AccountingEmployer Obligations That Persist After Outsourcing Payroll Services

Many companies in the Philippines outsource payroll to specialists to efficiently manage their employee compensation. However, the company is ultimately responsible for ensuring everything is handled properly. Even if you outsource payroll to a third-party specialist to calculate complicated taxes, statutory deductions, and payslips, you are ultimately responsible to your employees and the government. You should therefore look at your payroll specialist as an extension of your company. It is important to have strict controls in place to ensure you don’t incur heavy penalties from the government for late payments or incorrect statutory deductions. By understanding your responsibilities and setting clear boundaries, you can ensure you protect your company financially, maintain trust from your employees, and get the most from your payroll specialist.

Recording Attendance Data

Your payroll specialist will only be able to process payroll based on the attendance data you provide. As your payroll specialist will not be onsite, you will be responsible for collecting, verifying, and providing accurate time logging data. If you provide incorrect data, then your payroll will be incorrect. If your company provides unverified time sheets or incomplete absence data, then you will cause issues with your staff.

• Biometric/Online Time Logging – Ensure your biometric devices, online time logging systems, or paper time logging are recording correct clock in/out times for all staff members. Carry out regular maintenance and audits to ensure there are no syncing issues, time theft, or missing data.
• Overtime/Rest Day/Night Shift Approval – All overtime, rest day, and night shift differentials must be approved by departmental supervisors. Without approval, your payroll specialist will not be able to determine what was approved overtime and what was unapproved time spent onsite.
• Leave Balances – Your company must keep accurate records of all staff’s leave balances, including annual leave, sick leave, and unpaid leave. This will ensure correct deductions or cash in at the end of the year. Keeping your leave balances up-to-date will also ensure you don’t overpay your staff.
• Holiday Pay – Your management must know which of your staff have worked on regular holidays or special days off so correct multiples can be applied. According to Philippine labor laws, different multiples will apply based on whether the holiday falls on a rest day. This must be clearly highlighted internally.
• New Staff/Resignations – You must inform your payroll specialist quickly about new staff starting, resignations, or separations. This will ensure you get the correct prorated salaries and final salaries calculated. If you don’t inform them quickly, you may end up paying staff who have left incorrectly.

Approving Payroll Registers

Whilst your payroll specialist will carry out the calculations, your company is ultimately responsible for disbursing company funds. Good payroll management requires strict control processes to be in place to ensure no unauthorized payments are made, mistakes are not made, and money is not lost. Before any money is taken from your company’s bank account, your company must approve the final figures. Assuming your payroll register is 100% accurate can cause issues and could mean you overpay.

• Review Draft Register – Your finance officers must review the draft register provided by your payroll specialist to ensure they match up with your budget, active staff, and approved changes. Compare the total amount being paid this pay period with previous periods to ensure there are no sudden changes in gross/net pay.
• Variable Pay – Your management must ensure sales commission, performance bonuses, meal allowance, and expenses are correct. Variable pay will change every pay period, so departmental managers must check the figures match with approved vouchers.
• Company Bank Balance – Your company is responsible for ensuring there is enough money in your nominated bank account. Even if your payroll specialist is very responsive, if there isn’t enough money in your company’s bank account to cover net salaries, then you won’t be able to make the payments on time.
• Dual Sign Off – Your authorized signatories must upload the final bank file or approve the wire transfer. By having dual sign-off processes in place, you can ensure nobody, internally or externally, can steal company funds.
• Internal Issues – If a member of your team has a query regarding their net pay or a deduction, your internal finance team must be the first point of contact. This will ensure any issues can be resolved quickly.

Tax and Statutory Payments

According to Philippine tax and labor laws, your company will be held liable, not your third party. If your payroll specialist doesn’t meet government deadlines or doesn’t pay the correct amount, then you will be fined by the BIR and social agencies. To ensure your payroll is compliant, you must regularly check that everything is being filed correctly. You must treat government payments as strict deadlines and ensure everything has been submitted with proof of payment.

• Withholding Tax – Ensure your company is submitting monthly and quarterly withholding tax returns (BIR Form 1601-C) correctly and on time. If you don’t submit on time or incorrectly, then you will incur automatic surcharges, 12% interest per annum, and penalties.
• Mandatory Payments – Ensure your company is deducting and paying the correct amount of monthly payments to SSS, PhilHealth, and Pag-IBIG. Your finance team should regularly review proof of payment to ensure money has been received from staff salaries.
• 13th Month Pay – Ensure you are accruing basic salary throughout the year to ensure you pay the mandatory 13th month pay by 24th December. By reviewing your year-to-date accruals quarterly, you can ensure you don’t have a cash flow issue at the end of the year.
• Year-End Annualization – Ensure you are managing the year-end annualization process. This will ensure you are paying the correct amount of tax based on the total amount of tax you’ve withheld. This will ensure BIR Form 2316 is issued on time. By annualizing correctly, you can ensure your staff isn’t over- or underpaying their annual tax.
• Loans – Ensure you’re keeping track of the deduction and payment of staff salary loans and calamity loans to SSS and Pag-IBIG. If you don’t pay the loan amortizations that have been deducted, then you may incur penalties and interest charges.

