One of the most common problems businesses encounter is in the matter of payroll computation, specifically their employees’ daily rates. As an employer, giving correct compensation to the people in your payroll is an important obligation.
Several factors can affect an employee’s salary per month such as attendance and overtime pays, but the basic formula for computing your employee’s daily rate is easy to remember.
Daily Rate = (Monthly Rate x (No. of months in a year) / Total working days in a year
Two out of three variables in the computation are easily affected by factors aforementioned such as attendance and overtime pay. Meanwhile, non-working and special holidays also affect the total number of working days in a year.
Employees who are required to work five days a week usually get a total of 261 working or paid days a year. Meanwhile, those who are required to work six days a week (with Sunday as a rest day) get a total of 313 working days a year. Lastly, employees who are required to work seven days a week, including Sundays, special days, and regular holidays have a total of 392.5 working days a year.
You can consult the Bureau of Internal Revenue’s guidelines for computing for the total number of working or paid days in a year here.
Let’s take the situation of Evelyn for example. A fresh graduate, Evelyn earns a monthly rate of P17,000.00. There are 12 months in a year. There are 261 working days this year, given that Evelyn is required to work five days a week for all 52 weeks in the calendar. This also takes into consideration 12 regular holidays (including recent holiday pronouncement of Eidul Adha) as well as 3 special days that were scattered throughout the year.
Following the formula stated above, computing for Evelyn’s daily rate is as follows:
Daily Rate = (17,000 x 12) / 261
Using the formula, we are able to find out that Evelyn’s daily rate is P781.61. Since Evelyn is not a minimum wage earner, you are required to make certain tax deductions as per the Bureau of Internal Revenue (BIR) guidelines unless there are applicable tax exemptions.
What is the importance of computing for an employee’s daily rate?
The daily rate of your employees allows you to compute for their correct monthly compensation, as affected by overtime pay, absences, and paid leaves. Correct deductions when it comes to absences, tardiness, and undertime are important if you want to establish good relations between you and your employees.
Incorrect computation of an employee’s daily rate also compromises their hourly rates, a variable you use for computing an employee’s overtime pay.
Your employees’ daily rates have a direct impact on their tax computation. Minimum wage earners are subjected to additional tax benefits in the country. Regular wage earners, on the other hand, must comply with deductions such as withholding tax, which varies depending on their monthly salaries.
For additional reading on tax deductions and codes in the Philippines, check out BIR’s official website. BIR also has a withholding tax calculator to help you in computing your employee’s wages.