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It's a lot more sensible than it appears at first glance (Part 2)
How SURE! PayMaster handles your HDMF contribution computations
(This is Part 2 of the above-titled article. It can be read on its own, and moreover can be read ahead of Part 1 without impairment of understanding. Part 1 is here.)
We have come to notice that quite a few long-time users of SURE! PayMaster have been sending us a lot of the same questions over the years. Questions tinged with exasperation. This article answers the following frequently asked questions about how SURE! PayMaster computes and implements HDMF deductions:
The basic algorithm that SURE! PayMaster uses for HDMF Contributions: Deductions are based on the employee's earnings (that are subject to HDMF) at that particular pay period. SURE! PayMaster does not compute deductions based on what would be the theoretical total monthly earnings. To illustrate the above, let us examine two different cases:
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"I am writing you a letter to personally say thank you for helping us address our payroll problem. We have been using your PayMaster software for almost 4 years now; and we find it very easy to use. Compared to the old payroll software program, PayMaster is very straightforward and user-friendly. Using your payroll software has significantly cut the time it takes to do our payroll.... With less time devoted to doing the payroll, we can now divert our office resources to focus on other areas of our manufacturing business. You have helped our company a great deal and I would like to extend my warm thanks for introducing us to your PayMaster Software." RUBY G. LAO Manager PACK-RITE MANUFACTURING, INC. Employee: Juan Abadilla Monthly Salary: P12,000 Pay frequency: 2x a month Semi-monthly pay: P6,000 Based on the table above, a straight 2% of Mr. Abadilla's total monthly pay is P240. However, the maximum MONTHLY deduction per HDMF table is only P100, hence this amount (P100) is the maximum that should be deducted from him per month. Since Mr. Abadilla is paid twice a month, he might expect that the P100 HDMF deduction is to be equally divided by 2, hence on the first pay period he expects P50 to be deducted, and another P50 deducted at the second pay period, for a total of P100.It's a nice thought, an understandable thought. But you'll create problems for yourself if you try to do it. Why? SURE! PayMaster computes HDMF Contributions based on the actual earnings of employees at particular points in time, based on the HDMF provided table. Thus, during the first pay period, SURE! PayMaster sees that Mr. Abadilla earned P6,000 (one-half of his monthly pay of P12,000). Following the prescribed Table, 2% of P6,000 is P120, but since the maximum deduction is P100, then the appropriate deduction for Mr. Abadilla's HDMF contribution, based on his earnings of P6,000, is P100 for the first pay period. Thus by deducting this amount, SURE! PayMaster correctly implements the prescribed HDMF deductions, based on the employee's actual earnings. If SURE! PayMaster had prorated the P100 maximum monthly contribution over 2 pay periods and only deducted P50 for the first pay period, then that is an inadequate deduction on its face, just by referring to the HDMF table. 
Here's another reason why the above implementation is a more robust one in the face of messy real life: Let's say Mr. Abadilla resigns or becomes inactive after the first pay period. If that happens, then SURE! PayMaster has correctly deducted what the HDMF prescribes, which is P100 based on the first period earnings.If SURE! PayMaster had prorated and deducted only P50 in the first pay period, and Mr. Abadilla had no earnings for the second pay period on account of his resignation, then SURE! PayMaster would have committed the sin of underdeducting by P50, since the fellow's P6,000 earnings for the first period alone had already called for a deduction of P100. In sum, splitting Mr. Abadilla's HDMF deduction into two P50 installments would have been a violation of the HDMF's original - and clear - intention. To put it another way: In the event Mr. Abadilla resigns in the first half of the month, what the HDMF will want to know is, how much did Mr. Abadilla earn for this entire month? The answer is P6,000. Isn't his total monthly basic pay P12,000? Yes, and so what? The fact is he resigned as of the first pay period, hence he earned only P6,000. His required HDMF contribution even if he earned only this amount, is still P100, not P50. Now on to the next scenario: Let's say that In actuality, Mr. Abadilla continues to be connected with his employer. Thus, on the second pay period:
Employee: Jose Santos Monthly Salary: P8,000 Pay frequency: 2x a month Semi-monthly pay: P4,000 Based on the table above, a straight 2% of Mr. Santos' total monthly pay is P160. However, the maximum MONTHLY deduction per table is P100 hence this amount (P100) is what should be deducted from him per month. As previously mentioned, SURE! PayMaster computes HDMF Contributions based on employees' actual earnings at particular points in time, based on the HDMF provided table. Prospective earnings have no standing at all until they are actually earned. Thus, during the first pay period, SURE! PayMaster sees that Mr. Santos earned P4,000 (one-half of his monthly pay of P8,000). Following the prescribed Table, 2% of P4,000 is P80. This amount does not exceed the P100 maximum hence P80 is what is deducted from Mr Santos for the first pay period of the month. Thus by deducting this amount, SURE! PayMaster correctly implements the prescribed HDMF deductions, based on the employee's actual earnings. 
If SURE! PayMaster prorated the P100 monthly maximum contribution over 2 pay periods and only deducted P50 for the first pay period, then that is not in compliance with the HDMF table. It would be short by P30 since the properly computed amount is P80.Another point again: Let's say Mr. Santos resigns, or becomes inactive after the first pay period, then SURE! PayMaster has correctly deducted what the HDMF prescribes, which is P80 based on the first period earnings. If SURE! PayMaster had prorated and deducted only P50, there would be an underdeduction of P30, since the worker is supposed to be deducted P80 for his P4,000 earnings for the first period. And if Mr. Santos has already resigned, how are you going to collect the P30 shortfall in his HDMF contribution? Here's what would really happen in this scenario. In practice, you wouldn't be able to collect this last P30, because Mr. Santos would be God knows where by then. Or Mr. Santos would ignore your pleas to cough up the P30. Or more likely, you'd correctly figure that chasing after P30 will cost you more than it's worth in terms of phone bills and motorcycle messenger trips and HR staff time. And so, in practice, you'd end up swallowing the P30 loss. Now on to the next scenario: In actuality, Mr. Santos continues to be connected with his employer. Thus, on the second pay period:
And this is why you shouldn't pro-rate the HDMF deduction. - rcd 
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