of notice required for a leave request. This helps to ensure they have the right coverage when they need it most.

To that end, we’ve added a new feature to our leave management that allows you to set the notice required. This can be set on a per leave basis. Maybe your policy isn’t as clear cut as “you must provide 10 days notice.” That’s fine, with our system you can add tiers to your notice period.

Delay the start of leave accruals

It’s not uncommon to reward leaves to employees after they have served a certain period of time at your company. This maybe their probationary period, or perhaps the territory you operate in has laws that stipulate what this should be. Our Leave Management System now allows you to choose when you would like your leave balances to begin accruing for your employees.

Prorate the first month of leaves accrued

You may award employees a certain amount of leaves for each month of service they have provided to your company. In fact this is an extremely common practice globally. However, employees don’t always start on the first day of the month.

Now our leave accrual system will automatically calculate the correct amount of leaves to award in the first month. This is based on the standard leave accrual amount divided by the number of days in the month multiplied by the number of days worked. We round this to the nearest 0.25.

Allow leaves to expire

Another common practice is to expire leaves that were not consumed by the employee.To help with this we’ve added a new feature that allows you to add an expiration date to your leave types. This can also be configured individually on each leave type.

If you have any questions or you’d like to learn more just click the chat button at the bottom right of the page or contact us at support@payrollhero.com

Introducing Overtime and Official Business Requests

Today we’re launching two new features to our customers. Now your employees will be able to make overtime and official business requests, all powered by our new A.I. assistant Lucy.

Click image to enlarge

Lucy and our new features are available to all our existing customers completely free of charge. 

To get these features sign up for Lucy and have your employees start talking to her. If you are not using Lucy already you can join our open beta by contacting support@payrolllhero.com or filling in the questionnaire below.

 

Understanding Thirteenth Month

Thirteenth Month is a mandatory benefit that all employers in the Philippines need to provide to their rank and file employees who have been employed at their company for longer than one month. I put rank and file in bold as it’s fairly common practice to pay it to all employees, but that’s not mandated by the government. However, it has become traditional for employers to pay the benefit to all employees.

The Labor Code in the Philippines stipulates two distinct employee types. Managerial or Rank and File. The DOLE handbook says:

The Labor Code, as amended, distinguishes a rank-and-file employee from a managerial employee. A managerial employee is one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, layoff, recall, discharge, assign, or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank-and-file employees.

The above distinction shall be used as guide for the purpose of determining who are rank-and-file employees entitled to the thirteenth month pay.

It’s a pretty easy definition to digest. Anyone who makes managerial decisions or has the managerial powers described would be considered a managerial employee. Anyone who doesn’t is rank and file.

There’s three components to thirteenth month you should be aware of.

  1. How much to pay
  2. When to pay it out.
  3. Over what period to calculate

In this article I’ll explain a bit about all three, and some ways you could consider approaching your thirteenth month calculations.

How much you should pay
The name does hint at what you should be paying. Your thirteenth month pay is roughly equivalent to your normal monthly take home. However, it’s not exactly the same. It’s also important to be careful if just paying out one month is your current formula. There is one scenario where this would mean you’re not compliant with the rules of 13th month, I’ll go into this below.

It’s also important to remember that the DOLE formula is the minimum amount you can pay. If you have a formula that pays your employees more than this, great! Looking after your employees is awesome, and having better benefits differentiates your company from others. This should ultimately help you attract the best talent.

The DOLE Formula

DOLE states that thirteenth month pay shall not be less than 1/12 of the total basic salary earned by an employee in a calendar year. Which is as simple as it sounds as long as you know what constitutes basic salary.

Basic salary is not base pay. Base pay is the monthly, hourly or salary rate that you detail in an employee’s employment terms. If you are not familiar with these terms, please read about the four components of payroll. It’s important to know what base pay is. Although they are not the same, it will be a key component of your calculation.

Let’s say you have a monthly paid employee who is contracted to earn 20,000 pesos a month. They work for your company for the entire year. That means their base pay for the year was 240,000 pesos. Even if your employee was absent during the course of the year, their base pay is still 240,000 pesos.

However, basic salary does adjust based on what you actually paid the employee. If the employee was absent one month, and you only paid them 15,000 that month their basic salary would be 235,000. You also would not include the following:

  • Benefits
  • Vacation Leave and Sick Leave paid out (these are a benefit)
  • Allowances (including COLA)
  • All Multipliers including overtime, night differential, holiday pay etc.

There is a caveat for this though. If you do include these as part of your basic salary through any agreements or company policies you should be including these in your 13th month calculations.

