Employer’s Guide to Payroll in the Philippines

If you are planning on setting up payroll for your employees in the Philippines, you must understand the local labor laws, payroll taxes, and social contributions to ensure compliance with local laws and avoid penalties.

In this article, we will explore the essentials of payroll in the Philippines and discuss options to set up and manage payroll for your employees.

Payroll Regulations in the Philippines

Understanding the proper payroll regulations in the Philippines is essential for establishing a business in the country. The Philippines has its own set of rules and regulations to care for the well-being of its people as detailed below:

I. Payroll Cycle

Philippine labor laws prohibit companies from paying their employees once a month. Therefore, the payroll cycle in the Philippines is semi-monthly or bi-weekly with a maximum interval of 16 days in between payments. It is also common among companies in various sectors to pay their employees on a weekly basis.

However, regardless of the preferred payroll interval, salary payments must adhere to the 16-day interval rule.

II. Minimum Wage

The minimum wage in the Philippines varies across regions and industries as it reflects the different economic conditions and living costs in the area. The minimum wage is determined by the Philippines Tripartite Regional Wage Board. 

For example, the minimum wage in Metro Manila is around 658 – 695 per day but in Central Luzon, the minimum wage is around PHP 435 – 550​ per day (figures based on January 2026).

Therefore, depending on the area of business operations, you must ensure your compliance with minimum wage laws.

III. Overtime Pay

If an employee works overtime, employers must pay their employees’ overtime pay as mandated by the Philippine Labor Code as outlined below:

• Overtime on a normal day: 125% of employees regular rate
• Overtime on a rest day: 130% of employees regular rate
• Overtime on holiday: 200% of their daily rate for the first 8 hours, and 30% extra for additional hours
• Night Shift Differential: 10% extra on top of their regular rate for employees working the night shift (10 PM to 6 AM)

IV. Termination

When terminating an employee on authorized causes (retrenchment, closure of business, etc), employers must provide a written 30-day termination notice to the employee and the Department of Labor and Employment (DOLE). 

For employee terminations under just causes (willful disobedience, willful misconduct, etc.), two notices must be issued by employers. The first notice is a written notice explaining the grounds for termination which gives the employee a chance to explain themselves. The second notice is a final notice after considering the employee’s explanation, where a hearing can be conducted if necessary.

Employees who quit must provide a 30-day written notice to their employers unless their resignation is for a justified cause.

V. Severance

Depending on the authorized cause of termination, employers are required to pay severance to their affected employees as follows:

• Retrenchment, business closure, or incurable disease: one month’s salary or half a month’s salary for every year of service (rounded up after six months)
• Redundancy: one month’s salary or one month’s salary for every year of service

Employees who willingly terminate their employment are not entitled to severance pay unless their contract requires it.

VI. 13th Month Pay

Every Filipino employee who has worked for at least one month in the calendar year is entitled to an annual 13-month compensation. This 13th-month pay is equal to one-twelfth of the employee’s base annual income and is to be paid by the 24th of December each year. Contractors, commission workers, and government employees are not entitled to this pay. 

Payroll Deductions and Social Contributions in the Philippines

Understanding payroll taxes and contributions is crucial for employers operating in the Philippines. These mandatory deductions not only ensure compliance with local laws but also directly impact your employee compensation. 

Income Tax

Employers don’t contribute to their employees’ income taxes. However, they act as withholding agents by deducting income tax from their employees’ monthly salaries. The Philippines uses a graduated income tax scheme of up to six brackets as noted below:

Income	Income Tax Rate
PHP 250,000	0%
Over PHP 250,000 to PHP 400,000	15%
Over PHP 400,000 to PHP 800,000	20%
Over PHP 800,000 to PHP 2 million	25%
Over PHP 2 million to PHP 8 million	30%
Over PHP 8 million	35%

Social Security System (SSS)

Contributions made to the SSS depend on the employee’s salary. The monthly contribution rate for employers is 9.5% and 4.5% for employees. The Social Security System is an insurance fund that protects employees from financial burdens related to disability, old age, maternity, sickness, and more. 

Philippine Health Insurance Corporation (Phil-Health)

Phil-Health is the country’s national health insurance that requires a mandatory contribution rate of 5% of an employee’s basic monthly salary by employers. The maximum monthly salary ceiling is PHP 100,000 with a maximum contribution of PHP 5,000 a month.

Home Development Mutual Fund (HDMF)

Also known as the Pag-IBIG Fund, the HDMF is a government savings fund that helps employees finance a new home. The mandatory contribution rates are as follows:

• Employees with a monthly salary of PHP 1,500 or less: 1%
• Employees with a monthly salary over PHP 1,500: 2%
• Employers: 2%

Cost of Living Allowance (COLA) Philippines

The Cost of Living Allowance (COLA) is a mandatory addition to the salary for minimum-wage employees to help with the rising cost of living and inflation. The amount of COLA varies according to region and is set by the regional wage board following the local economic conditions and minimum wage ranges. 

Currently, the COLA for most regions is set at PHP 20. Only two regions have different rates – the National Capital Region (NCR) at PHP 22 and the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) at PHP 10.

Processing Payroll in the Philippines

Legal Entity Requirements to Manage Payroll

To process payroll in the Philippines directly, employers must establish a legal entity in the country. That means you need to register your company in the Philippines, secure all necessary permits, and register with government agencies such as SSS, PhilHealth, etc.

If you plan on setting up a company, Emerhub’s local experts can handle the process on your behalf and secure necessary approvals from relevant authorities.

Once the company registration is complete, employers must do the following to set up and manage their payroll service in the Philippines: 

1. Gather employee data (working hours, leaves, etc.)
2. Calculate gross pay
3. Compute deductions
4. Calculate net pay
5. Prepare payslips
6. Disburse salaries to employees
7. File necessary reports with government agencies

Employer of Record (EOR): An Alternative to Company Registration in the Philippines

For companies seeking a more streamlined entry into the market or those looking to outsource their payroll, an Employer of Record (EOR) service in the Philippines offers a viable alternative.

Emerhub as your Employer of Record service provider:

• Acts as the legal employer for your workforce in the Philippines
• Handles all payroll processing and compliance matters
• Eliminates the need for establishing a local entity
• Provides rapid market entry, often within days or weeks

Emerhub’s EOR service enables foreign employers to quickly build and pay their workforce in the Philippines without the need to establish a legal entity or handle complex local payroll regulations.

For more information, fill out the form below and we will put you in touch with one of our experts.