Payroll in the Philippines: withholding tax, SSS, PhilHealth and Pag-IBIG

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Payroll in the Philippines combines withholding tax under the TRAIN law, three mandatory social contributions (SSS, PhilHealth and Pag-IBIG), premium pay for overtime, night shifts and holidays, and a mandatory 13th month pay each December. Most employers pay twice a month, which adds to the number of calculations. This guide explains each element with current rates, a worked example, the filing calendar and the mistakes that most often lead to penalties.

How a Philippine payroll run works

Most Philippine employers pay semi-monthly, for example on the 15th and the last day of the month, though monthly payroll is allowed. Each run calculates basic pay for the period, adds overtime, night differential, holiday and rest day premiums, deducts the employee's share of contributions and withholding tax, and pays net salary. Contributions and taxes are remitted monthly, and the employer files BIR returns and annual information returns.

Contributions are often deducted once a month or split across the two pay runs. Choose one approach and apply it consistently, so employees can understand their payslips.

Withholding tax on compensation

Employers withhold income tax on compensation using the graduated rates introduced by the TRAIN law. On annual taxable compensation:

• Up to PHP 250,000: 0%.
• Over PHP 250,000 to PHP 400,000: 15% of the excess over PHP 250,000.
• Over PHP 400,000 to PHP 800,000: PHP 22,500 plus 20% of the excess over PHP 400,000.
• Over PHP 800,000 to PHP 2,000,000: PHP 102,500 plus 25% of the excess over PHP 800,000.
• Over PHP 2,000,000 to PHP 8,000,000: PHP 402,500 plus 30% of the excess over PHP 2,000,000.
• Over PHP 8,000,000: PHP 2,202,500 plus 35% of the excess.

BIR provides withholding tables for daily, weekly, semi-monthly and monthly payrolls based on these rates. Employees' mandatory SSS, PhilHealth and Pag-IBIG contributions are excluded from taxable compensation.

Tax-exempt items

Several items are exempt from tax:

• Mandatory contributions of the employee to SSS, PhilHealth and Pag-IBIG.
• 13th month pay and other benefits up to PHP 90,000 a year in total.
• De minimis benefits within set limits, such as rice subsidies, uniform allowances, medical cash allowances and certain meal allowances.
• Holiday pay, overtime, night differential and hazard pay of minimum wage earners.

Minimum wage earners are exempt from income tax on their statutory minimum wage. Benefits above the exempt limits are added to taxable compensation.

SSS contributions

The Social Security System covers sickness, maternity, disability, retirement and death benefits. Contributions are based on the employee's monthly salary credit, which ranges from PHP 5,000 to PHP 35,000 under the current schedule. The total contribution rate is 15%, of which the employee pays 5% and the employer pays 10%. The employer also pays a small employees' compensation contribution.

Part of contributions above a certain salary credit goes to the mandatory provident fund (WISP). Use SSS's contribution table for exact amounts by salary range.

PhilHealth contributions

PhilHealth, the national health insurance programme, charges a premium of 5% of the employee's basic monthly salary, shared equally between employer and employee at 2.5% each. The salary used has a floor of PHP 10,000 and a ceiling of PHP 100,000, so the maximum monthly premium is PHP 5,000 in total.

Pag-IBIG contributions

The Home Development Mutual Fund (Pag-IBIG) provides savings and housing loans. Employees contribute 2% of monthly compensation and employers 2%, on compensation up to PHP 10,000 under current rules, giving a maximum of PHP 200 each per month. Employees earning PHP 1,500 or less contribute 1%. Employees may choose to contribute more voluntarily.

Worked example: PHP 40,000 a month

An employee earning PHP 40,000 a month in basic salary, paid monthly, with no other benefits:

• SSS employee share: 5% of the monthly salary credit (capped at PHP 35,000) = PHP 1,750.
• PhilHealth employee share: 2.5% of 40,000 = PHP 1,000.
• Pag-IBIG employee share: 2% of 10,000 = PHP 200.
• Taxable compensation: 40,000 − 1,750 − 1,000 − 200 = PHP 37,050 a month, or PHP 444,600 a year.
• Annual tax: 22,500 + 20% of (444,600 − 400,000) = 22,500 + 8,920 = PHP 31,420, about PHP 2,618 a month.
• Net pay: about 40,000 − 2,950 − 2,618 = PHP 34,432.

The employer additionally pays its SSS share (10% of the salary credit plus EC), PhilHealth 2.5% (PHP 1,000) and Pag-IBIG 2% (PHP 200). Check figures with the withholding tax calculator.

13th month pay

Rank-and-file employees who worked at least one month in the calendar year must receive 13th month pay of at least one twelfth of the basic salary they earned in the year, by 24 December. Basic salary for this purpose excludes overtime, holiday pay, night differentials and most allowances unless they are part of basic pay. Employees who leave during the year receive a pro-rated amount in their final pay.

The PHP 90,000 tax exemption covers 13th month pay plus other bonuses combined. Amounts above that are taxable, and many employers adjust December withholding to reflect the annual total.

