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.
Some of the common questions foreign companies have related to payroll are, Do they have to pay mandatory bonuses as part of their payroll? What does “holiday pay” mean in the Philippines? Is the 13th-month pay taxable? What’s the easiest way to manage payroll in the Philippines? Keep reading to get answers to these questions and more.
Important elements of payroll in the Philippines
Payroll providers must know the essential components of the salary structure as per the payroll policies and procedures in the Philippines. Also, it is necessary to remember that standard allowances (housing, transport, medicine, and childcare) are not mandatory in the Philippines as per law.
The key factors of payroll in the Philippines are:
The minimum wage in the Philippines
The daily minimum wage requirement in the Philippines varies across the country. A Tripartite Regional Wage Board determines the minimum wage based on the region, size, and industry. The table shows the daily minimum wage per region in the Philippines for private sectors.
|Minimum wage range
Shift premiums for payroll in the Philippines
In the Philippines, when an employee works at night, on weekends, and on public holidays they are paid shift premiums. Employers must also take note of the night shift differential rates. Night shift applies to employees working at any point between 10:00 pm and 6:00 am.
Overtime and Night Shift Differential Rates
|Type of overtime
|Overtime – Normal Working Day
|Overtime – Rest Day
|Night Shift Differential Rate
If an employee entitled to these rates works on a holiday, you must stack rate adjustments.
Overtime in the Philippines
Employees in the private sector, except domestic workers and target-based workers, are entitled to overtime when they work more than eight hours a day.
According to the Philippines labor law, there are two main types of overtime wages in the Philippines: regular overtime and compensatory overtime (or premium overtime).
Regular overtime pay
Working over 40 hours a week or 8 hours a day constitutes regular overtime. The standard overtime pay is 25% to 30% of the base salary of an employee.
Compensatory (or premium) overtime
An overtime compensation (or premium) is for work done more than 8 hours a day or 48 hours a week. Employees are compensated for overtime 1.5 times their base pay.
Holiday payroll in the Philippines
Employees asked to work on a public holiday must receive holiday pay. Holiday pay is the employee’s daily rate adjusted by the holiday rate. Holiday rates depend on whether it is a regular holiday or a special non-working holiday. By the Philippine Labor Code, employees working on a holiday are entitled to holiday pay. As a rule of payroll in the Philippines, an employee working on a regular holiday gets compensated with 200% of their base salary for that day. The following table demonstrates the holiday pay rates in the Philippines;
|Type of Holiday
|Special Hourly Rate
|200% of the basic daily rate
|Special Non-working Holiday
|130% of the basic daily rate
Employees not asked to work on a regular holiday will still receive their basic daily rate. On the other hand, the “No Work, No Pay” principle applies to special holidays. Therefore, employees not asked to report on a special holiday are not eligible for any sort of compensation. However, you are free to give employees their basic daily rate even if they did work on a special holiday.
Service incentive leave
Filipino employees who have been with the company for at least one year are entitled to five days of paid vacation, which they can convert into cash if they do not use them. These leaves are referred to as “service incentive leaves”.
To ensure Filipino mothers have adequate time to bond with their newborns, female employees are entitled to a paid maternity leave of up to 105 days. Maternity leave may be extended without pay for an additional 30 days upon the request of the employee. The request for extension should be filed before the expiration of the original 105-day period.
Every married Filipino male employee is entitled to seven (7) days of paid paternity leave for four deliveries of the legitimate spouse for whom he is cohabiting.
Solo Parent Leave
Solo parent leave is available to solo parents who are caring for a child below 18 years of age, or a child with a disability without the help or guidance of a partner or spouse.
Any solo Filipino parent who has worked for at least one year can take up to seven days of parental leave, providing they carry a Solo Parent ID.
Magna Carta of Women Leave
Magna Carta of Women is the “Special Leave for Women,” which is available to female employees who are suffering from gynecological disorders. According to the law, female employees who are suffering from gynecological disorders that require medical treatment are entitled to a maximum of two months of leave, which may be availed of in a calendar year.
Contributions to payroll in the Philippines
In the Philippines, employees make mandatory government contributions of which employers also pay a share.