The Steps

  1. Figure out the basic salary for each month.
    Base pay for the month – any absences or base pay deductions = basic salary
  2. Repeat for each month
  3. Add all of the basic salaries for each month together
  4. Divide the total amount by 12

The Gross Pay Formula

As mentioned above, as long as you pay your employees the DOLE minimum you will be covered from a compliancy angle. However, there are better formulas you can use for both your payroll process and your employees. The gross pay formula is probably the easiest and fairest.

Gross pay is your base pay + any additional multiplier pay – absences and any other base pay deductions. Why this is so easy is because you already calculate this every payroll. Why this is good for your employees, is that although you are deducting their absences you’d also be giving them a portion of any multiplier pay as well.

The Steps

  1. Add all of the gross pays for the year together
  2. Divide the total amount

The Base Pay Formula

If you read my post about understanding benefits and allowances you will know that I believe simplicity in your payroll processes and policies is crucial to an streamlined payroll process. So the base pay formula is my personal favourite.

As you are not deducting any absences or base pay deductions you’ll be paying better than the DOLE minimum. It’s simple because there is only one step to this calculation.

The Steps

  1. Divide the contract value of the employee’s base pay by 12.

Employee’s Most Recent Salary

I mentioned this briefly before, but some companies do just pay an additional one month’s salary to their employees. This is usually completely fine, and generally won’t cause you any problems.

If the employee earned the same amount of money each month during the year this is exactly the same as the Base Pay Formula mentioned above. If your employee received a promotion, and you pay them their most recent month’s salary you’ll be paying them more than a 1/12 of their year’s base pay.

The only time you need to be careful is if you were to give an employee a demotion or reduce their salary. Let’s say you’re employee earned 20,000 a year but in November you reduced their salary to 15,000. You then paid them 15,000 as their thirteenth month.

If that employee earned 20,000 for 11 months their base pay is at least 220,000 pesos for the year. If you divide that by 12 it would equal 18,333.33. Which means you will have underpaid your employee for their 13th month and not be compliant with what’s mandated by DOLE.

Other than that this is a perfectly acceptable way to calculate your 13th month.

The Steps

  1. Pay your employee an additional month’s pay

 

Manually calculating or using excel
If you are not using an automated payroll system like PayrollHero and use, or intend to use, one of the calculations above that require you to calculate or the track a monthly amount. I would advise doing this calculation each month. It will save you a ton of time in the long run.

If you use excel, you will probably want a separate spreadsheet or sheet to track these amounts in. It doesn’t need to be complicated, just a simple tracker like the one below

If you intend to use multiple spreadsheets, check out the =importrange formula. You could have the 13th month amounts on your main payroll calculator spreadsheet for each month, and use this formula to make them appear in your 13th month tracker.

When to pay 13th Month
When to pay dictates the period you should be calculating for. This is why we need to clarify this point first. The DOLE handbook is explicitly clear about when you need to pay it out.

“The thirteenth-month pay shall be paid not later than December 24 of every year. “

Example, if your pay period is the 1st – 15th, 16th – 31st and you pay out 15 days after the pay period ends. You would need to pay this out no later than the 16 – 30 November payroll.

Why? Because the payout date for 1 – 15 of December would be the 30th of December, which is 6 days past the deadline.

So be careful, it’s not the pay period that matters here but when your employee receives the money that’s important.

You are also allowed to pay out the 13th month twice a year. Instead of paying the value of 12 months in December you could pay the value of 6 months twice.

What period should be used for calculating?
This is probably the part that causes most companies problems. You’re supposed to pay 13th month for the previous year, and the DOLE handbook does use the term calendar year when describing the 13th month.

But how can you pay 13th month accurately for the calendar year if the year isn’t even finished? Remember we have to pay it out on the 24th of December, which in a best case scenario is at least one payroll before the end of the year. You can’t, it’s not possible.

But, most companies do pay 13th month based on the calendar year of the current year. So what this means is they guess the last part of the year. You should not guess when it comes to payroll.

So what do we do instead? We need to pay for the calendar year and it has to be out before the 24th of December. Don’t worry, the important part here is that the DOLE handbook actually says a calendar year.

So let’s say your pay period is 1st – 15th and 16th to 31st. You pay out your payroll on 7 days after the pay period ends. In this scenario you could pay out your 13th month on the 1st to 15th of December payroll as it would be received by your employees on the 22nd of December.

If this was the case, the calendar year you should be using is 16 December of the previous year to 15 December of the current year. This means you will never be guessing with your 13th month pay out.

Maybe your dates are different than the ones I mentioned above. To figure out the period you should use just apply the following:

The day after the end of the pay period you payout of the previous year to the last day of the pay period you pay out of the current year.

