How Payroll Is Computed

Last updated: 2026-07-09 Summary:

• Every pay-run line runs the same path: gross pay, then deductions, down to net pay.
• Net pay never goes negative — a shortfall is carried as arrears and recovered on the next regular run.
• The 13th-month run is a dedicated year-end reconciliation, and payroll posts a monthly accrual separate from the payment entry.

Gross to net

For each employee line, eKapital computes gross pay from the pay type — hourly is regular hours plus overtime at the ordinary-day premium, daily is days worked times the daily rate (no overtime multiplier), salary is the fixed amount for the period. It then computes the statutory deductions (see Philippine payroll contributions) and any other deductions, and subtracts them to reach net pay. The figures you see on screen are exactly what posts to the books.

Carried arrears — net pay floors at zero

If a period’s deductions exceed gross pay — a rare but real case with heavy statutory or catch-up deductions — eKapital does not post a negative net. Instead it floors net pay at ₱0 and records the shortfall as carried arrears on that line. The next time you process a regular pay run for that employee, the most recent carried-arrears amount is folded into that run’s deductions, so the employee effectively pays it back over time. The original line keeps its arrears figure as a historical record; it isn’t double-applied.

The 13th-month year-end true-up

13th-month pay is its own run type, processed once per tax year, and it does more than pay out a bonus — it reconciles the whole year’s withholding:

• The first ₱90,000 of 13th-month pay is tax-exempt; only the excess is taxable.
• eKapital annualizes: it computes the tax due on the year’s taxable regular compensation plus the taxable 13th-month excess, then subtracts the withholding already taken on the year’s regular runs. That difference is the 13th-month run’s withholding — the year-end settlement, not a standalone Monthly-table calculation.
• Because a true-up settles the whole year, it can exceed the 13th-month gross (raises, unequal months, a mid-year table change). When it does, net pay floors at ₱0, the excess is booked to Employee Advances (a receivable the employee owes back, recovered on a later regular run via carried arrears), and the run stays balanced.
• Over-withholding is not refunded on this run. If the annualization shows too much was withheld, that run clamps the tax at ₱0 rather than issuing a refund; the refund is netted on the final regular run in eBIRForms.

The 13th-month run also requires that the year’s regular runs have been processed first — without that history it refuses to compute rather than emit a knowingly-incomplete figure.

The general-ledger entries

Processing a pay run posts a journal entry that debits the salary/wage expense accounts and credits the statutory payables and the net-pay cash account — so the run records both the expense and exactly what you owe each agency. Remitting those payables is a separate step on each agency’s calendar; processing the run does not pay them.

Separately, on Philippine tenants each regular run also posts a 13th-month accrual — one-twelfth of basic salary debited to 13th-month expense and credited to the accrual liability — so the eventual December payout is already funded on the books. The year-end 13th-month disbursement then reverses that accrual as it pays out.

See also

• Philippine payroll contributions
• Pay-run statuses
• Run your first pay run