Balmori Software Inc.

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Photo: Tima Miroshnichenko

Posted 2025 January 30

A question was recently raised by one of our users: When a minimum wage earner employee (MWE) gets a salary raise in mid-month or mid-year, how should we compute his tax liability going forward? How will SURE! PayMaster's algorithms treat his tax liability?

First, let us consider: Under the (1) TRAIN Law (Republic Act No. 10963), and (2) the National Internal Revenue Code (NIRC) [Section 22(HH)] as amended by the TRAIN Law, a minimum wage earner's statutory minimum wage, overtime pay, night differential pay, hazard pay, holiday pay, are all exempt from income tax.

But what happens when the employee gets a salary increase that moves him up and out of the minimum wage earner category?

For example, let's say Employee A's total compensation puts him in the MWE category in Period 1 of a given month. Thus, in Period 1, Employee A was exempt from taxes as provided by NIRC and TRAIN. In Period 2 (last period for that month) Employee A got a salary increase, thus properly making him a Regular (i.e. non-MWE) employee.

Question: Why does SURE! PayMaster compute the monthly Tax for the 2nd period based only on the 2nd period pay, and not adjusted to consider the income for both periods?

Answer: If a minimum wage earner becomes a regular earner subject to income tax, his past income as a minimum wage earner is NOT retroactively taxable. This exemption from income tax continues to apply to the income earned while he was a minimum wage earner. It is only the compensation earned as a regular earner (i.e., when he is no longer MWE) that is subject to tax.

Furthermore, even when annualization time comes, the tax exempt nature of the period(s) when the employee was tagged as MWE, continues to be treated as such, and duly placed in the Tax exempt columns of the Annualized Income reports (Alphalist). Only the income earned as Regular employee is subject to the annualization tax procedures.

If you reflect on the matter, the above way of treating income for an MWE who later on becomes a regular earner, makes sense; it's fair, and thus this is how SURE! PayMaster's algorithms were programmed to handle this common scenario. Otherwise, can you imagine the sudden annualized huge taxes imposed on an earner who was an MWE for the first 11 months and then becomes a regular earner in the 12th month?

Note to SURE! PayMaster users: Have you upgraded to Version 7.10.8? This latest version is compliant with the latest guidelines and Circulars that affect SSS contributions for 2025. Contributions have been increased to 15% of Monthly Salary Credits (MSC), employer-employee share of the SSS Contributions is now 2/3 for the employer, 1/3 for the employee; there are more and new ranges for MSC; the Worker’s Investment and Savings Program is now the Mandatory Provident Fund (MPF); employer-employee share of the MPF is now 2/3 for the employer, 1/3 for the employee. For more information/details, please click on this link: CI-2024-006-Publication.pdf.

For more information on upgrading to SURE! PayMaster Ver. 7.10.8, click here.







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