Separated and Resigned Employees
It is quite shocking how many employers aren’t aware that they are liable for the 13th month an employee has accrued during their employment. Regardless of whether an employee still work for you at the end of the year or not, you still need to pay their accrued 13th month.

The important word their is accrued. You should pay them 1/12 of their basic salary for that period. If you use the base pay or gross pay formulas mentioned above, these will still work with no change required.

How to payout 13th month
The last thing I have to say on 13th month is about how you pay it out. So many companies pay it out separately to the their usual payroll cycle. This is totally acceptable but an unnecessary complication.

The only thing DOLE says about paying it out is the deadline on which it is received. I’d thoroughly recommend paying it out as part of your usual payroll cycle. Doing otherwise will usually lead to more resources being spent on payroll than necessary, and more bank charges for transferring the payment. If you think about the amount of time and effort that goes into one pay cycle, by removing the off-cycle element of 13th month you will free up your team to focus on more important items.

In Closing
Thirteenth month doesn’t need to be complicated. Use a simple formula, use a reporting period that is based on facts, and pay it out on time as part of your normal payroll. If you do this, you’ll remove a lot of the headaches and stress from your payroll process, and save a ton of work around the year end.

The Four Components of Payroll

As part of the HR and Payroll 101 series I wanted to take a closer look at the individual parts of the payroll process. Generally, there are 4 components to any payroll process, and this is usually country agnostic.

If you have ever been involved in payroll generation this number probably seems quite low. You could pick up any employee’s payslip and list maybe 10 items from their payroll alone, and your not wrong. However, this is part of the problem.

Most payroll admins structure their payroll process around the tax status of the items being credited or debited, or based on the individual line items themselves. These approaches can work, but they won’t be the most efficient. They will lead to unnecessary repetition, and increased resource requirements to administer. By knowing the four components, and how your payroll items fit into each, you will be able to apply your knowledge to streamline your overall payroll process.

Gross Compensation

Gross compensation is probably the easiest to understand. It’s any item that makes up your employee’s basic compensation package.

The first item is base pay, which is just one aspect of the overall gross compensation. However, this is usually the bulk of any employees payroll. There’s generally 3 main types of gross pay:

  • Salary: Employees get paid the same fixed amount each payroll regardless of their attendance
  • Monthly: This is similar to salary. Monthly paid employees also get an amount each month but it’s not fixed. It will fluctuate based on their attendance. For example, they may receive less gross pay if they come in to work late and more if they worked overtime.
  • Hourly: Employees are paid for the exact hours they work. So if you were being paid $1 an hour and worked 100 hours you would receive $100 as your gross pay.

Other notable mentions for base pay would be daily rates and piece meal. The former being employees who get paid per day and the latter per item they complete.

Overtime is usually paid at a premium to employees. The standard practice is to pay overtime at a certain percentage of the base pay rate. E.g. 125%. So if you were paid $10 an hour and then worked overtime you would get $10 multiplied by 125% which equals $12.50.

For other multipliers, these work in the same manner as overtime but are applied in different scenarios. For example, it’s not uncommon in most countries to provide additional pay to employees if they come into work on a public holiday. 

In the Philippines the rate is 200%. So the same $10 base rate would be $20 on a regular holiday.  This is also why we call them multipliers, because you multiply the scenario percentage by the base rate.

One thing to note, some companies don’t multiple but actually do addition. In the UK where there is no government mandated rate for working overnight. It’s not uncommon for employers to pay an extra £1 or £2 for work done late at night. These would also fall into this category.

The last one, and this depends on your companies process would be leave pay. If you don’t pay these out as separate line items they will be part of the base pay and so therefore part of the gross compensation. This is far more common with monthly and salary paid employees than any other type.

Recurring Items

“The important thing to remember is these items will be credited or debited from an employee on a strict schedule. Either for an ongoing period of time or in perpetuity”

From this point on, the component descriptions I provide are not exhaustive lists. You potentially have other payroll items that you provide that will fall into one of the four components.

Recurring items are those other payments that you credit or debit to employees every payroll. This might be for a preset period of time or in perpetuity.

It’s important to clarify that the amounts of these recurring items may vary from payment to payment.

A great example of this would be the Cost of Living Allowance in the Philippines. It’s a government mandated allowance saying that all minimum wage employees should receive 15 pesos for each day worked. So the amount paid out will always fluctuate based on the amount of days worked in the pay period, but it’s always paid each pay period.

Usually all allowances are recurring items, the frequency may change (either per payroll, per quarter, per month etc.) but they are consistently deducted on the same schedule.