The table below details the contribution rates for each organization:
|Type of Contribution
|Social Security System
|Philippine Health Insurance Corporation
|Home Development Mutual Fund
Social Security System (SSS)
Contributions made to the SSS depend on the employee’s salary. However, there is a monthly salary of PHP 30,000 or more. Employers also pay a share for the employee’s SSS contributions.
Philippine Health Insurance Corporation (PhilHealth)
PhilHealth provides a national health insurance program in the Philippines. PhilHealth contribution is 4% of the employee’s salary from the payroll in the Philippines each month. The employee and employer pay an equal share for PhilHealth.
Home Development Mutual Fund (Pag-IBIG)
The Pag-IBIG fund is responsible for a national savings program and also offers loans and housing programs. The employer and employee each pay a fixed amount of PHP 100 per month for PAG-IBIG.
Cost of living allowance (COLA)
There are 18 regions in the Philippines and the cost of living allowance (COLA) varies in each region. However, in region III, COLA is fixed at PhP20 per day. In Region III, every employee is entitled to this benefit regardless of their position and salary.
13th Month Pay
Employees who have worked in the company for at least one month must receive 13th-month pay. Employees must receive their 13th-month pay no later than the 24th of December each year. 13th-month pay amounting to PHP 90,000 or less is non-taxable.
The 13th-month pay is the employee’s total basic salary for the year divided by 12. If the employee has been with your company for less than a year, he or she must receive a prorated amount relevant to his or her period of employment. The prorated amount also applies to employees leaving the company before the end of the year.
De Minimis Benefits in the Philippines
De minimis benefits refer to additional compensation of small value given by the employer apart from the basic salary. These benefits are non-taxable.
De minimis benefits in the Philippines include:
- Meal allowance during overtime work: up to 25% of the basic minimum wage
- Unused leave credits converted to cash: Maximum of 10 days per year
- Rice subsidy: up to PHP 1,500 (approx. USD 30) per year
- Medical cash allowance: up to PHP 750 (approx. USD 15) per semester or PHP 125 (approx USD 2.50) per month
- Uniform and clothing allowance: up to PHP 5,000 (approx. USD 100) per year
- Laundry allowance: up to PHP 300 (approx. USD 6) per month
- Medical benefits: up to PHP 10,000 (approx. USD 200) per year
- Gifts, given on the occasion of Christmas, festivals, or special circumstances in the employee’s life such as marriage or a death in the family: up to PHP 5,000 (approx. USD 100) per year
- Employee achievement awards. These can be in forms other than cash or gift vouchers: up to PHP 10,000 (approx. USD 200) per year.
It might be tempting to come up with a pay structure that maximizes the De Minimis benefits in order to reduce the amount of taxes paid. Emerhub’s payroll consultants advise you on how to structure the salaries accordingly.
Managing payroll in the Philippines
In the Philippines, employers are responsible for withholding taxes from their employee’s salaries. As such, the company must compute its employees’ taxable income before distributing their salaries.
It sounds simple enough until you encounter things like holiday pay and night shift differentials. Employees and employers must also pay mandatory benefit contributions.
A common solution is to outsource payroll in the Philippines to a professional service provider like Emerhub. Our payroll experts take care of computing mandatory benefits and taxes.
How Emerhub manages payroll in the Philippines in 5 steps
For foreign employers, Philippine payroll rules and regulations can be a little challenging. As a result, most companies outsource their payroll process to third parties.
Emerhub manages the payroll of your organization for you and your employees. Here is our five steps process;
Step 1: Submit the required documents of your employees along with their salary information
Step 2: We register your employees with the labor department for health and social insurance as mandated by local law
Step 3: Emerhub calculates salaries, overtime, benefits, and employment taxes for your employees
Step 4: We handle the submission of personal income tax (PIT) declarations each quarter and take care of settlements on an annual basis
Step 5: Our services also include the submission of your company’s Labor Use Report biannually
Emerhub ensures that your employees in the Philippines are paid on time, in compliance with local laws, and with all benefits entitled to them. We have a 10+ year history of delivering success in emerging markets. We manage employee salary calculations and tax filing, making payroll in the Philippines a streamlined operation.
Fill out the form below and book a call with an Emerhub consultant.