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.

New: Half Day Leave Request Functionality

half-day-leave-request

You asked, we answered. Half Day Leave Requests have been rolled out into the PayrollHero Leave Management add on.

Now you can enable the half day leave request in your settings so that employees can use 50% of a sick day. Perfect for doctors appointments or personal time when employees need it.

Applying for a half day leave is the same as applying for a regular leave except the half day leave option is only available for 1 day leave requests. If the start and end date of the leave request do not match then you will not be able to apply for half day leave. The only difference is that you will need to choose if you want to take the first half of the day or the second half of the day off.

payrollhero_-_leave_management_-_request_a_leave

Want to learn more? Reach out to our client success team anytime for more details.

If you are not a PayrollHero client and want to learn more… you can see our offerings here:

Philippines | Singapore | Canada | USA | International

New: Per Shift Overtime

per-shift-overtimeWe have rolled out a new feature that will come in very handy for our BPO (Business Process Outsourcing) clients – per shift overtime.

Our overtime system will automatically calculate the amount of hours OT an employee has rendered based on your company overtime rules. Your employees can just clock in and out via one of your clocking devices and when it comes time to generate payroll overtime, ND etc. are all calculated automatically.

However, many of our BPO clients operate 24 hours a day, 7 days a week. They have multiple agents serving clients that are in multiple timezones. We decided that their unique setup required a unique overtime rule.

Today, we rolled out support for per shift overtime as part of our larger automated overtime calculation tool.

This means for employees that work a shift that runs past midnight and start their next shift that same day can be paid for any overtime occurred based on the shift hours, not the total hours within the calendar day.

For example:

Here is how you can see the difference between per shift overtime and per day overtime, both of which are possible in PayrollHero’s Philippine payroll platform.

per shift overtime for bpo

If you are interested in this feature, reach out to our client success team to learn more.

PayrollHero’s purpose built BPO payroll platform is perfect for your operation. We have quite a few specific tools just for the BPO industry. Here are a few more examples of how PayrollHero can help BPOs;

  • Employees who follow another countries holidays instead of Philippine holidays
  • Employees who have shifts overnight and how night time differential effects it
  • Employees who have shifts overnight and one of the days is a holiday

If you are not a PayrollHero client and want to learn more… you can see our offerings here:

Philippines | Singapore | Canada | USA | International

New: Reminders For Your Employees via Facebook Messenger

Do you have employees who forget to clock in and the start of their shift, or forget to clock out at the end?  Well, we can help, we have a new tool that reminds your employees of their schedule.

If PayrollHero has not received a clock in or out from your employee, they can be reminded 15 minutes prior to their schedule or after the completion of the schedule, automatically, via Facebook Messenger.

Why Facebook Messenger? 

For starters, you most likely already have it on your phone, so no need to download a new app to get PayrollHero reminders.  Plus, in many countries (including the Philippines), Facebook Messenger is free, no data required.

What do the reminders look like? 

Good question, here is an example of a reminder. It pops up prior to the shift to remind employees to clock in.

Employee Reminders

Continue reading

Manage Employee Leave Requests via PayrollHero Leave Management

leave managementWe have been busy expanding the PayrollHero Leave Management add on functionality so that it is a complete tool that lets your employees ask for time off and give your team the power to mange the requests.

What can PayrollHero Leave Management do?

  • Employees Can
    • See their leave balances
    • Request time off as paid or unpaid
    • Review leave history
  • Managers Can
    • Approve/Reject leave requests
    • Leave comments for their decision
    • Add unlimited leave types (vacation, sick, maternity, national service, etc)
    • Manage leave balances
    • Review past leaves
    • Review upcoming leaves
    • Enable/Disable employees ability to apply for leaves beyond their balance
    • Enable/Disable auto-approval of leaves
    • Enable/Disable unpaid or paid leave requests

Here is a quick video showing you around PayrollHero’s Leave Management add on;

If you are not a PayrollHero client and want to learn more… you can see our offerings here:

Philippines | Singapore | Canada | USA | International

New: Request A Call With Support

As we continue to grow we are expanding our support offering to serve you better.

Here are the self service options we have available:

Need to interact with our client success team directly:

  • Email support at payrollhero.com
  • Live Chat (just click the chat button on the bottom right of your PayrollHero account)
  • Facebook Message
    PayrollHero Live Chat
  • Request A Call

Request a Call from PayrollHero

As for support hours, our team is available Monday – Friday 08:00 – 17:00 Manila/Singapore time. If you contact us outside of those hours we will get right back to you first thing the next day.

If you are not a PayrollHero client and want to learn more… you can see our offerings here:

Philippines | Singapore | Canada | USA | International

 

Is Your HR Team Prepared for 2017?

If you are planning on making changes to your HR and payroll tools then now is the time. Many companies still use Excel, paper and pen, or outdated software to complete their payroll each and every period.

Starting the calendar year fresh on a new platform that helps to automate your monthly reports, year end compliance and provides easy to use analytics is the way to go.

Here is how PayrollHero can help your business for 2017;

Singapore Companies ??

Philippine Companies ??

PayrollHero’s powered time, attendance, scheduling, HRIS, leave management and payroll platform is essential for todays growing business. Contact us to learn more.

2017