Paying accurately and on time is essential to attract and retain employees. If you’re hiring employees abroad, each country has its own payroll laws and compliance requirements. Payroll in the Philippines will differ from payroll in your home country, and even the smallest differences are important to get right.

For example, in the Philippines, payroll must run semi-monthly, typically on the 15th and last working day of the month. Working with Payoneer Workforce Management in the Philippines offers a way to gain local insight and help your organization stay compliant with payroll laws.

Payroll system in the Philippines: wages and other payments

Here are the basics of when and how to pay employees in the Philippines.

Payroll cycle

In the Philippines, payroll is typically processed semi-monthly, on the 15th and last working day of the month. Some companies may choose to pay employees weekly, which is permitted by law.

The Labor Code of the Philippines mandates that:

• Salary must be paid by legal tender (no vouchers, coupons, tokens, or other substitutions).
• Payments must be made in intervals that do not exceed 16 days.
• An employer may choose which days of the month to run payroll, as long as the gap between payments is 16 days or less.

Minimum wage

The legal minimum wage in the Philippines varies by region.

In the Philippines, the daily minimum wage is determined by the employer’s location, not the employee’s, and varies based on the region and the type of work.

Non-agricultural workers have a daily minimum wage ranging from PHP 316 to PHP 695. 

For retail and service establishments with fewer than 10 employees, the daily minimum wage ranges from PHP 410 to PHP 515. 

These rates are subject to change according to wage orders issued by the Department of Labor and Employment (DOLE), and employers must consult the latest DOLE circulars for region-specific updates.

Cost of living allowance (COLA)

Employees receiving the legal minimum wage are also legally entitled to a cost-of-living allowance (COLA). COLA is intended to help workers on lower wages offset their living expenses (food, housing, clothing, etc).

COLA payments are based on economic conditions and the Consumer Price Index (CPI). 

Overtime pay

Employers must provide overtime pay to workers who are asked to exceed their core working hours (8 hours a day). Overtime pay is calculated as 125% of an employee’s daily wage on a normal working day and 130% on rest days or holidays.

13th-month salary payments

In the Philippines, payroll law mandates 13th-month salary bonus payments. All employees are entitled to 13th-month pay, whether they are employed full-time or still working out their probation. 

13-month pay is paid on or before December 24th each year and is typically the value of one month’s pay. 

Sick pay

Where Filipino law is strict on payroll cycles, it’s less particular on sick pay requirements. Employers are not legally obliged to offer sick pay to employees in the Philippines. If an employee is ill, they’d need to use their Service Incentive Leave (SIL), which is 5 days, after completing one year at the organization. 

That said, many employers offer 12 to 15 days of sick pay to avoid presenteeism or putting the health of other employees at risk.

Maternity pay

New or soon-to-be mothers can take up to 105 days of paid maternity leave in the Philippines. This is initially paid for by the employer, who can then claim reimbursement from the Social Security System (SSS).

Eligibility for maternity pay is based on sufficient SSS contributions, not tenure with the employer. There is no legal requirement for one year of service or continuous employment to qualify.

Severance packages

The Labor Code of the Philippines dictates that an employee’s contract cannot be terminated without just cause, and severance pay is mandatory under certain conditions.

For example, Article 283 of the Labor Code of the Philippines states that employees terminated due to the installation of labor-saving devices or redundancy are entitled to at least 1 month’s severance pay or 1 month’s pay for every year of service, whichever is higher.

Payroll deductions in the Philippines

Taxes and other deductions are a key part of the payroll process in the Philippines. Here’s what you need to know to stay compliant.

Income tax

Income tax in the Philippines depends on an employee’s salary. It can also vary depending on their nationality (Filipino or non-Filipino) and their residential status in the country.

Non-resident aliens (international workers) are taxed at a flat rate of 25% on the income they earn from sources within the Philippines. 

Resident aliens are taxed according to the same tax brackets as domestic workers:

Income	Tax rate
PHP 0 to 250,000	0%
PHP 250,001 to 400,000	15%
PHP 400,001 to 800,000	20%
PHP 800,001 to 2,000,000	25%
PHP 2,000,001 to 8,000,000	30%
PHP 8,000,000+	35%

It is the employer’s responsibility to deduct income tax from an employee’s take-home pay. The appropriate amount must be paid to the Bureau of Internal Revenue (BIR) by the 10th of the following month.

Social Security System (SSS) contributions

The SSS fund pays out to help cover an employee’s parental leave and pension. It can also be used to support workers in the event of sickness or disability, or a worker’s family in the unlikely event of a work-related death.

SSS contributions are based on salary brackets; the combined rate is approximately 14%, with employer contributions capped at PHP 3,530 and employee contributions capped at PHP 1,750 per month.

Philippine Health Insurance Corporation (PhilHealth) Contributions

PhilHealth is the health insurance system of the Philippines. Employers and employees split a total contribution of 5% of the employee’s wage.

If an employee earns less than PHP 10,000 ($178) per month, they must make payments as if they were earning PHP 10,000 per month. If an employee earns more than PHP 100,000 ($1,775) per month, they must only make payments as if their monthly wage were PHP 100,000.

Home Development Mutual Fund (Pag-IBIG)

The Home Development Mutual Fund, also known as Pag-IBIG, is a government-guaranteed savings fund to help employees finance new homes. Employers contribute 2% of a worker’s wage, while employees contribute 1% on salaries lower than PHP 1,500 ($27) per month and 2% on salaries over this amount. 

Philippines payroll compliance best practices

To stay compliant with the legal requirements of payroll in the Philippines, companies should:

• Keep up to date with tax law changes, labor laws, and statutory requirements
• Conduct occasional payroll audits to identify and resolve errors promptly
• Provide ongoing payroll training to staff
• Or, use a global payroll provider (like Payoneer Workforce Management) to help manage everything easily and compliantly

How to pay employees in the Philippines

In the Philippines, payroll can be established and processed via three main channels:

• Via a local legal entity: Your organization registers and opens an office in the Philippines. It’s not possible to hire local workers (Filipino or non-Filipino) without a local legal entity, but this can be a time-consuming and expensive process for international businesses.  
• Hire contractors: You don’t necessarily need to have a local legal entity to hire and pay contract workers. There are still numerous labor laws to comply with, and misclassifying employees as contractors can result in severe penalties.
• By partnering with a workforce management platform: A workforce management platform is a third-party organization that helps hire and pay employees in countries across the world, even if your business is based elsewhere. Managing payroll compliance is essential, and a platform like Payoneer Workforce Management can support with the responsibility of setting up and running payroll for a global team.

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FAQs

1) How is payroll calculated in the Philippines?

In the Philippines, payroll is calculated as gross pay – deductions = net pay. 

In terms of payroll deductions, the Philippines requires employers to withhold amounts to cover income tax, Social Security System contributions (including pension, maternity pay, and sickness benefits), health insurance, and the government-backed affordable housing fund (HDMF, also known as Pag-IBIG).

2) How to pay an employee in the Philippines?

To pay employees in the Philippines, you can initiate direct bank transfers, leverage global payment platforms, or partner with a workforce management platform, like Payoneer Workforce Management, to get support for compliant payroll, along with onboarding, benefits, taxes, compliance, and more.

3) How often do Filipinos get paid?

Payroll in the Philippines must run at least twice a month, typically on the 15th and last working day. Employers cannot pay less frequently than semi-monthly.