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R.A. 9504 (tax relief law for minimum wage earners)
One year after its promulgation, still discombobulating payroll preparers

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Since October 2008, SURE! PayMaster (ver. 7.3) has been fully compliant with R.A. 9504. Many of our clients have upgraded to Version 7.3 since then; but some remain uncertain about what R.A. 9504 means for them. This article addresses the questions that continue to be raised frequently by our users, including some who have already upgraded to Version 7.3.

1) What changes has R.A. 9504 wrought on the payroll preparation task?

The changes brought by R.A.9504 are wide-ranging, so significant that they oblige all software programmers engaged in payroll applications to rewrite their payroll products.

In broad brush strokes, then:

a) R. A. 9504 exempts minimum wage earners from income tax and withholding tax;

b) It increases tax exemptions for all taxpayers, whether they be minimum wage earners or earning more than the minimum wage.

c) It significantly revises the Alphalists required every year-end. Revisions in format apply for all existing Alphalist categories (Schedules 7.1 to 7.4); and there is a completely new Schedule 7.5 to cover those who are qualified as Minimum Wage Earners.

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d) Form 2316 (W-2) has also been significantly revised.

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e) Additional information are also required for above reports (items c and d above): the region where the employee works, the number of work days per year per Annex B of R.A. 9504, the details of the employee's Community Tax Certificate, the employee's nationality, and whether the employee opted for substitute filing of income tax.

These changes require payroll applications for the Philippine market to be effectively rewritten. They also make payroll reporting a much more detailed and time-consuming task for those setting out to do it manually.

2) Can the new payroll rules implied by R.A. 9504 be addressed by simply updating the Withholding Tax Tables in my old, pre-Ver. 7.3, SURE! PayMaster?

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Emphatically, no. R.A. 9504's changes in the taxation computation mandated deep changes to SURE! PayMaster's very source code, and indeed of all other payroll software solutions being offered in the Philippine market.

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To be very clear: R.A. 9504 effectively rendered obsolete all versions of all payroll software products (not just SURE! PayMaster) that comply with R.A. 8424, the operative law before R.A. 9504 came along. The new requirements of R.A. 9504 are properly addressed by replacing your current SURE! PayMaster with the new Ver. 7.3, which contains significantly rewritten algorithms  mandated by R.A. 9504. (Algorithms are the  mathematical operations, classification rules, and logical rules within any software program. )

Examples of algorithm changes required by RA 9504: Minimum wage earners are now completely exempt from withholding and income taxes. (But wait till you see the ifs, ands, and buts. See Q&A #3 below, and read the text of the BIR revenue regulations.) 

Another algorithm change: the traditional taxpayer categories have been revised. For example, there is no longer any such  thing as Head of Family under RA 9504 provisions.  This last one renders the old tables, with their totally different wage-earner classifications, obsolete. SURE! PayMaster ver.7.3 provides the new-design wage-earner classification table.

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The diligent analyst can appreciate the magnitude of the changes to the tax computation algorithms  by reading pages 10 to 24 of the BIR's Revenue Regulations 10-2008. These 15 pages lay down the new tax computation specifications  that payroll supervisors – and payroll software programs  -  have to observe to be compliant with RA 9504.

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(Click here to download a copy of RR 10-2008)

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To recap: R.A. 9504's changes mean that all versions of SURE! PayMaster lower than 7.3 are going to produce “wrong” results, in the context of R.A. 9504; they are obsolete as you read this.

Because R.A. 9504 changed the very computation of taxes, all payroll programs for the Philippine market, not just SURE! PayMaster, are equally affected.

3)  R.A. 9504 sounds like a really good deal for taxpayers. Is there a catch?

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Yes, there is at least one big catch. In the messy real world, a minimum wage earner can conceivably have other documented income over and above his minimum-wage payslip at his primary place of employment. Let's see... consulting fee income? Talent fees from Wowowee? Part-time lecturing at the College of Our Lady of Perpetual Motion?

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If an otherwise minimum-wage worker finds himself in this situation (better than a poke in the eye with a sharp stick, as they say), then, alas, he will be subject to income tax after all.  Meaning, he's no longer considered a minimum-wage earner in the eyes of R.A. 9504. (There are a handful of similar ifs and buts in pages 1 to 10, and 25 and up, of Revenue Regulations 10-2008. Read them with great care.)

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Another important catch, this time one that might trip up payroll supervisors in particular: the definition of minimum wage is tricky; it changes depending on what geographic region you happen to be in the country. So, what is minimum wage for Metro Manila might be a prince's ransom in, say, western Mindanao (OK, maybe a poodle's ransom). 

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What this all means is, a lot fewer people in RP will qualify as minimum-wage earners than originally thought they would.  

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(Read another article on this area of concern, entitled "The tax relief R.A. No. 9504 is about to affect how you compute your payroll") -RSR