d

Payroll and the calendar year are like horse and carriage; 

This serves to clarify some common misconceptions regarding pay periods, calendar years and fiscal years.

A fiscal year is any twelve-month period within which a company reckons the results of its annual operations, for, among others, tax purposes.

A calendar year is simply the 12-month period starting January and ending December.

Most companies have fiscal years that coincide with the calendar year. Many, however do not.  In fact, companies are free to choose the starting month for their fiscal year, provided (1) this period is defined in their company by-laws, and (2) they declare it to the local tax authorities.

Many firms, for example, have their fiscal year beginning December, ending in November of the next year. Some companies start their fiscal year in July, and of course end it in June of the next year. Still others observe an April-to-March or an October-to-September fiscal year.

Some payroll clerks think that their payroll should start and end in consonance with their company fiscal year.  This is not correct; the BIR requires payroll and corresponding taxes, and therefore also the required reports, to be done on a calendar year basis.

Therefore, regardless of your fiscal year, and regardless of the payroll software you use, the BIR has declared that payroll is processed based on a calendar year. You have no choice in the matter. RCD

When is the best time to start computerizing your payroll?

Based on the foregoing, the best time to computerize payroll is clearly January. To be more precise, you ideally want to be on stream by January. But since preparation and setting up of the software may take a few weeks, you should begin your preparations for computerization by October or November of the preceding year.

Aside from identifying the payroll solution you’ll go with, preparations include cleaning up your employee list, your employee coding system, employee outstanding loans, availment history of SL/VL, and many, many other things.

What’s that you say? January comes around only once every 12 months? Are you therefore in trouble if you miss starting in January?

Not at all. A well-designed payroll application should have a feature to let you input already-done-with months, so that even if you start in April or August, you can still have the full year’s payroll data in the computer and available for all that pesky year-end reporting to the BIR, Philhealth, HDMF, and SSS. (But. But. But. Of course you could avoid having to input all those already-done-with months – a tedious and altogether avoidable process - if you got started in January.) RSR

Questions? Reactions? Write to balmori@balmorisoftware.com.  

back to top >>>