Overtime, night differential and holiday pay

• Overtime: work beyond eight hours a day is paid at the regular rate plus at least 25% on ordinary days, and more on rest days and holidays.
• Night shift differential: at least 10% of the regular hourly rate for each hour between 10pm and 6am.
• Regular holidays: employees receive 100% of their daily wage even if they do not work; working on a regular holiday is paid at 200%.
• Special non-working days: no work, no pay unless company policy says otherwise; working is paid at 130%.
• Rest days: work on a rest day is paid at a premium of at least 30%.

These rules apply to rank-and-file employees. Managerial employees are generally excluded. Remote teams serving US clients often work nights, so night differential is a significant cost.

Filing and remittance calendar

• BIR Form 1601-C: monthly remittance return of income taxes withheld on compensation, filed and paid through eFPS or eBIRForms, generally by the 10th of the following month (later dates apply for eFPS filers by group).
• SSS, PhilHealth and Pag-IBIG: monthly contributions, with deadlines based on employer number or schedule, generally in the following month.
• BIR Form 1604-C: annual information return of income taxes withheld on compensation, with the alphalist of employees, due by 31 January.
• BIR Form 2316: certificate of compensation and tax withheld, given to each employee by 31 January.

Late filing and payment attract surcharges, interest and compromise penalties. Confirm current deadlines with each agency.

Annualisation and year-end adjustments

Because withholding is estimated each pay period, employers annualise each employee's compensation at year end, compare the tax due with the tax withheld, and adjust the final payroll in December, either withholding more or refunding excess. Employees with only one employer and correct withholding qualify for substituted filing, meaning they do not need to file their own annual return; Form 2316 serves as their return.

Final pay when employees leave

Final pay includes unpaid salary, pro-rated 13th month pay, cash conversion of unused service incentive leave where applicable, any separation pay due, and tax refunds or adjustments. DOLE guidance expects final pay to be released within 30 days of separation unless a more favourable policy or agreement applies. A certificate of employment must be issued on request, generally within three days.

Payroll software in the Philippines

Local payroll software handles semi-monthly calculations, premium pay, contribution tables, BIR forms and government remittance files. Compare options in our Philippines payroll software ranking and Philippines payroll software guide. For VAT calculations, see our Philippines VAT calculator.

If you employ in the Philippines from abroad without a local entity, an employer of record runs payroll; see how to hire employees in the Philippines and the EOR ranking.

Data privacy and payroll records

Payroll records contain sensitive personal information protected by the Data Privacy Act of 2012. Limit access, use secure systems, and keep records for the periods required by the BIR and labour rules, generally several years. Payslips should be delivered securely, for example through a password-protected portal rather than open email attachments.

Common mistakes

• Using outdated SSS salary credit tables after a scheduled rate increase.
• Calculating PhilHealth on a capped or outdated base.
• Including overtime and allowances in the 13th month base when they are not part of basic pay, or excluding them when they are.
• Taxing 13th month pay below the PHP 90,000 exemption.
• Missing night differential for late shifts.
• Late Form 2316 and alphalist submissions.

Registering as an employer

Before the first payroll, register with the BIR as a withholding agent and obtain an employer TIN, and register as an employer with SSS, PhilHealth and Pag-IBIG to get employer numbers. Each employee needs a TIN and SSS, PhilHealth and Pag-IBIG numbers, and must be reported to each agency when they join. Online portals now handle most registrations and remittances. If you are hiring your first employee in the Philippines, see how to hire employees in the Philippines for the employment law side.

Semi-monthly payroll in practice

With semi-monthly payroll, the monthly basic salary is split into two equal halves. Overtime and premiums for each half are paid in that half. Contributions can be deducted in full in one half, often the second, or split equally. Withholding tax uses the semi-monthly table on each half's taxable compensation. Employers should make sure that contributions deducted across the two halves add up to the correct monthly amount, and that tax on the two halves matches what a monthly calculation would give, adjusting in December through annualisation.

Example: night shift support agent

A support agent on a basic salary of PHP 30,000 a month works a night shift from 10pm to 7am with a one-hour break, five days a week. Eight of those hours fall between 10pm and 6am. The hourly rate is roughly the daily rate divided by eight, with the daily rate based on the employer's working days per year factor. The night differential adds at least 10% of the hourly rate for each night hour, which over a month adds roughly 8% to the basic salary in this pattern.

If the agent works on a regular holiday, the day is paid at 200%, and the night differential is calculated on that higher rate. These premiums are taxable for employees above minimum wage. Payroll software handles the multipliers automatically once schedules and holidays are set up, and the time zone meeting planner helps plan overlap with clients abroad.

Contributions for employees with multiple jobs

Employees with more than one employer at the same time contribute to SSS, PhilHealth and Pag-IBIG through each employer, subject to the agencies' rules on maximum contributions. For tax, the employee is not eligible for substituted filing and must file their own annual return. Each employer issues its own Form 2316. Ask new employees whether they have another employer, and note it in payroll records. For freelancers and contractors who are not employees, see contractor misclassification.

Questions