Loan payments are another great example and illustrate how the payment doesn’t need to be deducted forever. Usually, if you give an employee a loan, they pay it back over X pay periods until the original amount is repaid.

Subsidized benefits are a huge catch all. Companies will give their employees certain benefits where the company covers most of the cost. However, the employee needs to contribute some amount. These are consistently deducted every payroll and continue until the employee either leaves or decides they don’t want to avail of the benefit any longer.

As mentioned, this isn’t an exhaustive list. The important thing to remember is these items will be credited or debited from an employee on a strict schedule. Either for an ongoing period of time or in perpetuity.

Ad hoc Items

“These items are infrequent, and the amount always vary. They are not deducted or credited to an employee each payroll.”

Ad hoc items are those infrequent payments that you have to make on payroll. Adhoc is a latin phrase that means “for this.”   When you are doing something on ad hoc basis you are doing it for that specific case and no other.

Adjustments are a great example of an ad hoc item. Every time you do an adjustment you are making it to fix a specific error or issue. You are making the payment for this specific scenario.

Expenses would also come under this category, every expense payout is done for a particular expense or expense report. These are always handled on a case by case basis.

Sure you may have employees that submit an expense report with some frequency. You might have an employees who do a lot of driving for work and are allowed to claim their miles back on expenses. They may even submit an expense claim form every month.

However, if that same employee ended up working at head office for the entire pay period and didn’t drive any where they wouldn’t receive a mileage expense. Whereas if they received a car allowance, which is a recurring item, they would still receive the amount.

For breakages and spillages, in the food and beverage industry it’s not uncommon to charge the server if they break a plate, glass, etc. Again, these types of payments are always made for the specific incident.

Finally, Vacation Leave and Sick Pay would live here if you don’t include them in the gross pay. This might seem counterintuitive to you, but again think about the format we have established. Employees take leaves on an ad hoc basis, and when you pay their leave pay it’s done for a specific leave request.

Again, this list is not exhaustive and it’s important to note you might and probably do make these types of payments EVERY payroll. However, they usually won’t be to the same employees, and for the same amounts. Don’t get me wrong sometimes an employee might break the same glass or claim the same amount of miles so their amounts are the same, but this is because of circumstance and not because they are recurring items.

Just remember, these items are infrequent, and the amount always vary. They are not deducted or credited to an employee each payroll.

Government Deductions

Finally we have government deductions, and you know what they say; “there’s only two things in life that are certain; death and taxes.” Unless your employees are based in countries that don’t tax lower wage earners this is definitely true.

The other government deductions will vary based on your location. In the Philippines this would be Pag-IBIG, SSS, Philhealth. Singapore have charitable deductions and CPF. The UK has national insurance and Canada EI and CPP etc.

Most, if not all, governments have their own mandated deductions that employers have the responsibility to deduct. It’s vitally important to ensure you make these deductions on time and in line with your local laws.

So that’s the four components. Gross Compensation, Recurring Items, Ad Hoc Items, and Government Deductions. If you are designing your own payroll process, or trying to improve your current one categorize your payroll items into these four areas. Once done, you will be able to create processes for each component that will allow you to streamline your process.

For any questions, please ask in the comments below. Thanks!

Introducing Leave Accruals

… and a special offer just for you.

We’ve recently released a new feature to our Leave Management Add On.

Now you can automatically increase the leave balance of your employees.

How does it work?

It’s really simple to use. You select your frequency

and enter how many days you want the leave balance to increase by.

And that’s it. Really simple, super powerful automation for your employees leave balances.

Special Offer

To celebrate the launch of the Leave Accrual system. We are offering a 50% discount on our Leave Management Add On.

For a limited time only, you can add leave management to your account for only $2 per employee per month

What can the leave management add on do?

All of these great features are integrated directly to your existing PayrollHero account. Any requests approved will automatically appear inside PayrollHero!

If you have any questions about leave accruals, or are interested in taking advantage of the special offer please contact support@payrollhero.com

Understanding Benefits and Allowances

HR & Payroll 101: Understanding Benefits and Allowances
If you are in HR and Payroll you probably already appreciate how daunting a subject benefits and allowances (B&As) can be in the Philippines. What are you allowed to pay? What benefits are De Minimis or have a tax shield? Why are their multiple columns on the Alpha List for benefits?

It can be even more overwhelming if you are new to Philippine payroll. Whether you’re starting your payroll career, or you’ve recently opened a new business in the Philippines the learning curve can be pretty steep.

At PayrollHero we have a ton of experience helping customers decide what benefits they should give their employees and helping them create the policies that govern them.

What are Benefits and Allowances?

