After incorporating a company, it is essential to know how to calculate your employees’ salaries and benefits correctly. In this article, we are going to take a closer look at the wage system and payroll in the Philippines.
Minimum wages in the Philippines
In the Philippines, the minimum wage rates differ for every region, province, and industry. These rates are set by the Wage Rationalization Act, Republic Act No. 6727, and vary depending on the sales of the company as well as the number of employees.
Industry sectors are segmented as follows:
- Retail and services
- Cottage and handicraft
For example, on average, the minimum daily payroll in the Philippines of non-agricultural workers and agricultural workers in Manila is about PHP 481 (~USD 9) and PHP 444 (~USD 8) respectively.
Everywhere else, depending on the region, the minimum daily wage for non-agricultural workers ranges from PHP 272 (~USD 5) to PHP 337 (~USD 6).
The standard work week in the Philippines is 40 hours or 8 hours daily. Note that this does not include one-hour lunch breaks. The minimum monthly wage rate for domestic workers is around PHP 3,500 (~USD 655).
Minimum daily wages in the Philippines per industry
Basic Wage Increase
New Basic Wage
New Minimum Wage Rates
Agriculture (Plantation and Non-Plantation)
Retail/Service Establishments employing 15 workers or less
Manufacturing Establishments regularly employing less than ten workers
Source: Department of Labor and Employment, National Wages and Productivity Commission
Employee benefits in the Philippines
Each Filipino is entitled to 13 paid vacation days every year, plus an additional day for each year of work after the first three years to a maximum of 18 days. They are also given up to 12 days of paid sick leave yearly, with an extra day given after the first two years of work, capped at 15 days.
New mothers and fathers can take 120 days and seven days of paid leave respectively after the birth of their baby.
Depending on when the overtime work occurs, such as whether it’s during regular workday, rest day, holiday or it stretches into the night hours of 10 pm to 6 am, most employees receive an additional 25% of the hourly pay rate on regular work days and an extra 30% of the hourly rate on rest days and holidays.
You need to pay such additional compensation for work performed on Sunday only when it is your employee’s designated rest day. Other than that, there are also premium overtime and special holiday pay rates.
Premium overtime pay
Premium overtime pay happens on a rest day which also happens to be a holiday. The employee can then get an additional 50% of his daily basic wage rate or a total of 150%.
Regular and special non-working holidays
Do note that in the Philippines, there are 12 regular holidays (under Republic Act No. 9849) and three special holidays.
The 12 regular holidays are:
- New Year’s Day
- Maundy Thursday
- Good Friday
- Araw ng Kagitingan
- Labour Day
- Independence Day
- National Heroes’ Day
- Eidl Fitr
- Eidl Adha
- Bonifacio Day
- Christmas Day
- Rizal Day
The three special holidays include:
- Ninoy Aquino Day, a national non-working holiday on 21 August commemorating the assassination of former Senator Benigno “Ninoy” Aquino, Jr
- All Saints Day, which happens on 1 November
- Last Day of the Year, on the 31 December
Special holiday pay
If the employer requires the employee to work on any holiday, the employee shall receive compensation that is equal to twice his regular rate. For instance, if work happens on a non-working regular holiday (up to 8 hours), the employee is entitled to at least twice, or 200% of this basic wage.
If this holiday corresponds to the rest day of the employee, he is entitled to additional compensation based on his regular holiday rate of 200%, making it a total of at least 260%.
“No Work, No Pay” principle
There is a “no work, no pay” principle that applies during special non-working days and other special days which are declared by the President of the Philippines.
Under this principle, workers who are not required or permitted to work on these days are not eligible for any compensation.
However, this excludes any voluntary practices that provide wages or benefits for such special days even if the worker is not working on these days.
13th Month Pay
Every year, it is mandatory for employers in the Philippines to give all rank-and-file employees a 13th-month pay before 24 December. Employees who have resigned or whose contracts you have terminated before the payment of the 13th-month pay are still eligible for the 13th-month pay, according to the length of time they have worked for during the year.
Also, note that such 13th-month pay must be at least 1/12th of the total basic salary of each employee earned during that calendar year.
De minimis benefits
De minimis benefits are benefits of small amounts that employers give to their employees in addition to their salaries. Note that these benefits are not subject to taxes.
In the Philippines, such de minimis benefits include:
- Employees can turn unused vacation leave credits into cash, up to a maximum of 10 days per year.
- Up to PHP 1,500 (~USD 28) of rice subsidy per year.
- Employees can use their medical cash allowance for their dependents, up to a maximum of PHP 750 (~USD 14) per semester or PHP 125 (~USD 2) per month.
- Up to PHP 5,000 (~USD 94) of uniform and clothing allowance per year.
- Up to PHP 300 (~USD 6) laundry allowance per month.
- Employee achievement awards such as loyalty and safety rewards. These can be in forms other than cash or gift vouchers, up to a maximum of PHP 10,000 (~USD 187) per year.
- Up to PHP 10,000 (~USD 187) medical benefits per year.
- Gifts for Christmas, festivals or circumstances in their employees’ life, such as a marriage, surgery or death in the family, up to PHP 5,000 (~USD 94) per employee per year.
- Daily meal allowances during overtime work must not be more than 25% of the basic minimum wage. Such benefit is not subject to tax, up to a maximum of PHP 120 (~USD 2) per day based on Manila’s minimum salary of an average of PHP 481 (~USD 9).
Termination of an employee contract
It is the responsibility of the employer to notify the relevant authorities such as the Social Security System and the Department of Health of an employee’s resignation within 30 calendar days from the date of separation.
Note that you need to give the final payment of salary to the employee 30 days after completion of clearance. The employer also needs to pay a separation pay and the employee’s prorated 13th-month wage if they have initiated the termination.
Using Employer of Record (EOR) service in the Philippines
An Employer of Record (EOR) is an attractive solution for businesses who wish to expand to the Philippines without incorporating a company. The EOR service provider such as Emerhub will become the employer handling all personnel functions while the employees work for you.
Some of these services are, for example:
- calculation of salaries, wages, and benefits
- payroll payments
- compliance and tax reporting
This formula is excellent for businesses that are looking to employ staff quickly. It is also a quick market penetration method if you want to limit your initial capital outlay and test the market in the Philippines before putting in more investment.
If you’re looking for assistance in managing your employees’ payroll in the Philippines or you would like to try Emerhub’s Employer of Record service, drop us a message in the form below. Our consultants will get back to you as soon as possible!