The essential guide to payroll in the Philippines
Are you setting up new international operations? Here’s what you need to know about payroll in the Philippines. Learn more in our ultimate guide.
Table of Contents
Table of Contents
While the Philippines is still considered an emerging market, it enjoys a strong and stable economy with low-interest rates, a focus on growing industries such as manufacturing and agribusiness, and a young and educated workforce. This has helped it become one of the fastest-growing economies in Asia. Many foreign business owners are attracted to expansion within the Philippines due to incentives such as tax deductions and exemptions, and permanent resident status for foreign investors.
Whether you’re considering setting up payroll operations in the Philippines, or you’re joining an established team there, you’ll need to be across the basics of payroll compliance. Here’s what you need to know.
Tax
Personal income tax in the Philippines ranges from 0% to 35% and depends on the pay frequency. In 2018, the Bureau of Internal Revenue Tax Regulation implemented the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which aims to simplify the withholding tax table and method of calculating withholding tax on compensation. Those earning an annual income of less than PHP 250,000 are exempted from paying income tax, while those earning between PHP 250,000 and PHP 400,000 are taxed at 15%. The computation changes slightly once an individual is earning an annual income of more than PHP 400,000, where they are deducted with a fixed amount plus a percentage of anything in excess of the minimum range in the tax table. For example, an annual income of over PHP 400,000 but less than PHP 800,000 would incur a fixed rate of PHP 22,500, plus 20% of the excess over PHP 400,000.
Non-resident employees are taxed at a flat rate of 25%, however, there are exceptions where the nature of their income differs.
Some non-taxable allowances are often factored into a worker’s salary package. These may include a medical allowance, uniform allowance, or meal allowance. There are limits set by the Bureau of Internal Revenue, also known as de minimis benefits, on the taxability of certain allowances.
Social Security
In the Philippines, the Social Security System is in place to provide benefits to workers who are unable to work temporarily or permanently. Both employees and employers make contributions to the fund, and the contribution amount is dependent on the individual’s salary. Contributions are capped once total compensation reaches PHP 30,000.
Each month, 4% of a worker’s salary is deducted so it can be contributed to PhilHealth, the country’s health insurance program.
Home Development Mutual Fund also exists in the Philippines, commonly known as the Pag-IBIG fund. Each month, PHP 100 is deducted from each worker’s salary to contribute to its efforts.
Leave
If an employee arrives late to work or leaves early, their employer is entitled to deduct this time from their salary. This is usually specified in the company’s leave policy.
Employees who have paid at least three months of Social Security contributions are entitled to 120 days of leave under Sickness Benefit. The benefit is for one calendar year at a rate of 90% of their usual daily salary. The contributions to Social Security must have been paid in the twelve months prior to taking the leave, and the employee must notify Social Security of the fact of sickness or injury.
Eligible female employees are entitled to 105 days of maternity leave with full pay, with an option to extend for another 30 days without pay. Men seeking paternity leave must be legally married to the mother of the child. They are entitled to 14 days of paid leave, which must be taken within 60 days of the birth or miscarriage. Alternatively, a female worker entitled to maternity leave benefits may, if she chooses, allocate up to seven days of benefits to the child’s father, whether they are married.
Paid parental leave for single parents and domestic violence leave for women who meet the eligibility criteria are also available in the Philippines.
Reporting and compliance
Employers are obligated to withhold tax from their employee’s salaries. Tax must then be paid to the authorities by the 10th day of the following month, except for December’s tax, which can be paid by the 15th of January.
Other things to note
In the Philippines, the rate of pay increases when work is performed between 10:00 p.m. and 6:00 a.m. the following day. The increase must be at least 10% more than the average rate of pay. There are some exceptions to the types of workers eligible for this rate increase, such as government workers.
There is no national fixed minimum wage in the Philippines. The minimum rate of pay varies from region to region and also depends on the industry in which the work is done.
Overtime must be paid for working more than eight hours per day. The minimum amount of overtime that should be paid is 125% of the worker’s usual rate of pay. This rate may increase further if the overtime occurs on a public holiday, a rest day, or during a night shift.
Retirement pay is to be made to employees over the age of 60 who have been with the same organisation for at least five years before retirement. The minimum requirement is half a month's salary for every year of service. Retirement pay is tax-exempt.
There is a “double holiday” in the Philippines, where two public holidays fall on one day. In this instance, workers are entitled to double their usual holiday rate. Employees who work overtime or a night shift on a double holiday will also be entitled to additional pay on top of the double holiday rate.
A concept referred to as “13-month pay” is also found in the Philippines. By 24th December each year, employees who have worked at their organisation for at least one month are to be paid an amount of 1/12th their usual yearly salary. This is essentially a bonus, which is non-taxable for amounts under PHP 90,000.
Of course, these are just the basics of payroll compliance in the Philippines. As with any country's payroll, there are a lot more complexities you’ll need to be across.
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