CLEMENTE AQUINO & CO., CPAS
Gf Insular Life Bldg., Abanao Ext. cor. Legarda Rd.
Baguio City 2600
Telefax: (074) 244-0806
TIN: 437-085-416-000
AUDIT AND ASSURANCE. BPO. CONSULTING.
COMMON PROBLEMS ON THE PREPARATION OF EMPLOYEE ALPHALISTS (BIR FORM 1604CF ATTACHMENTS)
ISSUES
POSSIBLE CAUSE
RISKS/EFFECT IN THE PREPARATION
RECOMMENDED SOLUTION/BEST PRACTICES
Employees do not have Tax
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.
Identification Numbers (TIN)
Employee without TIN
o
File and submit BIR Form 1902
(Application for Registration)
Employee with existing TIN
o
o
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.
File and submit BIR Form 2305
(Certificate of Update of Exemption
and of Employer’s and Employee’s
Information)
In case Home RDO of employee is
different from the Home RDO of the
company, File and submit BIR Form
1905 (Application for Registration
Information Update)
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:
o Certificate of Employment
o Acknowledgement Receipt of Final
Pay/Separation Pay
ISSUES
POSSIBLE CAUSE
RISKS/EFFECT IN THE PREPARATION
RECOMMENDED SOLUTION/BEST PRACTICES
Hardships in summarizing
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 3.4
System.
Employ a payroll solution that can satisfy the
following criteria:
o Ability to summarize the yearly
payroll details of each employees
o Ability to generate reports to MS
Excel database for analysis
o Ability to generate the complete
database of each payroll with each
year
o Ability to summarize in details yearto-date employee’s Basic Pay, Cola,
OT, Holiday, NSD, Premiums,
Incentives, Commissions, Deminimis
benefits, Mandatory contributions,
Withholding taxes, and Net Pay
o Ability to maintain a Human Resource
Information that can be generated
on-the-fly when needed
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.
payroll details of employees in
an annual basis
Annualization of taxes results
to tax deficiencies and/or tax
refunds
Clemente Aquino & Co., CPAs
Strictly Confidential.
ISSUES
POSSIBLE CAUSE
RISKS/EFFECT IN THE PREPARATION
RECOMMENDED SOLUTION/BEST PRACTICES
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.
All possible delays in the
preparation of the Alphalist
would lead to the none
distribution of the Certificates
of Withholding (BIR Form
2316)
Non-distribution of the
Certificates of withholding on
or before January 31 the
following year will result to
several employees requesting
the same certificates.
It is mandatory that all employees be
provided with certificates of withholding on
or before January 31 the following year.
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 to
the outgoing employees will
lead to a problem issue/
consolidation issue to the
subsequent employers within
the calendar year.
Employees with tax deficiencies Inaccurate projection or
calculation of per payroll
do not want to pay the
period withholding taxes.
additional tax dues
Failure to withhold taxes on
other taxable compensations
such as incentives and
commissions, and those that
exceeded the respective
thresholds of De Minimis
Benefits.
Certificates of withholding is
not distributed on time, or not
at all distributed
Clemente Aquino & Co., CPAs
Strictly Confidential.
Employees with tax deficiencies should still
pay the rightful amount of tax liability to be
fair with everyone in the organization.
Implement strict compliance on the
requirements of BIR with regards to employee
certificates of withholding.
ISSUES
POSSIBLE CAUSE
RISKS/EFFECT IN THE PREPARATION
RECOMMENDED SOLUTION/BEST PRACTICES
Tax refunds are not given to
Inability of the management to
comprehend the nature of
refund.
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.
employees on time, or not at
all
Tax refunds 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.
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.
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 financial statements.
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.
Clemente Aquino & Co., CPAs
Strictly Confidential.
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 the FS.
Have your FS audited by an independent
auditor.
ISSUES
POSSIBLE CAUSE
RISKS/EFFECT IN THE PREPARATION
RECOMMENDED SOLUTION/BEST PRACTICES
Problems recur every period
Failure of the preparers to
escalate these common issues
to upper management/owners.
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.
without a targeted solution
Failure of management to seek
resolutions to prevent such
problems at year end.
Overall ineffectiveness of HR
policies and payroll solutions.
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.
Clemente Aquino & Co., CPAs
Strictly Confidential.