Learn How to Compute Payroll Like a Pro: Step-by-Step Guide for Philippine SMEs

Managing payroll is one of the most important — and sometimes most confusing — tasks for business owners in the Philippines. From tracking attendance to computing deductions for SSS, PhilHealth, Pag-IBIG, and taxes, it can get complicated fast.

But don’t worry! In this guide, we’ll walk you through how to compute payroll step-by-step, the required government contributions, and how automation tools like PinoyCode can make it easy for you to do payroll like a pro.

Why Payroll Computation Matters for SMEs

For small and medium enterprises (SMEs), correct payroll computation isn’t just about paying employees — it’s about:

• Compliance with Philippine labor laws
• Building employee trust with accurate pay
• Avoiding penalties from BIR, SSS, PhilHealth, and Pag-IBIG
• Saving time and reducing manual errors

Whether you have 5 or 500 employees, mastering payroll computation is a must.

Step-by-Step Payroll Computation in the Philippines

Let’s break down the process into simple, manageable steps.

Step 1: Determine the Employee’s Basic Pay
Start with your employee’s basic salary, which depends on their rate and work schedule.

Formula:

Basic Pay = Daily Rate × Number of Days Worked

Example:
₱800/day × 22 days = ₱17,600 Basic Pay

Step 2: Add Allowances and Other Earnings
Include other income components like:

• Overtime pay
• Night differential
• Holiday pay
• Meal or transportation allowances
• Incentives and bonuses

These add-ons are part of gross income before deductions.

Step 3: Compute Government-Mandated Deductions
Every employee must contribute to SSS, PhilHealth, and Pag-IBIG.

SSS Contribution (2025 rate)

Employer: 9.5%
Employee: 4.5%
(Based on the monthly salary credit bracket set by SSS.)

PhilHealth Contribution (2025 rate)

5% of the monthly salary, shared equally by employer and employee
(Subject to PhilHealth’s latest circular.)

Pag-IBIG Contribution

1% (employee) and 2% (employer) of monthly salary
(Capped at ₱100 employee contribution.)

Step 4: Compute Withholding Tax (Based on TRAIN Law)
After deducting SSS, PhilHealth, and Pag-IBIG, you calculate taxable income.
Use the BIR Revised Withholding Tax Table to find the corresponding tax amount.

Formula:

Taxable Income = Gross Income – (SSS + PhilHealth + Pag-IBIG)

Then apply the correct percentage from the BIR tax table.

Step 5: Calculate the Net Pay
Finally, compute the Net Pay — what your employee actually receives.

Formula:

Net Pay = Gross Income – (All Deductions)

Example:
₱17,600 Gross Income
– ₱800 (SSS + PhilHealth + Pag-IBIG)
– ₱500 (Withholding Tax)
= ₱16,300 Net Pay

Step 6: Release Payslips and Keep Records
Always issue a payslip showing the breakdown of earnings and deductions.
Maintain payroll records for at least three years, as required by the DOLE.

Automate Payroll Computation with PinoyCode

If all these formulas and tables sound overwhelming — you’re not alone. Many SMEs struggle to keep up with changing tax rates and compliance requirements.

That’s why tools like PinoyCode.com exist.

✅ Automatic computation for SSS, PhilHealth, Pag-IBIG, and taxes
✅ Real-time timekeeping integration
✅ Accurate payslips and reports
✅ Cloud-based and compliant with Philippine regulations

With PinoyCode, you can say goodbye to manual errors and focus on growing your business instead of crunching numbers.

Payroll Computation Example Summary

Payroll Item	Amount (₱)
Basic Pay (22 days × ₱800/day)	17,600
Overtime & Allowances	1,000
Gross Income	18,600
SSS, PhilHealth, Pag-IBIG	(800)
Withholding Tax	(500)
Net Pay	17,300

Final Thoughts

Learning how to compute payroll is essential for every business owner in the Philippines. By following this step-by-step guide, you can confidently process payroll, stay compliant, and ensure your employees are paid right — every time.

And if you want to skip the hassle, let PinoyCode handle your payroll and timekeeping so you can work smart and pay right.

👉 Visit www.pinoycode.com to book your free demo today!