Unit VI – Part 1

Accounting for Salaries

Overview

Background Every business that has employees is required to keep some kind of record of
wages and salaries paid. A business must have correct information about the
reported earnings of its employees in order to make proper payment to them
and in order to debit the amounts they have earned to the correct accounts.
All businesses are required by law to keep earnings records for each employee
and must be able to prove the correctness of the various required government
deductions and contributions (e.g., taxes, SSS, Philhealth, etc.), which
employers and employees pay. Employees want to be sure that the amounts
they receive on payday are the amounts to which they are rightfully entitled.
The summary of the employees’ salary is prepared in a report called payroll
register. This is accomplished depending on the payroll period being followed
by the company either in a weekly, semi-monthly or monthly basis.

Purpose The purpose of “Accounting for Salaries” is to provide students a simple

working knowledge on how to record salaries paid to employees with
deductions required by the government and the corresponding remittances of
those deductions made to proper government agencies.

In this unit This unit contains the following topics:

Topics See Page

Recording Salary Expenses 2 of E

Marivic D. Valenzuela-Manalo Page 1of E

Recording Salary Expenses

Overview All business entities normally hire employees to perform its various operations.
Salaries of these employees must be properly computed and paid at a specified
time (e.g. weekly, bi-monthly, monthly).
In this section, readers will be introduced on how to journalize transactions
affecting payment of employees’ salaries with corresponding deductions as
required by law or due to some other reasons such as loans made by
employees from the company.

Social Security Under PD No. 24, “no person shall be employed unless he has a social security
System number.” It is therefore a requirement that all employees in the private sector
be members of the Social Security System (SSS). The system provides
benefits and services to its members which include the following: salary loans,
educational loans, housing loans, sickness and death benefits, unemployment
benefits, disability benefits, pension benefits and reimbursement of funeral
expenses for deceased members. In consideration for all these benefits, the
employee is required to make a monthly contribution in accordance with a
contribution table provided by the SSS. This contribution of the employee is
deducted from his salary. The corresponding contribution of the employer is an
operating expense, i.e., SSS Contribution Expense.

Philhealth The Philippine Medical Care Commission (PMCC) was established to provide
hospitalization and other medical benefits to its members and their dependents.
Contributions are made according to a given table. Similar to SSS, the
contribution is shared between the employee and his employer. The
contribution of the employee is deducted from his salary. The contribution of
the employer is an operating expense, i.e., Philhealth Contribution Expense.

Pag-ibig Fund The Pag-ibig Fund is a provident savings and housing fund for employees
established under P.D. No. 1752. It aims to generate mass savings geared
towards financing homes for its members. All private employees who are
members of the SSS and their employers are covered by the fund compulsorily.
The employer and its employees in accordance with the pag-ibig contribution
table make contributions to the Pag-ibig Fund.

Continued on next page

Marivic D. Valenzuela-Manalo Page 2of E

Recording Salary Expenses, Continued

Witholding Under the Bureau of Internal Revenue regulations, every employer is required
Income Tax to deduct and withhold income tax from the salary of its employees in
accordance with a withholding tax table. The amount of income tax to be
withheld from the employees will depend on whether the employee is single,
married, a head of the family, a married woman whose husband is also
working, and on the number of his qualified dependents.

Illustration The following is an illustration of how to record salary expense with various
No. 1 deductions:
September 30, 20X1 transaction:
J. Labrador, CPA paid salaries to employees, P32,500. Deductions were made
for the following: SSS, P966.75; Philhealth, P343.75; Pag-ibig, P650 and
withholding taxes, P2,850.
Sept. 30 Salaries And Wages Expense 32,500
SSS Premiums Payable 966.75
Philhealth Contributions Payable 343.75
Pag-Ibig Contribution Payable 650.00
Withholding Taxes Payable 2,850.00
Cash 27,689.50
To record payment of salaries for the
period Sept. 1-30

Continued on next page

Marivic D. Valenzuela-Manalo Page 3of E

Recording Salary Expenses, Continued

Illustration The following are illustrations of how to record remittances made to different
No. 2 government agencies:
October 10, 20X1 transaction:
Remitted to Bureau of Internal Revenue (BIR) the tax withheld from
employees’ salaries for the period Sept. 1-30.
October 10 Withholding Taxes Payable 2,850
Cash 2,850
To record remittance made to BIR.
October 20, 20X1 transaction:
Remitted the amount due to SSS and Philhealth and Pag-ibig computed as
follows:
Employer’s share Employees’ share

SSS 3,048.50 966.75

Philhealth 687.50 343.75
Pag-ibig 950.50 650.00
Total 4,686.50 1,960.50
============= ==============

October 20 SSS and Philhealth Contributions Expense 3,736.00

Pag-ibig Contributions expense 950.50
SSS Premiums Payable 966.75
Philhealth Contributions Payable 343.75
Pag-ibig Contributions payable 650.00
Cash 6,647
To record remittances made to SSS, Philhealth,
and Pag-ibig.

Marivic D. Valenzuela-Manalo Page 4of E