Usually employee benefits are not actually cash. They are the additional non-cash incentives you would provide to your employees over and above their salary compensation. However, in the Philippines the line has been blurred by De Minimis benefits. That said, let’s take a very quick look at the history of De Minimis benefits.

Historically they were in fact incentives provided over and above cash compensation. The rice subsidy was, and still can be, an actual 50kg bag of rice given to the employee each month. Employers can choose to provide uniforms or pay a uniform allowance. At some point, DOLE allowed the cash equivalent of the 50kg bag of rice to be paid to employees instead of the employer having to provide the actual rice.

My guess, they made the change because of the logistical nightmare companies faced trying to distribute bags of rice when operating multiple locations or employing large numbers of people.

As for allowances, they are a type of benefit. They are an amount of money you give to employees for a certain purpose. When we are talking about employees, allowances are always benefits but benefits are not always allowances.

General Best Practices

Before I go on, let me say, if you currently provide B&As to your employees and don’t adhere to the principles below, don’t panic. If it works for you then great! This is meant to inform your policy creation, not dictate it. You will know better than I what is right for you and your employees.

The KISS Principle

Honestly, in my opinion, this doesn’t only apply to B&As but everything in life. KISS stands for Keep It Simple, Stupid. The principle was originally conceived by the US Navy in the 1960s and, yes that’s right, I kind of just called you stupid 😛 .

The US Navy originally created the principle for their design process when creating new seafaring craft. At it’s core, KISS is about removing unnecessary complexity when designing something new.

I get it, you’re probably thinking, “well that’s all good and well, but I’m not trying to design an aircraft carrier.” Of course not, but even though you might not think of your benefits and allowance policies as “design” work we are still creating something new.

I mention this because a lot of employers, and especially new ones, have a tendency to create complex policies for B&As. A great example of this is COLA. COLA stands for Cost of Living Allowance and is a Department of Labour and Employment (DOLE) mandated benefit.

DOLE says that COLA should be paid at 10 pesos a day to non-agricultural minimum wage employees. It should also be paid to the same employees on regular holidays even if they don’t work the holiday, or if they take a paid leave.

To me that’s a pretty simple policy for you to add to your HR manual.


Example: “A Cost of Living Allowances (COLA) of 10 pesos per day will be provided to all minimum wage employees. COLA will be paid on Regular Holidays even if the employee is not scheduled to work. COLA will also be paid to any minimum wage employee on paid leave.”


However, a lot of employers try to incentivize or penalize the benefit. They want the amount to fluctuate if the employee is late/early to work, get extra if they work overtime etc. So, why is this a bad thing?

First of all, penalizing COLA might actually mean you are not following the rules DOLE have outlined. It clearly states you need to pay 10 pesos of COLA a day to minimum wage employees. There is no provision in the handbook that says “You can pay less if the employee is late to work.” So from a compliance angle this may cause you problems.

Secondly, you are creating additional administrative work for your payroll department. It’s a much easier for them to count the amount of days an employee has worked, than have to look at the attendance of each day and calculate individually what amount they need to pay. The former is 1 calculation per employee per payroll, the latter is 15 per employee.

Now, this might seem insignificant if you are just starting a company, but it will become more apparent at scale. Let’s say that the calculation takes 15 seconds for your payroll department to compute, and you have 100 employees. For the simple COLA calculation that would take your payroll team 25 minutes to compute. Whereas the complex calculations could take a little over 6 hours.

Even if you never plan to have a lot of employees, wouldn’t your employees time be better spent focusing on higher value work?

You might be reading this article as an existing HR or Payroll Admin. Have you been trying to figure out why your payroll process is taking you so long to complete? Think about your current payroll process, do you have unnecessarily complex policies that require you to do a ton of manual computations?

And sure, you could get a system like ours that allows you to automate a lot of your allowance calculations, however there is still an overhead required in having to support these policies with your employees. Overly complicated policies create more questions. If an employee sees an amount on their payroll that they don’t understand they are going to call your HR team to try and understand how you arrived at that amount.

ContactBabel conducted a study of services calls to contact centres in the US. The average call duration was 6 minutes per call. Even if only 10% of your employees are confused that’s potentially two hour of lost time per payroll or 52 hours per year. How did I arrive at those numbers? Remember, an internal phone call requires two of your employees to be on the phone. If your employees have to call HR that’s lost time that they could have spent focusing on working on your business.

More is Less

So how do we practice KISS but still provide a comprehensive benefits package to our employees? We can do this by providing more simplified benefits to employees. Let’s revisit the complex COLA above.

We wanted the COLA amount to fluctuate if the employee is late/early to work, get extra if they work overtime etc.

This might surprise you but there is potentially 3 different policies here, and one of them isn’t a benefit!

