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Complete Guide to Payroll Processing in the Philippines

The Philippines is quickly becoming a go-to destination for companies looking to outsource or offshore their operations, and it’s easy to see why. With salary expectations significantly lower than in high-cost regions like Singapore—local Business Development Managers can earn about 70% less—it offers a cost-effective solution without sacrificing quality.

Additionally, the Philippines boasts the second-highest English proficiency in Asia, just behind Singapore, making it easier to do business with English-speaking countries.
Employer of Record (EOR)
Professional Employer Organization (PEO)

Employment Law

Payroll & Tax
Compensation & Benefits
Table of Contents
Payroll Calculation
Salary Structure
Payroll Set Up
Payroll Contributions

Payroll Cycle

How is Payroll Calculated in the Philippines?

Managing payroll in the Philippines comes with important responsibilities that every employer should know to stay compliant with local regulations. It's essential to follow the Labor Code and the Tax Reform for Acceleration and Inclusion (TRAIN) Act. This involves handling tax withholdings and making contributions to social security, health insurance, and the Home Development Mutual Fund (Pag-IBIG).

To kick things off, you'll need to register your business with the Bureau of Internal Revenue (BIR), Social Security System (SSS), PhilHealth, and Pag-IBIG. This registration is key to keeping your contributions in order and steering clear of any legal issues down the line.

For calculating salaries, the process is straightforward:
Net Salary = Gross Salary – Deductions
In the Philippines, the primary payroll deductions include:
  • Social Security System (SSS), which provides benefits for retirement and other social security needs;
  • Philippine Health Insurance Corporation (PhilHealth), which covers health insurance for employees;
  • Home Development Mutual Fund (Pag-IBIG), which helps employees save for housing.

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)

How to Set Up a Payroll in the Philippines?

To set up payroll in the Philippines, companies must follow these steps:
Company registration
To set up employee payroll in the Philippines, you need to register your company’s subsidiary with the Bureau of Internal Revenue (BIR). Once registration is complete, you’ll receive an Employer Identification Number (EIN), which is essential for payroll processing.
In addition to the BIR, you must also register with the following institutions for standard employee deductions:
  • Social Security System (SSS)
  • Philippine Health Insurance Corporation (PhilHealth)
  • Home Development Mutual Fund (Pag-IBIG)
Upon registration with each of these institutions, you'll receive a unique number for each, which you’ll use for processing employee contributions.
Design a payroll policy
When designing an HR payroll policy for the Philippines, carefully study the Philippine Labor Code and address the following elements:
  • Working Hours: Define standard working hours and any applicable shifts or flexible work arrangements.
  • Allowances: Specify any allowances provided, such as transportation, meal, or housing allowances, if applicable.
  • Leave Benefits: Outline leave entitlements including vacation leave, sick leave, maternity/paternity leave, and any other statutory or company-specific leave.
  • Overtime: Detail the calculation and payment of overtime, including rates for regular and holiday overtime.
  • Absences: Establish policies for managing absences, including notification procedures and consequences for unexcused absences.
  • Holidays: Define compensation for working on regular and special holidays, including applicable rates.
  • Salary Cycle: Set the frequency of salary payments (e.g., monthly, bi-weekly) and specify any relevant pay dates.
Ensure that the payroll policy is approved by the company’s senior management to prevent any future conflicts. Once approved, communicate the policy clearly to all employees so they are aware of their rights and benefits.
Decide on remuneration
When setting up payroll, determine employee remuneration for various positions within the company. Here’s how to approach this:
  1. Decide on Remuneration: Define the salary structure for different roles, taking into account the responsibilities, industry standards, and company budget. This should include base salary, allowances, and any other benefits.
  2. Calculate Gross Pay:
    • Base Salary: The core amount paid to the employee before any deductions.
    • Allowances and Benefits: Add any allowances (e.g., transportation, meal) and benefits (e.g., housing) to the base salary.
    • Gross Pay Formula
Gross Pay = Base Salary + Allowances + Benefits
  1. Determine Taxable Benefits:
    • Identify which components of the remuneration package are considered taxable under Philippine tax laws.
    • Include benefits such as performance bonuses, commissions, and other forms of additional compensation.
  1. Calculate Taxable Amounts:
    1. Gross Salary: Total salary before deductions.
    2. Taxable Benefits: Amounts that are subject to income tax.
    3. Taxable Gross Pay Formula:
Taxable Gross Pay = Gross Pay + Taxable Benefits
Decide payment cycle
Employers have the flexibility to adopt various payroll schedules, such as weekly, bimonthly, or monthly payments. To determine the right method for your company, consider the following:
  • Weekly Payments: Best suited for companies with hourly wage employees or industries where weekly compensation is standard (e.g., retail, hospitality). This method provides frequent cash flow for employees but may require more administrative work for payroll processing.
  • Bimonthly Payments (Twice a Month): Common in the Philippines, this method balances administrative ease and timely employee compensation. Employees typically receive payments on fixed dates, such as the 15th and 30th of each month.
  • Monthly Payments: Often used for salaried employees, especially in higher-level or corporate roles. This method reduces administrative work but requires careful cash flow management by employees since they receive payment only once a month.
Calculate deductions
Consider the statutory deductions required by the Philippine Labor Code, and factors in leaves, absences, holiday pay, and overtime to accurately compute salaries.
Payout and accounting
Make sure the main company account has enough funds to cover all employee salaries on payday, and maintain clear records of these transactions.
Maintain compliance record
The payroll process involves keeping accurate records, such as generating individual salaries for each employee. Additionally, ensure that tax deductions are properly filed with the relevant government agencies.

