You’ve got your eye on the Philippines. Smart move—it’s sitting in Asia’s fastest-growing region, packed with English-speaking talent, and ready for businesses like yours to tap into.
But hiring in the Philippines means navigating a payroll and tax system that’s... let’s call it “particular.” Get it right, and you’re accessing incredible talent without the headaches. Get it wrong, and you’re looking at penalties that’ll make your finance team very unhappy.
The thing is, Philippine labor laws aren’t suggestions. They’re detailed, specific, and enforced. Miss a mandatory contribution or mishandle tax withholding, and the government notices. Fast.
So what does compliant payroll look like in the Philippines? How do you handle the mandatory employer contributions without drowning in paperwork? And how do you set up payroll administration that works for a growing business?
That’s what we’re walking through. Everything you need to know about Philippine payroll and taxes—from the must-do employer contributions to the payroll options that make sense for international companies. Because when you’re expanding globally, the details matter. And getting them right from day one? That’s how you build something sustainable.
How is payroll calculated in the Philippines?
To calculate payroll in the Philippines, first determine your employee’s gross pay. Then, add the total annual payroll taxes you must pay on your employee’s behalf. In the Philippines, employers must contribute to social security, health insurance, and the Home Development Mutual Fund.
Employers must also add statutory requirements like 13th-month pay and Employees’ Compensation Program (EC) contributions to their total employee cost calculations.
Do you want to calculate how much it costs to hire an employee in the Philippines? Use our employee cost calculator below to get reliable insights into employee costs and payroll contributions in the Philippines:
What are the payroll taxes in the Philippines?
Employers in the Philippines must follow a range of local payroll compliance regulations. The four main statutory contributions employers must deduct from employees’ salaries are income tax, social security, health insurance, and the Home Development Mutual Fund.
Income tax
While employers don’t contribute to their employees’ income tax, they must act as the withholding agent by deducting income taxes from their employees’ monthly wages.
The Philippines uses a graduated income tax composed of six income brackets:
- ₱0 to ₱250,000: 0%
- ₱250,001 to ₱400,000: 15%
- ₱400,001 to ₱800,000: 20%
- ₱800,001 to ₱2,000,000: 25%
- ₱2,000,001 to ₱8,000,00: 30
- Over ₱8,000,000: 35%
Social security
The Philippines’ Social Security System (SSS) is an insurance fund that protects employees from financial burdens related to disability, maternity, sickness, old age, and other contingencies. The monthly contribution rate is 9.5% for employers and 4.5% for employees, with a cap of ₱1,900 for employers and ₱900 for employees.
Philippine Health Insurance Corporation (PhilHealth)
Employers in the Philippines contribute to the state health insurance fund called the Philippine Health Insurance Corporation (PhilHealth). The total contribution rate is 4% of the employee’s base monthly wage, with an income ceiling of ₱80,000. The contribution is shared equally between the employer and employee.
Home Development Mutual Fund
The Home Development Mutual Fund (HDMF), commonly known as the Pag-IBIG Fund, is a government-guaranteed savings fund for employees in the Philippines—though its primary goal is to help employees finance a new home.
The HDMF offers employees low-interest-rate home financing loans with up to 30-year repayment terms and low monthly amortizations. Covered employees also have access to additional benefits under the HDMF, like multipurpose loans and the ability to withdraw their Total Accumulated Value (TAC) after 20 years.
Employers contribute 2% of all employee salaries, while employees contribute 1% on salaries of ₱1,500 or below and 2% on salaries over ₱1,500. Monthly contributions are mandatory for all SSS-covered employees.
Additional payroll contributions in the Philippines
Employers in the Philippines must also contribute to the Employees’ Compensation Program and 13th-month pay.
Employees’ Compensation Program
The Employee Compensation Program (EC) provides employees with financial support for work-related illnesses or injuries. The EC covers any employee in the public or private sector and any employer with a minimum of one employee.
The employer contribution rate for the EC is ₱10 for employees who earn monthly salaries of ₱14,749 or less and ₱30 for salaries over ₱14,749.
13th-month pay
Every Filipino employee who has worked for at least one month within the calendar year is entitled to an annual 13th-month compensation. The 13th-month pay amounts to one-twelfth of the employee’s base yearly income, and employers must deliver it by December 24.
Contractors, commission-based workers, and government employees are not entitled to 13th-month pay—though government employees receive a similar year-end bonus.
Learn more in our guide to 13th-month pay.
Key elements of payroll in the Philippines
Foreign employers doing business in the Philippines must familiarize themselves with the key elements of local payroll policies and procedures:
- Payroll cycle. The payroll cycle in the Philippines is bi-monthly, and employers must make payments twice a month at maximum intervals of 16 days.
- Minimum wage. Minimum wage varies across regions and industries in the Philippines. The minimum wage in the National Capital Region is ₱420 per day in the non-agricultural sector and ₱400 per day in the agricultural sector.
- Overtime. Employees are entitled to 125% of their standard pay for work beyond eight hours in a typical workday.
- Holiday allowance. Employees receive paid time off at 100% of their standard pay on regular holidays, but no pay on flexible non-working holidays, like regional events. If they work, employees are entitled to 200% of their standard pay for the first eight hours of work on regular holidays and 130% on flexible non-working days.
- Termination. If an employer terminates a work agreement, they must have a hearing with the employee or issue a 30-day written notice, depending on the cause. Employees who quit must give a one-month written notice unless they resign for a just cause.
- Severance. If an employer terminates an employee for just or authorized causes, the employer must pay either one-half or one month’s wages for each year of the employee’s service, depending on the cause. If an employee voluntarily terminates their employment, they are not entitled to severance pay unless their employment contract or a relevant Collective Bargaining Agreement (CBA) requires it.
Employers must also account for other allowances, like 105 days of paid maternity leave, five days of paid service incentive leave, and the cost-of-living allowance (COLA).
Learn more about payroll, taxes, and labor laws in the Philippines.
How to set up payroll in the Philippines
Employers who hire employees in the Philippines must familiarize themselves with the country’s tax and labor laws to compliantly administer payroll. Below is a general guide for setting up payroll in the Philippines:
- Register your business as an employer. Register your business with the Bureau of Internal Revenue (BIR) to get an employer identification number (EIN). Your EIN helps local authorities ensure that you accurately calculate and pay necessary taxes and contributions.
- Establish your payroll process and policies. Establish a payroll schedule that details your wage payment and tax remittance frequency, and outline your policies on employee time tracking, payroll tax calculation, and payment methods.
- Determine salaries and ensure compliance. Decide the salary to offer employees based on their role and the regional cost of living. Make accurate withholdings and contributions for income tax, SSS, PhilHealth, HDMF, and additional requirements, like 13th-month and holiday pay.
- Collect employee data. Keep a file for each employee’s tax forms, such as their Tax Identification Number (TIN) form, SSS Form R1A, HDMF registration, and PhilHealth Form ER2. Employers should also keep their employees’ primary data on file, such as their name, address, hiring date, work authorization, bank account information, and pay rate.
- Collect timesheets and calculate payroll. Collect and review employee timesheets, calculate statutory tax and payroll withholdings, and make remittances to the relevant government agency.
- Pay employees. Pay your employees according to your established schedule.
- Document and store payroll records. The Philippine Labor Code requires employers to document and store employment records for three years. Employers should keep payroll records of dates of employment, pay frequency, total overtime pay, deductions, and net employee salary.
Getting your Philippine payroll setup right from the start keeps you on the right side of local labor laws—and lets you focus on what you do best instead of scrambling to fix compliance issues later.
Your payroll options in the Philippines
Employers have four options for administering payroll in the Philippines: remote payroll, internal payroll, local payroll administration, and fully outsourced payroll.
Remote Payroll
Companies registered abroad can establish an entity in the Philippines to hire local employees and run payroll in the Philippines. With remote payroll, the parent company incorporates the foreign entity’s payroll process into its domestic payroll and administers payroll remotely.
This option streamlines payroll administration, but it requires extra work on behalf of the parent company to familiarize itself with local tax and labor laws. It also exposes the parent company to noncompliance risks.
Internal Payroll
Companies with long-term investments in the Philippines may run payroll in-house for their Filipino employees. This option requires incorporating and registering their business with local authorities. It also requires hiring local staff with the experience to run payroll and accurately fulfill tax requirements.
Internal payroll carries high costs and requires thorough knowledge of local employment and payroll regulations. Employers who choose this route also need a local accounting firm and proper legal counsel to ensure compliance.
Local Payroll Administration
Some foreign companies with registered local businesses outsource payroll administration to a local payroll processing firm in the Philippines. These firms handle all calculations, payments, and filings on the employer’s behalf.
This option offers limited visibility into the payroll process and exposes the employer to security risks. Although a payroll processing firm in the Philippines handles calculations, payments, and filings, the company remains responsible for compliance.
Fully Outsourced Payroll & Employment
The easiest, fastest, and safest way to administer payroll in the Philippines is by fully outsourcing it to a global payroll partner. A global payroll partner is a third-party organization with local expertise that administers payroll for your workforce on your behalf.
By fully outsourcing your payroll in the Philippines to a global payroll partner, you cut costs, save time, and ensure full compliance with evolving local tax legislation.
Here’s the thing about hiring in the Philippines: you don’t need to set up a legal entity there to get started.
An Employer of Record changes the game completely. Think of it this way—they become the official employer on paper while you stay in control of everything that matters. Your new hire in Manila reports to you, works on your projects, and follows your direction. But the EOR handles all the behind-the-scenes complexity—onboarding paperwork, monthly payroll, mandatory benefits, and making sure every tax filing happens on time.
It’s like having a local HR and payroll team that already knows the rules, without having to build one from scratch.
This setup works especially well if you’re thinking bigger than just the Philippines. The same EOR that handles your developer in Cebu can also manage your designer in Berlin and your marketing specialist in Mexico City. One platform, consistent processes, and no more juggling different payroll systems across time zones.
For companies eyeing global expansion, this approach lets you test new markets without the months of legal setup and compliance research. You can hire great talent wherever you find it, and someone else deals with the local employment maze.
Simplify payroll in the Philippines with Pebl
Here’s how Pebl makes your Philippine payroll manageable.
The Philippines offers incredible talent and growth opportunities. But the payroll complexity? That’s what stops most companies from actually making the move.
What typically happens is you find amazing talent in Manila or Cebu, then spend weeks researching Philippine labor laws, mandatory contributions, and tax requirements. Before you know it, that perfect candidate has moved on, and you’re still stuck in research mode.
Pebl’s Employer of Record services cut through all of that. We handle all of the ins and outs of a Philippine payroll so you can hire that developer next week, not next quarter. Your team members get paid correctly and on time, all the mandatory benefits get handled properly, and you stay compliant without becoming an expert in Philippine employment law.
Here’s what makes it work: our Global Work Platform brings your Philippine employees together with the rest of your distributed team. Whether you’re managing people in three countries or fifteen, everyone gets paid through the same system. No more switching between different payroll platforms or wondering if your Manila office is following different processes than your Mexico City team.
You focus on building great products and growing your business. We deal with the BIR filings, SSS contributions, and all the other acronyms that make international payroll complicated.
Already planning to set up your own entity in the Philippines? Our Global Payroll service grows with you. Same platform, same processes—whether we’re your legal employer or you’re running your own Philippine entity.
Ready to see how much simpler Philippine hiring can be? Let’s talk about what this looks like for your specific situation.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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