  1. Fluctuate if the employee is late: This should be a separate attendance policy (it’s not a benefit) that states how you penalize employees for not arriving to work on time.
  2. Fluctuate if the employee is early: It would be best to have a separate policy that stipulates how you reward employees for arriving on time.
  3. Get extra if they work overtime: You may want to update your overtime policy to have a clause for minimum wage employees or a separate overtime policy for minimum wage earners.

This will make your HR policies easier to understand for everyone. This means training new HR and Payroll team members will take less time, there will be less questions from employees and your HR policies will be easier to maintain.

I’m in no way saying give less to your employees, I’m advocating to structure it in a way that is simple and makes sense. It will lead to better transparency and happier employees. It will also be a lot easier to scale.

De Minimis Benefits

Ok, so now we’ve outline what benefits are, and the general rules for creating the policies around them. Let’s take a quick look at the specifics of what the government already stipulates for you in the Philippines.

The government consider the following to be De Minimis benefits:

  • 10 days monetized unused vacation leave credits;
  • Medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per month;
  • Rice subsidy of P1,500.00 or one-sack of rice per month;
  • Uniforms and clothing allowance not exceeding P5,000.00 per year;
  • Medical benefits not exceeding P10,000.00;
  • Laundry allowance of P300 per month;
  • Employee achievement awards in the form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan;
  • Flowers, fruits, books or similar items given to employees under special circumstances, e.g. on account of illness, marriage, birth of a baby, etc.
  • Daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.

The De Minimis Benefits are a great place to start if you are trying to figure out how you can reward your employees over and above their standard salary package. This is because the government endorses these benefits and provides tax shields specifically for them.

Taxes

Why do we need to discuss taxes? I’ve already included the exemption amounts above right? Yes, if you keep your allowances below the amounts above you will have no complications calculating taxes, but there is a bit more to how taxes and benefits work together. As with most aspects of Philippine payroll it’s not completely black and white.

In the Philippines the De Minimis Benefits are the only benefits that are allowed to be provided to employees tax free. Any employer can provide these to their employees and not deduct taxes up to the amounts mentioned above.

However, employees in the Philippines also have a general tax exemption for “13th month and other benefits”. Currently you are allowed to pay employees 82,000 pesos a year under 13th month and other benefits without deducting taxes.

Contrary to popular belief the “other benefits” is not a blanket catch all for any other benefits you decide to give to your employees. It’s actually for the De Minimis Benefits mentioned above.

Let’s use an example to illustrate this. Timmy is our Rank and File employee. The company he works for gives him 2,500 a month as a rice subsidy and he received 25,000 pesos for his 13th month this year.

When we are doing Timmy’s end of year benefit tax calculations they might look like:


Government Rice Allowance: 1500 x 12 = 18,000
Rice Allowance paid to Timmy: 2500 x 12 = 30,000
Rice Allowance overage: 30,000 – 18,000 = 12,000

De minimis Benefits = 18,000
Non-taxable 13 month and other benefits = 25,000 + 12,000 = 37,000

However, let’s say Timmy actually received 75,000 in 13th Month and the same 2,500 a month in rice subsidies. His calculations would look like:

Government Rice Allowance: 1500 x 12 = 18,000
Rice Allowance paid to Timmy: 2500 x 12 = 30,000
Rice Allowance overage: 30,000 – 18,000 = 12,000
General Tax Shield overage = 82,000 – (75,000 + 12,000) = -5,000

De minimis Benefits = 18,000
Non-taxable 13 month and other benefits = 82,000
Taxable 13th month and other benefits = 5,000


Timmy will have to pay tax on the 5,000 pesos that he received over his 82,000 general tax shield.

Now in our example Timmy was a rank and file employee. This means he only pays the regular income tax rate on any benefits that exceed his 82,000 tax allowance. If Timmy was a managerial employee he would be subject to a fringe benefit tax. Currently the fringe benefit tax is 32%.

What is best for your employees?

As I mentioned at the beginning, you need to make decisions about your compensation package that is right for your business and it’s employees. Different employees have different needs. A 30 year old mother of two has far different needs to an 18 year old fresh grad. Ultimately, you want to make sure you are listening to what your employees want and juggling that with the resources you have at your disposal.

My hope isn’t that this article will change the benefits that you offer your employees, but it will alter your approach when structuring them. Just remember:

  1. Simple policies are easier to maintain, deliver to employees, easier to process and will save time & resources.
  2. Instead of having fewer complicated benefit policies try and have more simpler ones.

I think if you adhere to these two rules when creating your compensation packages you will be able to provide your employees with everything you want to, but in a way that makes the administrative aspects far easier to maintain.

