BSI Article: - It's a lot more sensible than it appears at first glance (Part 2)

(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.)

First, we reproduce below the prevailing prescribed deduction table:

========== Range ========== Employer Employee Maximum
From To Rate(%) Rate(%) Deduction
----------------------------------------------------
0.001,500.002.001.00100.00
1,500.015,000.002.002.00100.00
5,000.01 and above2.00 2.00100.00

The basic algorithm followed by SURE! PayMaster for HDMF Contributions: PayMaster computes the required deduction based on the employees earnings (subject to HDMF) at that particular pay period. It does not compute based on what would be the theoretical monthly earnings.

To illustrate this algorithm, Let us discuss 2 different cases:

Case 1:

Employee: Juan Abadilla
Monthly Salary: P12,000
Pay frequency: 2x a month
Semi-monthly pay: P6,000

Based on the table above 2% of Mr. Abadilla's total monthly pay is P240. However, the maximum deduction per table is 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 P50 is deducted, and another P50 is deducted at the second pay period, for a total of P100.

Not so for SURE! PayMaster. Why?

SURE! PayMaster computes HDMF Contributions based on the actual earnings of employees at particular points in time, based on the HDMF table. Thus, during the first pay period, SURE! PayMaster sees that Mr. Abadilla earned P6,000, or 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 for the first pay period, 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 for the first half of the month.

If SURE! PayMaster were to prorate the P100 maximum contribution over 2 pay periods and only deducted P50 for the first pay period, then that would not be in compliance with the HDMF table.

Another point: Let's say Mr. Abadilla resigns, or goes into inactive status for whatever reason after the first pay period, then SURE! PayMaster has correctly deducted what the HDMF prescribes, which is P100 based on the first period earnings. If PayMaster had prorated and deducted only P50, then there would be an underdeduction of P50, since he is supposed to be deducted P100 for his P6,000 earnings for the first period.

To put it another way: How much did Mr. Abadilla earn for this entire month? P6,000. Isn't his total monthly basic pay P12,000? Yes, but 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, SURE! PayMaster:

Sees that Mr. Abadilla has earned another P6,000 for the second pay period, for a total of P12,000 for the month
Recomputes the applicable HDMF deduction for his total earnings for the month, which is still P100.
Knows that Mr. Abadilla has previously been deducted P100; and therefore
Deducts, for the second pay period, the correct deduction amount of P0.00 (zero).

Case 2

Employee: Jose Santos
Monthly Salary: P8,000
Pay frequency: 2x a month
Semi-monthly pay: P4,000

Based on the table above 2% of Mr. Santos' total monthly pay is P160. However, the maximum 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 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. 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 brom Mr Santos FOR THE FIRST PAY PERIOD. Thus by deducting this amount, SURE! PayMaster correctly implements the prescribed HDMF deductions, based on the employee's earnings.

If SURE! PayMaster prorated the P100 maximum contribution over 2 pay periods and only deducted P50 for the first pay period, then that would not be in compliance with the HDMF table. It would be short by P30.

Another point: Let's say Mr. Santos resigns, or becomes inactive after the first pay period, then SURE! PayMaster has already correctly deducted what the HDMF prescribes, which is P80 based on the first period actual earnings. If PayMaster had prorated and deducted only P50, there will be an underdeduction of P30, since he is supposed to be deducted P80 for his P4,000 earnings for the first period.

Now on to the next scenario: In actuality, Mr. Santos continues to be connected with his employer. Thus, on the second pay period, SURE! PayMaster:

Sees that Mr. Santos has earned another P4,000 for the second pay period, for a total of P8,000 for the month
Recomputes the applicable HDMF deduction for his total earnings for the month, which is a maximum of P100.
Knows that Mr. Abadilla has previously been deducted P80; and therefore
Deducts, for the second pay period, P20.00

As shown in the preceding examples, the algorithms of SURE! PayMaster are responsive to all real-life possibilities, and are therefore the more sensible, and more robust, design for long-term reliability. -rcd

Balmori Software Inc.