Data Protection

Payroll files contain some of the most sensitive data your company holds. According to the Data Privacy Act of 2012, organizations are personal information controllers and are responsible for protecting this data. By outsourcing this to a third party, you introduce risk and should ensure you are monitoring what they’re doing. If there is a data breach and bank account numbers, tax numbers, or salary bands are leaked, then you could suffer reputational damage and face penalties from the National Privacy Commission.

• Secure Data – Ensure you’re sending your payroll and banking data securely. This can include encrypted files, password-protected files, or secure cloud portals. If you send unencrypted spreadsheet files, then you risk exposing sensitive company data.
• Internal Access – Ensure only those who need to see the payroll files have access. Only finance officers and senior leaders should have access to view, edit, and approve the master payroll file.
• Cyber Security – Ensure your payroll specialist has the correct certifications, data storage, and incident management in place. Regularly review their security processes.
• Non-Disclosure Agreement – Ensure you have a non-disclosure agreement in place. This will ensure you know who is liable if there is a data breach.

Managing Your Payroll Specialist

You will never have a completely hands-off relationship with your payroll specialist. To ensure your payroll is accurate, you must have processes in place. Due to the ever-changing nature of regulations in the Philippines, it can be complicated to understand what your responsibilities are as an employer. By working with an experienced company such as BusinessRegistrationPhilippines.com, you can be assured your company will have dedicated specialists to assist with every step of the process. This will ensure you don’t incur any costly mistakes. Without having good control over your payroll specialist, you may experience issues with missing deadlines, confusion, and inconsistent reporting.

• Turnaround Times – Ensure you’re setting clear turnaround times for raw data, payroll draft, and queries. Having a written SLA will ensure you have clear benchmarks.
• General Ledger – Your finance team must ensure they’re reconciling the payroll reports with the general ledger each pay period. Any discrepancies between your gross pay, tax, and bank payments must be resolved immediately before closing your monthly books.
• Monitoring Regulations – Whilst your trusted payroll specialist (BusinessRegistrationPhilippines.com) will keep track of any changes to BIR, SSS, PhilHealth, and Pag-IBIG regulations, you must ensure you’re keeping track of the changes and approving any changes to your internal processes. By being proactive, you can ensure your company payroll is up to date with the new contribution tables and tax bands.
• Backup Plans – Ensure you have backup plans with your payroll specialist. This will ensure you’re able to pay your staff on time if there are issues with the system, bank holidays, or bad weather. Have a plan in place for alternative submissions.

Keeping Records

Even though your payroll specialist will create digital copies of your payslips and tax returns, your company is responsible for keeping records. The government will often audit your company, and you must be able to provide years of financial records. If you don’t have any backups and only have the data on your payroll specialist’s server, then you could be at risk if your contract ends or they lose data.

• Keeping Records – Ensure you’re keeping records of your payroll journals, tax receipts, and proof of contributions for the required amount of time (usually up to 10 years for BIR). Keep your records organized digitally and physically so they can be accessed quickly during tax time.
• DOLE Inspections – Ensure you keep organized records of wages paid, holiday premium, and 13 th month. This will ensure you can show you are compliant during any inspections from the Department of Labor and Employment. This will help you avoid any fines or compliance issues.
• Full Paper Trail – Ensure you’re keeping a full paper trail of all salary approvals, bonus approvals, and written consent for deductions. Having written approval for any non-statutory deductions is essential to prove you were within the law.
• Staff Leaving – When a member of your team leaves, you must keep a record of their signed quitclaim, final salary calculations, and copies of BIR Form 2316. This will help protect you in the future if there are any labor issues.

Final Insights

By outsourcing payroll, Philippine companies can focus on their core activities, reduce admin, and grow their company. However, it is a joint effort, and you must have strict controls in place. Whether it’s verifying attendance data, approving bank payments, ensuring statutory compliance, or protecting sensitive data, you will ultimately be responsible. By working with a trusted company such as BusinessRegistrationPhilippines.com, you can be assured your company will meet your employer payroll responsibilities with ease.

Is Assistance Available?

Yes! We can help your company with the intricacies of outsourcing payroll in the Philippines. Get in touch with our team today to book a consultation. Our bespoke solutions will help protect your bottom line and ensure your operations run smoothly. Get in touch today to book your initial consultation.

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