Please let me know if you have any questions in the comments below. Thanks!

We want your feedback!

At PayrollHero we take feedback seriously. From product development, to fixing bugs and especially from the customers we support every day. We really want to hear what you think.

We’ve been working with our awesome friends over at Intercom to try and make it even easier for our customers to let us know how we’re getting on.

Now when you contact PayrollHero, once you’re question has been answered and your conversation is closed you’ll automatically receive the following message.

All you need to do is select the emoji that best reflects how you feel about your last support interaction. If you have any comments about your support experience you’ll also be prompted to provide them.

This is all thanks to the amazing updates intercom have been making to their Respond product over the last view months.

Our goal is to make sure we improve the customer service we provide, but in line with the service you want to receive. We’ve already updated our support processes multiple times since introducing this new feature, based on genuine customer feedback.

We’re off to a good start with 84% of the feedback we have received being positive, however we know we can do better.

So the next time you contact PayrollHero, either through the in app messenger or via support@payrollhero.com please spare a moment to let us know how we are getting on.

Thank you!

Introducing Lucy, your new A.I. assistant

Hello! It’s been a bit quiet around here, but that doesn’t mean we’ve not been busy! The team have been hard at work creating a new addition to yours. We’re excited to announce our new A.I. HR Assistant who will be joining your team very soon!

Meet Lucy
LucyLucy is a 24/7 personal HR assistant for your regular employees. We spent a lot of time speaking with our clients and found a common theme. Most HR teams don’t get to focus as much time as they’d like on projects that help better the lives of their employee’s.

In fact, the vast majority of their time is spent answering the same questions day in, day out.

“How many leaves do I have left”, “Do my benefits cover dental”, “How many times have I been late this month”, “Where’s my payslip?”, “I’d like to apply for a leave”, “What’s this item on my payslip” and the list just goes on.

Sound Familiar? This is where Lucy comes in. Not only can she answer these questions on behalf of HR, she never sleeps and your employees never have to wait on hold or for a reply to their emails. She responds in seconds and is always there for your employees.

Think about that, all of your employees instantly get help from HR and your HR team are free to focus on the stuff that really matters to your business, keeping your employees happy.

We’ll be rolling out Lucy to our existing customers, for free, in the next few months. If you’d like to get early access there is a form at the bottom of this article. Please feel free to complete it.

What’s A.I.
Maybe you are already familiar with the concept or maybe you’ve been hearing this acronym for some time and been wondering “what is A.I.?”robot-face

A.I. stands for artificial intelligence. It is the “science and engineering of making intelligent machines.” This might seem a bit sci-fi to you, or if you are like me and have watched the terminator films one to many times a bit daunting. Don’t worry, A.I. is currently being used across the world to better the lives of many humans.

Google have introduced their “deep mind” A.I. into their data centres to decrease their energy costs by 40%.


At it’s core, A.I. is about creating intelligence in computers so that the computer can apply that intelligence to better the lives of humans.


Tesla, the electric car manufacturer, has used their A.I. to save lives by predicting car accidents before they even happen.

A startup called Atomwise are even using A.I. to reduce the transmission of the Ebola virus.

Altruism aside, an A.I. created by Carnegie Mellon University just won $1.7million playing poker against human opponents. The possibilities for application really are endless.

You have potentially used some basic A.I. in your day to day lives. If you have ever used Siri, Google Now, or Microsoft’s Cortana you have already interacted with artificial intelligence.
At it’s core, A.I. is about creating intelligence in computers so the computer can then apply that intelligence to better the lives of humans.

Lucy is graduating elementary school

What she can do right now

The great thing about A.I. is they are always learning, which means they are constantly improving. Our HR assistant Lucy is still in her infancy, but we feel she has already learned some great skills that will help our customers in their day to day operations of their business. Below is an overview of what Lucy currently do as of today.

Keep informed about your employee’s attendance

Running Late

If your employees are running late, or they aren’t going to be able to make it into work. They can quickly tell Lucy before their shift and she’ll inform the employee’s superiors

Applying for leaves

Lucy’s leave features are directly integrated with PayrollHero. Your employee’s can query their balances and apply for leave, all without having to login to the application.

Clocking Reminders

Lucy will remind employees to clock in and out on PayrollHero.

Receiving Payslips

Now employees can get their payslips sent directly to them. No more need for employees to login to PayrollHero, or HR printing them out.

Adding New Employees

Now you can onboarding new employee’s directly from your messaging app. Just type in the employee’s name and phone number, and Lucy will do the rest!

Querying Payroll

If your employee thinks something is not quite right on their payroll, they can ask Lucy about it. Lucy will inform our support team and involve your HR/payroll department if needed.

