How to hire employees in the Philippines: contracts, 13th month pay and contributions

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To hire employees in the Philippines you need a contract that respects the Labor Code's rules on probation and regularization, registration with the BIR, SSS, PhilHealth and Pag-IBIG, monthly withholding tax and contributions, and a mandatory 13th month pay each December. Foreign companies can employ through a local entity or an employer of record. This guide explains the options, contracts, payroll, benefits, leave, termination and costs, with current rates and sources.

Why companies hire in the Philippines

The Philippines has a large, English-speaking workforce with deep experience in customer support, virtual assistance, finance and accounting operations, design and software development. Its business process outsourcing industry is one of the largest in the world, and many companies hire Filipino professionals for remote roles serving the US, Australia, Europe and Asia.

Employment is governed mainly by the Labor Code and Department of Labor and Employment (DOLE) rules, with tax administered by the Bureau of Internal Revenue (BIR) and social contributions through three agencies. The rules give employees strong security of tenure once they become regular employees, which shapes how you hire.

Your options

• Set up a Philippine entity, such as a domestic corporation or branch, and run local payroll. Foreign ownership rules apply in some sectors.
• Use an employer of record, which employs the person through its Philippine entity. See what an employer of record is.
• Engage independent contractors, very common for virtual assistants and freelancers. Appropriate only where the person genuinely controls their work. See contractor misclassification.

Contracts, probation and regularization

Employment contracts should set out the position, duties, pay, working hours, benefits, probation terms and the standards the employee must meet to become regular. Under the Labor Code, probationary employment generally cannot exceed six months. Crucially, the employer must tell the employee the reasonable standards for regularization at the time of hiring.

An employee who continues working after the probation period becomes a regular employee, with security of tenure: they can only be dismissed for just or authorised causes under the law, following due process. Track probation end dates carefully and complete evaluations before they pass.

Working hours, overtime and premiums

Normal hours are eight per day. Work beyond eight hours is overtime and must be paid with a premium. Work between 10pm and 6am attracts a night shift differential of at least 10% of the regular wage, which matters for teams serving US time zones. Work on rest days and holidays carries additional premiums under DOLE rules. Managerial employees are excluded from some of these provisions.

Many remote roles for overseas clients involve night shifts, so build these premiums into your cost estimates.

13th month pay

Under Presidential Decree No. 851, rank-and-file employees who have worked at least one month in the year are entitled to 13th month pay of at least one twelfth of their total basic salary earned in the calendar year. It must be paid no later than 24 December, and some employers split it into two payments.

13th month pay and other benefits are exempt from income tax up to PHP 90,000 a year in total. Budget for it as an extra month of basic pay each year.

Leave entitlements

• Service incentive leave: at least five days of paid leave a year for employees with at least one year of service, convertible to cash if unused, in many cases.
• Maternity leave: 105 days with full pay under the Expanded Maternity Leave Law, with options for extension and allocation of some days to the father or another caregiver.
• Paternity leave: seven days with full pay for married fathers, for the first four deliveries.
• Solo parent leave and other special leaves under specific laws.
• Regular holidays and special non-working days as proclaimed each year, with pay rules for each type.

Many employers offer more paid leave, such as 10 to 15 days of vacation and sick leave, to compete for talent.

Minimum wage

Minimum wages are set by regional wage boards and differ by region and sector. Metro Manila has the highest rates. Professional remote roles usually pay above minimum, but check the current wage order for the employee's region, especially for entry-level support roles.

Registering as an employer

If you employ through your own entity, register with:

• The BIR as a withholding agent for compensation tax.
• The Social Security System (SSS).
• PhilHealth, the national health insurance programme.
• The Home Development Mutual Fund (Pag-IBIG).
• DOLE, where required for your establishment.

Employees need a Tax Identification Number and SSS, PhilHealth and Pag-IBIG numbers. An EOR handles these registrations.

Withholding tax on compensation

Employers withhold income tax monthly using the graduated rates under the TRAIN law. On annual taxable income, the current schedule is: nil up to PHP 250,000; 15% of the excess over PHP 250,000 up to PHP 400,000; PHP 22,500 plus 20% of the excess over PHP 400,000 up to PHP 800,000; PHP 102,500 plus 25% up to PHP 2 million; PHP 402,500 plus 30% up to PHP 8 million; and PHP 2,202,500 plus 35% above that.

Mandatory employee contributions to SSS, PhilHealth and Pag-IBIG are deducted before tax. At year end, the employer issues BIR Form 2316. Our Philippines withholding tax calculator works through the steps, and payroll in the Philippines covers the full process.

SSS, PhilHealth and Pag-IBIG

• SSS: total contributions are a percentage of the employee's monthly salary credit, which ranges from PHP 5,000 to PHP 35,000. The employee pays 5% and the employer pays the larger share, plus a small employees' compensation contribution.
• PhilHealth: 5% of basic monthly salary, shared equally (2.5% each), with a floor of PHP 10,000 and a ceiling of PHP 100,000.
• Pag-IBIG: 2% from the employee and 2% from the employer, on monthly compensation up to PHP 10,000 under current rules.