Payroll Contributions

To compute salaries while considering statutory deductions and other factors under the Philippine Labor Code, follow these steps:
  1. Determine Gross Salary: Calculate the total gross salary based on the employee’s base pay, allowances, and any other benefits.
  2. Calculate Statutory Deductions:
    • Social Security System (SSS): 14% of the monthly salary (split between employer and employee).
SSS Contribution = (Employee’s Monthly Salary) * 14%
Employer Share = SSS Contribution * 9.5%
Employee Share = SSS Contribution * 4%
    • PhilHealth: 5% of the monthly salary (2.5% by both employer and employee).
PhilHealth Contribution = (Employee’s Monthly Salary) * 5%
Employer Share = PhilHealth Contribution * 2.5%
Employee Share = PhilHealth Contribution * 2.5%
    • Pag-IBIG Fund: 2% of the monthly salary, capped at PHP 200 each for the employer and employee.
Pag-IBIG Contribution = (Employee’s Monthly Salary) * 2%
Employer Share = Min(Pag-IBIG Contribution, 100)
Employee Share = Min(Pag-IBIG Contribution, 100)
  1. Calculate Additional Pay Components:
    • Leaves: Deduct leave days according to the company's leave policy.
Leave Deduction = (Daily Rate) * Number of Leave Days
Daily Rate = (Monthly Salary) / 21.75
    • Absences: Deduct pay for unexcused absences.
Leave Deduction = (Daily Rate) * Number of Leave Days
Daily Rate = (Monthly Salary) / 21.75
    • Holiday Pay: Calculate based on the applicable holiday rates.
Holiday Pay = (200% of Daily Rate) * Number of Holidays Worked
Daily Rate = (Monthly Salary) / 21.75
    • Overtime Pay: Calculate based on overtime rates.
Regular Overtime Pay = (Hourly Rate) * 1.25 * Number of Overtime Hours
Holiday Overtime Pay = (Hourly Rate) * 1.30 * Number of Overtime Hours
Hourly Rate = (Monthly Salary) / 21.75 * Daily Work Hours)
Calculate Net Salary:
Net Salary = Gross Salary - (SSS Contribution + PhilHealth Contribution + Pag-IBIG Contribution + Leave Deductions + Absence Deductions) + (Holiday Pay + Overtime Pay)
The table below gives a simple breakdown of both employer and employee contributions to government-mandated benefits, helping you understand each party's responsibilities clearly:

Payroll Cycle

In the Philippines, payroll typically follows a monthly cycle, but many employers pay salaries every two weeks, ensuring intervals of no more than 16 days between payments. Additionally, the 13th-month pay is a mandatory bonus equivalent to one extra month of the employee’s regular salary, and it must be disbursed on or before December 24th each year.

Payroll Options for Companies in The Philippines

Remote: This option integrates the subsidiary’s payroll process with the parent company based elsewhere. While it simplifies operations, be aware that regulations for each remote employee may vary.
Internal: Ideal for large organizations based in the Philippines, this approach requires significant resources and a thorough understanding of the Philippine Labor Code, tax policies, and employment laws.
Local Payroll Processing: Outsourcing payroll to a local firm in the Philippines can streamline the process, but your company remains responsible for ensuring compliance with all regulations.
Fully Outsourcing: Partnering with a global PEO agency like Glints handles all aspects of payroll management, making the process hassle-free and ensuring full compliance with Philippine payroll regulations.

Entitlement and Termination Terms

Your Philippines payroll guide should clearly outline entitlement and termination terms, including leave policies, notice periods, and severance pay:
  • Probation Period: Employees undergo a six-month probationary period.
  • Working Hours: A standard workday is eight hours. Overtime work is compensated at 25% above the basic wage.
  • Service Incentive Leave: After completing 12 months of service, employees are entitled to five days of paid vacation.
  • Public Holidays: There are 18 public holidays in the Philippines each year.
  • Termination Process: Termination can be complex if based on just or authorized causes. Employers must provide a 30-day notice period before terminating an employee.

Philippines Payroll Processing Company

Expand into the Philippines with confidence. At Glints, our local experts provide the insights and experience you need to navigate payroll and compliance complexities. By combining human expertise with advanced technology, we support your workforce management, offer professional guidance, and ensure your operations remain compliant and efficient.

Philippine's Salary Ranges for Top Roles

Job Position
Avg Monthly Salary (USD)
*3-5 Years of Experiences
Tech Engineering
Software Engineer
$1,780
AI Engineer
$1,420
Business Development & Sales
Business Development Officer
$818
Sales Manager
$854
Product
Product Manager
$1,182
Data
Data Analyst
$818
Data Scientist
$1,318
Marketing & PR
Marketing Associate
$682
Marketing Manager
$1,065
Public Relations Manager
$818
Corporate Services
Human Resources Generalist
$682
Accountant
$682
Administrative Officer
$545
Job Position
Avg Monthly Salary (USD)
*3-5 Years of Experiences
Tech Engineering
Software Engineer
$1,780
AI Engineer
$1,420
Business Development & Sales
Business Development Officer
$818
Sales Manager
$854
Product
Product Manager
$1,182
Data
Data Analyst
$818
Data Scientist
$1,318
Marketing & PR
Marketing Associate
$682
Marketing Manager
$1,065
Public Relations Manager
$818
Corporate Services
Human Resources Generalist
$682
Accountant
$682
Administrative Officer
$545

How Glints Can Help You?

You can streamline your company’s payroll in the Philippines by outsourcing to Glints, your expert PEO solution. With our global payroll expertise in Southeast Asia, we have a deep understanding of local labor laws. We handle employee salary calculations and tax filing, ensuring smooth and efficient payroll management for your business.