Important Elements of Salary Structure in The Philippines
To ensure you calculate your employees' payroll accurately, it's important to consider the key elements of the salary structure. These elements play a crucial role in determining how much your team members take home each month.
Basic Salary
Fixed regular pay is the basic salary that an employee receives, excluding any allowances or bonuses. As an employer, it's important to ensure that this base salary meets or exceeds the minimum wage for your region, as required by local labor laws.
Minimum Wage
In the Philippines, the minimum wage varies depending on the region. As of 2024, for instance, Metro Manila (NCR) has a daily minimum wage of about PHP 645 for non-agricultural workers, while those in agriculture, service, or retail sectors earn around PHP 608.
Other regions have different rates; for example, in the ARMM – Mindanao Region, the minimum wage ranges from PHP 341 to PHP 361, and in Cagayan Valley, non-agricultural workers earn about PHP 450. These regional variations reflect different economic conditions and cost of living standards across the Philippines.
Allowance
While the Labor Code doesn’t require companies to provide allowances, many choose to offer extra benefits like transportation, meal, or housing allowances. In some areas, a Cost of Living Allowance (COLA) is also included to help minimum wage workers cover their living expenses.
These allowances can really enhance overall compensation packages and play a significant role in improving employee well-being.
Cost of living allowance (COLA)
The Cost of Living Allowance (COLA) in the Philippines is an additional compensation mandated by regional wage boards to help minimum wage earners manage the rising cost of living.
The rates of COLA, along with the minimum wage, are tailored to each region to accommodate the varying costs of living and economic conditions found throughout the country. For instance, in Metro Manila, the daily minimum wage was adjusted in 2022 to between PHP 533 and PHP 570.
COLA is integrated into the daily wage and is mandatory for all employers with minimum wage earners. This allowance is periodically reviewed and adjusted to reflect local economic conditions. Compliance with the set COLA rates is essential for employers to adhere to labor laws and support their employees effectively.
Overtime
In the private sector, all employees—excluding domestic workers and those paid by results—are entitled to overtime pay for hours worked beyond the standard eight-hour workday.- Regular Overtime: 25% of the hourly rate for work performed on a regular workday.
- Holiday Overtime: 30% of the hourly rate for work done on a holiday.
Holiday pay
Under the Philippine Labor Code, employees who work on a regular holiday are entitled to holiday pay, which is 200% of their regular daily salary for that day. This compensates them for working during the holiday. Additionally, for employees who work on a special non-working holiday, they are entitled to an additional 30% of their regular daily rate. This special holiday pay ensures workers are fairly compensated for their time on these occasions .
Social security system (SSS)
The Social Security System (SSS) is a government-mandated program that provides benefits to private-sector employees for sickness, disability, and maternity, and serves as a state-run pension fund for lifetime SSS members. Both employers and employees contribute to the SSS fund.
The contribution rates vary based on the salary scale, with the revised rate set at 12% of the monthly salary, up to a maximum of PHP 20,000. This is divided into:- Employer Share: 8%
- Employee Share: 4%
Philippine health insurance corporation
Commonly known as PhilHealth, this affordable health insurance program covers all employees. A total of 3% of the employee’s monthly salary is contributed towards PhilHealth, with each the employer and employee contributing 1.75% each.
Home development mutual fund (Pag-IBIG)
The Home Development Mutual Fund (Pag-IBIG Fund) is a national program designed to provide affordable housing loans for employees in the Philippines. Contribution rates are based on salary, with a maximum monthly contribution cap of PHP 100 each for both the employer and employee.- Employer Share: 2% of the employee’s monthly salary
- Employee Share: 2% of the employee’s monthly salary (applicable if the gross monthly salary exceeds PHP 1,500)