If you are looking to start your business in the Philippines, or have already been in business and are looking to refresh your knowledge on business management requirements and fundamentals, your payroll is one place where you could start. After all, it comprises a major chunk of business expenses.
The payroll is essentially the tracking of employees to be paid, their hours worked, circulating employee payments, disbursing payments on time, and recording the corresponding payroll expenses on the company’s book of accounts. If you’re not well versed in doing this, you can seek payroll services and guidance from a reputable firm that offers accounting services in the Philippines.
As a business expense, the payroll has to be documented when you are filing your tax returns. This is achieved through the completion of BIR Form 2316 or Certificate of Compensation Payment/ Tax Withheld. All businesses that hire employees must submit Form 2316 to the Bureau of Internal Revenue (BIR), the Philippine Tax-collecting body. Below is everything you need to know about the form.
Why the BIR Form 2316 is essential
This is an official document that states your employees’ gross income and shows you withheld appropriate taxes for that fiscal year. The form ensures that the correct amount of tax is subjected to your company. Proper accounting and documentation is critical for correct computation of tax dues. Moreover, employees also need this form when switching jobs to allow new employers to compute the tax withheld for the remainder of the year or for personal reasons like loan applications.
Additionally, this document provides proof of your business’s financial capacity for the loan, scholarship, visa, and card applications. It is also an official document that may be used to meet requirements of certain government incentives and the like. You can seek tax services in Manila if you’re unsure about what to do.
What are the Payroll Form Requirements and How to Process?
There are three primary things you must already have to fill out BIR Form 2316. These essentials are the following:
1. BIR Form 2316
2. Employee information
3. Certificate of Registration
According to expert tax and audit services in the Philippines, here are the steps you have to comply with to fully process this BIR payroll form and stay compliant with BIR requirements:
1. Download the form 2316 from the Certificates page on the BIR website.
2. Fill out Part 1:
a) This part states all information about the employees. Employees hired before the year of filing need to have the start date indicated in the “From” section. Employees starting within the year need to have the exact date of hire stated. Additionally, items 9 to 11 on the form under Part 1 are only applicable to minimum wage earners.
3. Fill out Parts 2 and 3:
a) This part is where you encode your employer information, all of which can be found on your business Certificate of Registration (Form 2303).
i. If your employee is a full-time worker, list yourself as the Main Employer. If the employee is working part-time, choose Secondary Employer.
ii. For new hires, ensure the correct details of their previous employer.
4. Fill out Part 4
a) This part is where you list all the benefits, remunerations, and government contributions. You must also list the taxable and non-taxable benefits that your employee receives.
a) Item 51 should be signed by your authorized signatory
b) Item 52 should be signed by the employee themself, along with their Community Tax Certificate number or any other valid ID number, the place of issue, and the amount paid.
c) Item 53 and 54 are only applicable if the employee qualifies for substituted filing, which is for employees that do not have a source of income or employer during the year.
6. Send the forms to the staff for signing.
7. Prepare four (4) copies of the filled-out Form 2316.
8. Give your employee 1 copy.
9. Provide the BIR with 2 copies upon submission.
10. Keep the remaining copy for your records.
Note that as the employer, it is your obligation to provide employees and the BIR with the BIR Form 2316. Failure to comply with this requirement will subject your business to penalties and stiff fines. The worst-case scenario is business dissolution due to non-compliance.
If you do not have a dedicated HR team, you can also outsource your payroll services to help with the proper accounting of payroll expenses and to ascertain compliance with BIR regulations. For further guidance, you call our team of CPAs. We provide tax and accounting services in Pasig, serving both domestic and international clients. Take advantage of our free 30-minute consultation to address any concerns and ensure robust fiscal health.