The Dilemma
Every year, an Annual Alphalist of Employees are prepared and submitted to the Bureau of Internal Revenue on or before January 31st after the close of each year. The business world preparers of the alphalist encounters several issues that occurs year after year without considering any possible solution. In this post we will learn about those common problems and issues, the causes, the risks associated for noncompliance, and few recommendations to prevent those issues recurring every year.
The preparation of alphalist is a team effort of the HR Department and the Accounting Department. In most cases, when HR policies failed to contribute efforts, tendency is to complicate the preparation of the alphalists that leads to the delayed distribution of Certificates of Withholding (2316). If the accounting/payroll department also failed to accurately imposed withholding of taxes against employees’ compensation, several adjustments and analysis will take place before the completion of 1604CF employee alphalists.
Common Issues at a Glimpse
In summary, the common issues are as follows which were also discussed in detail in the succeeding section:
- Employees do not have TIN
- Employees with previous employers cannot supply their certificate of withholding (2316) from previous employer
- Ineffective/Inefficient way to summarize payroll details of employees in an annual basis
- Annualization of taxes results to tax deficiencies and/or tax refunds
- Employees with tax deficiencies do not want to pay the additional tax dues
- Certificates of withholding is not distributed on time
- Tax refunds are not given to employees on time, or not at all
- Alphalist of employees do not match the total compensation declared in the Annual FS
- Problems recur every period without a targeted solution
Issues, Cause, Risks, Recommendations
| Issues | Possible cause | Risks/Effect in the Preparation | Recommended Solution/Best Practices |
| Employees do not have Tax Identification Numbers (TIN) | HR policy in the hiring process is not compliant with the rules of BIR | Encoding in the Alphalist system is not possible if employee has no TIN, thereby delaying the preparation of employee Alphalist. | Implement mandatory obligation of employers to register/update employee records with BIR within the employee’s first 10 days at the company.Employee without TIN
Employee with existing TIN
|
| Employees with previous employers cannot supply their certificate of withholding (2316) from previous employer | HR policy in the termination process does not service the rights of the outgoing employees. | Inability of the newly hired employees within the calendar year to provide the Certificates of Withholding (BIR form 2316) from their previous employers may lead to inaccurate computation of annualized tax. In the absence of the 2316 from previous employer, the tax computation would result to a tax refund which was incompletely/inaccurately computed. | Implement mandatory obligation of the employers to provide the certificates of withholding (BIR Form 2316) to the outgoing employee. In the best practices, when the employee obtained its departmental clearances, the issuance of the withholding tax certificate is made together with the acknowledgement of receipt of the following:
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| Hardships in summarizing payroll details of employees in an annual basis | The company is not maintaining a payroll database or failed to use a manual ledger for every employee in its current 201 file. | It may take a lot of time and effort to summarize 24 sets of payroll sheets per employee in a year plus other incentives and commissions received/given, thereby, leading to delays in the encoding to the BIR 5.1 System. | Employ a payroll solution that can satisfy the following criteria:
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| Annualization of taxes results to tax deficiencies and/or tax refunds | The company does not implement the tax annualization procedures before the year ends rather it computes the taxes after the year was actually ended. | Tax refunds are mostly understood by managers as expense of the company when in fact it’s a liability. Additional tax dues most likely require alphalist preparers to be creative in reducing the tax dues of the respective employees. If preparers misstated the details of the alphalist, there is a great possibility that any misstatement would lead to income tax exposure. | Annualization of taxes should be made on the months of November and December and any adjustments should be applied against these last two months of the year, NOT on January the following year. |
| Employees with tax deficiencies do not want to pay the additional tax dues | Inaccurate projection or calculation of per payroll period withholding taxes.Failure to withhold taxes on other taxable compensations such as incentives and commissions, and those that exceeded the respective thresholds of De Minimis Benefits. | The employees with tax deficiencies will most likely feel disappointed/surprised on the imposition of additional tax due. Such employee might raise issues within the organization and in order to please such erring employee, alphalist preparers would find a way to reduce its tax due and may not be aware of future tax consequences. | Withholding taxes on all taxable compensations and employee benefits must be imposed.Employees with tax deficiencies should still pay the rightful amount of tax liability to be fair with everyone in the organization. |
| Certificates of withholding is not distributed on time, or not at all distributed | All possible delays in the preparation of the Alphalist would lead to the none distribution of the Certificates of Withholding (BIR Form 2316)It may not be that important for the employer to distribute the certificates of withholding to the employees. Or the employer is not aware that he/she has certain responsibilities to its current employees and its outgoing employees. | Non-distribution of the Certificates of withholding on or before January 31 the following year will result to several employees requesting the same certificates.Non-distribution of the Certificates of Withholding to the outgoing employees will lead to a problem issue/ consolidation issue to the subsequent employers within the calendar year. | It is mandatory that all employees be provided with certificates of withholding on or before January 31 the following year.Implement strict compliance on the requirements of BIR with regards to employee certificates of withholding. |
| Tax refunds are not given to employees on time, or not at all | Inability of the management to comprehend the nature of refund.Inability of the accounting or HR department to annualize/ adjust its tax before the year ends.Employers may not be aware of its responsibility to release tax refunds. | Possible litigation filed by an employee at the Department of Labor and Employment. | Always release tax refunds on or before January 25 of the following year.Taxrefunds should also be given to outgoing employees/if not, a certificate of withholding with a proper amount of tax withheld should appear in the BIR form 2316. |
| Alphalist of employees do not match the total compensation declared in the Annual FS | There is an error in the alphalist or an error in the annual financialstatements.There is an intentional misstatement on the amounts in the alphalist and/or on the amounts of compensation expense stated in the Annual FS.The Annual FS was not audited and the company just had it certified with an accredited CPA.Failure to include other forms of compensation in the Alphalist. | Mismatch of employee alphalist between the FS would lead to possible disallowance of salaries and wages claimed as a deduction in the income tax return. | Do not misstate the Alphalist and the Salaries and wages in theFS.Have your FS audited by an independent auditor. |
| Problems recur every period without a targeted solution | Failure of the preparers to escalate these common issues to upper management/owners.Failure of management to seek resolutions to prevent such problems at year end.Overall ineffectiveness of HR policies and payroll solutions. | Preparers of the alphalist will face so much pressure in completing all the requirements of the Alphalist preparation. Employee may feel disappointed with all of their rights being violated or neglected. | The preparation of the employee alphalists is an inter-department effort and should not be bourne with the preparer alone. The harmony of goals towards effective preparation is a work of the Admin, HR, and Accounting Departments.Firstly, HR processes should handle the registration of employees with BIR. Secondly, accounting/payroll department should consider monthly withholding to be accurately computed based on the withholding tax tables and also impose taxes on other taxable compensations such as incentives. And Finally, annualization of taxes should be made on the months of November and December to adjust any possibility of tax deficiencies and refunds at year end.Corporate social responsibility with respect to its employees should be guarded and the right of the employees to receive Certificates of Withholding (annually or upon separation), Tax Refunds should be always given. |
To download the BIR Alphalist system 5.1, please follow this link:
http://www.bir.gov.ph/images/bir_files/downloadables/alphalist/alphalist_full_setup_v5.1.exe
To download the BIR 1604CF, please follow this link:
http://www.bir.gov.ph/birforms/form_pay.htm#1604CF
To download a printable format of the common issues, please follow this link:
