How to Run Payroll in the Philippines: An Employer's Guide

For foreign businesses hiring their first employees in the Philippines, agreeing on salaries is only the start of setting up payroll. Your finance team also needs to understand local payment rules, employee deductions and the additional costs your company must cover, even if it already manages payroll in another country.

Before the first payday, those requirements need to become a clear process with someone responsible for each step. This guide explains what to put in place, how to calculate employee pay and employer costs, and which payments and reports to include in your payroll calendar.

1. Set up employer registrations and employee records

The first step is to confirm that your business has the appropriate employer registrations with the Bureau of Internal Revenue (BIR), Social Security System (SSS), PhilHealth and Pag-IBIG Fund. Your payroll team will also need access to their filing and payment systems to report and remit the amounts calculated through payroll.

Alongside these registrations, prepare a payroll record for each employee. This should include:

• Employment start date, work location and agreed compensation.
• Tax Identification Number and government membership numbers.
• Working schedule, attendance and leave arrangements.
• Bank details and payment instructions.
• Allowances, benefits and applicable deductions.
• Previous employer’s BIR Form 2316, where relevant to the year’s tax calculation.

How you record compensation at this stage affects the calculations that follow. Basic salary, allowances and other benefits can receive different treatment for tax, contributions and statutory benefits, so they should be recorded separately from the outset.

Responsibility for processing payroll also needs to be clear. Businesses employing staff through a Philippine entity can manage it internally or appoint a payroll provider. Foreign companies that need a local employer can consider an Employer of Record in the Philippines.

2. Establish the payroll schedule

With registrations and employee records in place, the next decision is when payroll will run.

The Labor Code generally requires wages to be paid at least once every two weeks or twice a month, with payment intervals no longer than 16 days. A monthly salary figure in an employment contract therefore does not mean wages should only be released once a month.

The payment dates then determine the working schedule for your payroll team. Attendance records need to be finalized, managers need to approve adjustments, and payroll needs to be reviewed before the bank’s submission deadline. Allowing time between these stages makes it easier to resolve errors before employees are paid.

It also matters whether you choose semi-monthly or biweekly payroll. Semi-monthly payroll normally has 24 pay periods annually, while biweekly payroll normally has 26. Salary allocation and withholding calculations should reflect the schedule you actually use.

3. Confirm the applicable wage and calculate gross pay

Once the schedule is established, each payroll cycle begins with the employee’s agreed salary or daily rate. That amount must meet the applicable minimum wage before attendance adjustments and additional earnings are calculated.

Philippine minimum wages vary by region and may also depend on the sector, locality and establishment size. From 26 September 2026, Metro Manila’s daily minimum is ₱755 for non-agricultural workers and ₱718 for agriculture and specified smaller establishments under Wage Order NCR-28.

Our Philippines minimum wage guide explains the relevant categories and effective dates.

Using the correct wage as the starting point, calculate earnings for the period from the employee’s pay basis and attendance records. Depending on the employee’s circumstances, these may include basic pay, paid leave, overtime, holiday or rest-day pay, night-shift differential, commissions and allowances.

Additional pay needs particular attention because the calculation changes with the type of workday. For covered employees, ordinary-day overtime carries at least a 25% addition to the hourly rate. Rest-day and holiday work follows different rules, while qualifying night work attracts a night-shift differential.

For monthly-paid employees, the conversion to a daily or hourly rate should also reflect the applicable pay arrangement and paid-day basis. One divisor will not necessarily suit every employee.

4. Calculate employee deductions and employer contributions

After calculating earnings, separate the contributions deducted from the employee’s pay from those funded by the business. The first group reduces take-home pay; the second increases employer costs.

The standard contribution framework for private-sector employees is:

Although these contributions appear together in payroll, their calculation bases differ.

SSS uses compensation bands to determine the applicable monthly salary credit. Employers also pay an Employees’ Compensation contribution of ₱10 or ₱30, depending on that credit.

PhilHealth’s 2026 premium remains 5% of monthly basic salary within the prescribed floor and ceiling, shared equally between employee and employer.

For Pag-IBIG, the maximum fund salary increased to ₱10,000 in February 2024. Employees at or above that compensation level therefore generally contribute ₱200 monthly, with another ₱200 paid by the employer.

Because the agencies use different rules, each contribution needs its own payroll calculation settings.

5. Determine taxable compensation and withholding tax

The contribution calculations feed into the next step: determining how much of the employee’s earnings is taxable.

Gross earnings and taxable compensation are not necessarily the same. Compulsory employee contributions to SSS, PhilHealth and Pag-IBIG are excluded when determining taxable compensation, and qualifying de minimis benefits have their own exemptions.

Once those exclusions and deductions have been identified, apply the BIR withholding table for the payroll frequency. The BIR provides separate daily, weekly, semi-monthly and monthly tables, each using a base tax and marginal rate. Applying a single percentage to the employee’s entire salary would not produce the correct result.

This is also why allowances need to remain separately identifiable. Calling a payment “rice subsidy” or “reimbursement” does not, by itself, establish its tax treatment.

For a breakdown of qualifying allowances, current limits and the treatment of excess payments, read RecruitGo’s guide to de minimis benefits in the Philippines.

Example: Payroll for a ₱40,000 monthly salary

The following example brings the earnings, contribution and withholding calculations together.

Assume an employee:

• Earns ₱40,000 monthly basic salary.
• Receives two equal semi-monthly payments.
• Has no overtime, absences, allowances, bonuses or loan deductions.
• Has monthly employee contributions allocated equally between the two payroll periods.

Employee deductions and take-home pay

After employee contributions, taxable compensation is ₱18,525 for each semi-monthly period. Applying the corresponding BIR table gives:

₱937.50 + 20% × (₱18,525 − ₱16,667) = ₱1,309.10

Deducting that withholding amount leaves ₱17,215.90 in net pay per payday. Actual deductions can differ according to contribution allocation, other earnings and tax adjustments.

Employer’s monthly cost

The employee’s net pay is only one part of the calculation. To budget for the position, the business must also account for its own contributions and statutory benefits.

The 13th-month provision assumes the same basic salary throughout a full year. Additional benefits, insurance, equipment and payroll service fees would increase this budget further.

Employee deductions, however, are already contained within gross salary. Adding them again would overstate the employer’s cost.

To estimate employee take-home pay and employer contributions for different salary levels, use RecruitGo’s Philippines payroll calculator. The calculator excludes 13th-month pay, so include that separately when budgeting.

6. Review payroll, issue pay slips and release payment

Once the calculations are complete, the payroll register is ready for review. Comparing it with the previous period helps identify unexpected changes in earnings, deductions and net pay.

Before approving payment, confirm that:

• New hires, departures and salary changes are correctly recorded.
• Attendance adjustments and additional pay are supported.
• Employee and employer contributions are separated.
• Taxable and exempt payments are classified consistently.
• Bank payment totals match the approved payroll.
• Pay slips reconcile with the amounts being released.

Where staffing permits, a different person should review the payroll from the one who prepared it. This gives the business another opportunity to catch duplicated payments, incorrect bank details or missed adjustments before salaries are released.

7. Remit deductions and maintain a filing calendar

Paying employees completes the salary-payment stage, but the amounts withheld still need to reach the relevant agencies. Employer contributions must also be remitted, and the required reports filed.

These obligations need a filing calendar alongside the employee payment schedule. For non-eFPS filers, Form 1601-C is generally due by the tenth day of the following month, with a separate January deadline for December withholding. eFPS schedules differ, so the applicable dates depend on the employer’s filing classification and current BIR instructions.

For each obligation, record the responsible person, due date and payment confirmation. Reconciling these payments against payroll totals helps ensure that amounts deducted from employees are fully remitted.

8. Prepare for year-end payroll and employee departures

Accurate records throughout the year make the less frequent payroll tasks easier to complete. Two events need particular preparation: the annual payroll reconciliation and an employee’s departure.

Year-end payroll

Covered rank-and-file employees who have worked for at least one month during the calendar year are entitled to 13th-month pay. The minimum is:

Total basic salary earned during the calendar year ÷ 12

Payment is due no later than 24 December. Because the calculation uses actual basic salary earned, it should reflect salary changes and unpaid periods during the year.

Year-end processing also involves reconciling annual compensation and withholding, making any required tax adjustment, and preparing Form 2316 and the annual alphalist. Form 2316 is generally furnished to employees by 31 January of the following year, or on the last payment of compensation when employment ends.

Employee departures

When an employee leaves, payroll needs to bring their remaining entitlements and deductions together in a final calculation. This can include unpaid salary, proportionate 13th-month pay, applicable leave conversion, tax adjustments and any separation or retirement benefits due.

DOLE’s general rule is to release final pay within 30 days of separation or termination unless a more favorable policy or agreement applies. Starting the review when the departure is confirmed gives the team time to resolve outstanding records and complete approvals.

Payroll support from Emerhub

A reliable payroll process depends on accurate employee records, consistent calculations and timely follow-through on payments and reporting.

Emerhub provides payroll services in the Philippines for businesses with a local entity, covering payroll calculations, pay slips, statutory contributions, withholding tax and annual reporting. Your business remains the employer and reviews payroll before payment, while Emerhub handles the recurring administration.

If you need to hire before establishing your own Philippine company, our Employer of Record service can employ your team locally and manage payroll and statutory benefits.