Rates and ceilings are adjusted from time to time under each agency's schedule. Contributions are remitted monthly.

What an employee costs

On top of basic salary, employer costs include the employer's SSS, PhilHealth and Pag-IBIG shares, 13th month pay (an extra month of basic pay), night shift differentials and overtime where relevant, and any HMO health plan, which is very common and expected for professional roles. Through an EOR, add the provider's fee.

Use the EOR cost calculator and compare providers in the EOR ranking. Current entry prices: Deel From USD 599 per employee per month, Remote From USD 699 per employee per month, Multiplier From USD 499 per employee per month (monthly contract).

Running payroll

Payroll in the Philippines is often semi-monthly (twice a month), though monthly payroll is also used. Each run calculates basic pay, overtime and premiums, deducts contributions and withholding tax, and pays net salaries. Employers remit contributions and taxes monthly, file BIR returns, and prepare annual alphalists and Form 2316.

Local payroll software automates these steps. Compare options in our Philippines payroll software ranking and Philippines payroll software guide.

Ending employment: just and authorised causes

Regular employees can only be dismissed for causes set out in the Labor Code:

• Just causes, related to the employee's conduct, such as serious misconduct, wilful disobedience, gross and habitual neglect of duties, fraud or breach of trust.
• Authorised causes, related to business needs or health, such as redundancy, retrenchment to prevent losses, closure, or disease. These usually require separation pay and notice to the employee and DOLE.

For just causes, the employer must follow the twin-notice rule: a first written notice stating the charges and giving the employee a chance to respond, a hearing or conference, and a second written notice of the decision. Skipping due process can make a dismissal unlawful even when the cause is valid.

Data protection

The Data Privacy Act of 2012 governs personal data in the Philippines, overseen by the National Privacy Commission. Employers must process employee data lawfully, keep it secure, and respect employees' rights. Organisations processing larger volumes of sensitive data may need to register data processing systems and appoint a data protection officer.

Contractors and virtual assistants

Many companies engage Filipino virtual assistants as independent contractors through freelance platforms. This can be appropriate for genuinely independent workers who set their own schedule, serve several clients and use their own tools. A full-time assistant working fixed hours under your direction for a long period looks much more like an employee. If that describes your arrangement, consider moving them to an EOR. See international contractor agreements and the contractor payroll ranking.

Hiring checklist

1. Decide on EOR, entity or genuine contractor.
2. Agree salary, benefits, schedule and any night shift.
3. Issue a contract stating regularization standards.
4. Collect TIN, SSS, PhilHealth and Pag-IBIG numbers and bank details.
5. Set up payroll with withholding tax and contributions.
6. Evaluate performance before probation ends.
7. Pay 13th month pay by 24 December.
8. Follow due process for any dismissal.

Common mistakes

• Not telling employees the regularization standards at hiring.
• Letting probation lapse without evaluation, so employees become regular by default.
• Forgetting night shift differentials for US-hours roles.
• Leaving 13th month pay out of the budget.
• Dismissing without the twin-notice process.
• Long-term full-time "contractors" who are really employees.

Example: a monthly cost estimate for a support role

Consider a customer support specialist on a basic salary of PHP 40,000 a month working night shifts for a US client. The employer's monthly cost includes the basic salary; a night shift differential of at least 10% for hours between 10pm and 6am; the employer's SSS share on the monthly salary credit; the employer's 2.5% PhilHealth share; the employer's Pag-IBIG share; and a provision for 13th month pay of one twelfth of basic salary. Add an HMO plan, which most candidates expect, and any internet or equipment allowance.

On the employee's side, their own SSS, PhilHealth and Pag-IBIG contributions and withholding tax are deducted from gross pay. Run the tax part through the withholding tax calculator, and use the EOR cost calculator for the full employer view.

Benefits Filipino candidates expect

An HMO health plan is the benefit candidates ask about most, often with the option to add dependants. Other common items are paid vacation and sick leave beyond the legal minimum, rice or meal subsidies (which can be tax-efficient within set limits as de minimis benefits), internet allowances for remote work, performance bonuses, and equipment. For night shift roles, transport allowances are common for office-based staff. Matching these norms matters more than a small salary difference when competing for experienced people.

Remote work and equipment

Many Philippine hires work remotely. Agree in writing who provides the laptop, headset and backup internet, and how equipment is returned when employment ends. Power and internet interruptions happen in some areas, so many employers pay for a backup connection or a portable power station for critical roles. Remote employees are still covered by the Labor Code, including working hours, overtime and night shift rules, so track hours properly. Time-zone tools such as our time zone meeting planner help schedule overlap without pushing people into extra night hours.

Questions