Her High School Education

What’s coming soon

The next steps would be for Lucy to learn more about the existing PayrollHero products, with the aim of improving your everyday experiences with our current feature set.

Removing the need to resolve attendance

Resolve Attendance

We know that from time to time employee’s forget to clock in. Nobody is perfect.  As well as reminding employees to clock in Lucy will actually be able to follow up and resolve their attendance, based on your manager’s instructions.

Answering your HR FAQ

Soon you can remove all of those commonly asked questions HR have to keep dealing with!

Generating Payroll

Lucy will be able to completely automate your payroll generation process. On generation day Lucy sends you a quick payroll report for your approval. Once done, she’ll generate all of your reports and payroll register!

Lucy’s University Degree
Our long term plans

Our goal for Lucy is that you and your HR team will never need to log into any HR system again. Instead of having to learn new software, your team tells Lucy what you want to do, and she does it for you.

We don’t want to limit her to only PayrollHero. She will be able to aggregate data from any popular HR/Payroll related products and help you make decisions in real time. There’s a lot of work to be done between now and our vision of Lucy’s potential but we are extremely happy with the progress we have made so far!

Want access to Lucy sooner?

Want to get your team using her now? Feel free to fill in the form below and we’ll move you into our list for early access. You will have a real opportunity to make suggestions and help us create new features for Lucy.

Tired of Commuting?

philippine traffic problemsEditors Note: Introducing Kieran Peppiatt, Head of Client Success at PayrollHero. He will be contributing to the PayrollHero blog from time to time. 

So it might seem a bit peculiar to make my inaugural post to be about commuting! I actually plan to write about Client Success in the Philippines. However, if you live in the Philippines you’ll know it’s a pretty big problem. Traffic in Manila is some of the worst I have experienced. There are now over one billion cars on the planet and I am pretty sure they’re all here!

According to Time.com the average American’s commute to work is 25 ½ minutes, well the average commute in the Philippines is around 2 hours. The Philippine’s is ranked 9th worst for traffic in the world, and although that’s better than their airport rating it’s still not a ranking to be proud of.

Manila’s rush hour, like any, is a total misnomer. In fact the Philippine government estimates that Manila’s traffic costs the country around $3 billion per year. This is from wasted fuel, break downs, road works, deaths (you will go nowhere in an ambulance) and productivity.

Something to think about…

What does commuting mean for ensuring clients are successful?

Studies have shown that commuting will increase your blood sugar levels, cholesterol and likelihood of depression. The UK office of national statistics has also shown that your anxiety levels drastically increase, and another study by the University of Utah shows that your blood pressure temporarily spikes as direct result of a long commute.

That’s just the tip of the iceberg and keep in mind that all of these studies based their findings on commutes that exceed thirty minutes, which is way below the standard here in the Philippines.

Think about that for a moment. Your team arrive, there was a big pile up on the highway.  There late and already frustrated before they’ve even logged in to their computer. There’s a backlog of tickets because they’re only just in the door. Is that really going to create an environment that is conducive to excellent customer service?

Commuting means it’s not 9 to 5… it’s more like 7 till 7.

It’s really hard to build a team of truly exceptional employees in any industry. Add to the fact that even a two mile commute is a one hour mission. It starts to shrink the area of your employment pool. People just don’t want the hassle and who would? If you commute for two hours each way you are wasting 43 days of your life every year stuck in traffic. Not to mention the travel conditions for some commuters.

When it comes to Client Success attracting the right people is important. Without truly empathetic people whatever you try it’s all irrelevant. You want people who instinctively put themselves in the clients shoes, who can evaluate situations quickly, figure out a problem and act to create an environment in which your clients can thrive. These types of people are hard to come by.

So, how do you get them to commute to you? What should you do to try and attract the right talent into making the trip every day to your office? You don’t. We made a rule, you either live within walking distance of the office or you don’t come in. All you need to have is a computer and internet connection that is good enough to bring the office to you.

It’s quite early in our trials and this is definitely going to be a topic that I write about in the future. I’ll keep you guys informed on what we learn from it. That said, the staff who have opted to go down this route are genuinely happier and definitely more productive. They choose to spend more time helping out and don’t have to worry about getting up early to commute to work, or leaving late to miss the traffic home.

The plan is to meet up every second weekend so we can have face to face time, good food and a few drinks. We will also do a retroactive look back on the last two weeks. This is where we can see what we did well, not so well and most importantly learn how we can improve. Something I definitely plan to share more with you on in the future.

By the way, if you didn’t notice we’re hiring in a big way. If you love customers even more than we hate commuting get in touch.