Derek Gallimore talks with Patrick Gentry, co-founder and CEO of Sprout Solutions.
Sprout Solutions is the Philippines’ leading human resources information system (HRIS) and software solutions provider for other businesses’ HR needs.
The company’s HR platform has helped revolutionize people management in the country and contributed to the overall improvement of the future of work.
In this episode, Derek and Patrick discuss the complexities associated with payroll and payroll compliance in the Philippines.
Their discussion highlights the development in the Philippines regarding payroll management, and how the emerging Web3 could potentially affect it.
Climbing over the wall of bureaucracy
There are a couple of factors that complicate the payroll management system in the Philippines.
As Patrick explained, “there are two main sides on the payroll side. The big thing is government compliance.”
“There are six different government agencies that have something to do with payroll compliance.”
Naturally, this creates a daunting wall of bureaucratic processes for businesses. In particular, small business owners will have a hard time climbing over this wall.
These agencies have “tedious government reporting requirements due to all six of these agencies, [and] four tax agencies require regular reporting.”
Patrick’s company is a godsend to businesses in this regard.
“With Sprout, we automate over 20 different government reports that are due to these six agencies, [and again to] those four agencies every time a company processes payroll.”
And this is just the compliance side, there’s another factor that greatly complicates the whole payroll process.
The time and attendance factor
A Filipino worker’s salary is calculated per hour.
From director-level to rank-and-file employees, the daily clocking in and out determines their payrolls.
This is further compounded by the fact that employees may render under or overtime, and that their rates are affected by holidays.
Patrick gave a succinct example of how complicated it gets.
“There are 32 different overtime classifications [and] the time an employee works may fall into one of [these] based on time of day or night or weekend or holiday.”
There are also employees “whose shifts cross the date and [the next day] may be a holiday… and their payroll rate has to change partway through the shift and then they file overtime and it changes again.”
Patrick acknowledges that “the government has done a lot of things on the surface to try and fix … general government services.”
However, “their focus has been more around company kind of corporate-level stuff, like incorporating a new business [or] having corporate documents” and Patrick hasn’t “seen a lot [of development] in the payroll space.”
On the contrary, “[the government] seems busy as ever … changing tax rates and government compliance forms and these kinds of things … make it quite complicated for employers to be government-compliant.”
Patrick also noted the online portals of tax agencies and commented that while “these online portals tend to be very tedious … there is absolutely intent [to reduce the red tape and complexity].”
Outsourcing vs. Freelance: Payroll differences
Still on the subject of payroll, Derek brought up the topic of freelancers and how they’re faring without standardized payroll systems.
Patrick looks at these freelancers as “short-term gains, long-term loss” type of employees.
As these freelancers aren’t working for government-compliant employers, the pay they’re getting – mostly through Paypal – isn’t reduced by government dues, such as social security and healthcare contributions.
As such, their take-home pays may be substantially higher than their non-freelancer counterparts.
However, they’re also “getting no benefits and very little support versus [employees working for] companies who are doing things properly.”
Web3 and the future of payroll
Patrick also mentioned the possibility of Web3 and blockchain technology playing a part in future payroll systems.
He mentions that “a couple of startups [in the US] are playing with the [earn to work] concept.”
In this blockchain-based setup, a worker can “log in and earn [his] salary in real-time, like the money is in [his] wallet, in [his] bank. Like every 15 seconds, you get paid.”
Patrick sees that “the idea of working and getting paid every two weeks or once a month is absolutely a dated concept that is going away” and that “real-time earning is coming 100%.”