How to Run Payroll in The Philippines: Employment Taxes & Setup

Milani Notshe

Research Specialist

Last Updated

June 18, 2026

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Running payroll in The Philippines involves many moving parts before your team sees money land in their accounts. Each month you need to calculate gross-to-net correctly, apply statutory withholdings and employer contributions, issue compliant payslips, plus file and remit on schedule. If anything slips through the cracks, you could face penalties, back-pay exposure, and unnecessary friction with your people.

If you’re hiring in The Philippines, whether you’re building a local presence or expanding your global footprint, this guide is for you. We’ll walk through the choices and compliance requirements that have the biggest impact on your speed and risk, from entity vs. no-entity hiring to worker classification and the statutory bodies you’ll interact with along the way. By the end, you’ll know exactly what to expect and how to keep payroll running smoothly, wherever you’re hiring.

Key Takeaways

Payroll cycle: Employers must pay wages at least twice a month (bi-monthly), typically by the 16th and the last working day of the month, under the Philippine Labor Code.
Tax filing: Income tax withheld from employees (BIR Form 1601-C) is remitted monthly, with quarterly and annual reporting to the Bureau of Internal Revenue (BIR).
Employer contributions: SSS (10%), PhilHealth (2.5%), and Pag-IBIG (2%) — all mandatory, all based on the employee's monthly salary up to each agency's respective ceiling.
Tax year: Calendar year: 1 January to 31 December.
Payroll processing methods: Payroll is typically handled through electronic payroll systems integrated with BIR e-services or outsourced to local payroll providers.

How to Choose Your Payroll Structure in The Philippines

Expanding into The Philippines? Building a compliant payroll setup involves much more than simply paying salaries. You’ll be responsible for employment compliance, monthly tax and social declarations, and mandatory benefits. Even small delays in filings or payments can lead to real penalties.

You have several operating models to choose from to make this easier. The right one depends on your legal footprint, your appetite for risk, and how quickly you need to start hiring. Let’s break down the main options and when to use each.

1. No Local Entity in The Philippines: Use an Employer of Record (EOR)

If you don’t yet have a legal entity in The Philippines, an Employer of Record is usually the fastest and lowest-risk way to hire. An EOR becomes the legal employer on paper, provides locally compliant employment contracts, and manages payroll under local regulations, while you continue to direct the work and manage performance.

This model is ideal for:

Testing a new market
Hiring your first team members
Scaling a distributed workforce without building local infrastructure,

Why it’s the fastest and least risky option:

You skip the lengthy process (and cost) of setting up an entity.
All local registrations, monthly declarations, and statutory payments are handled by a provider already set up in-country, dramatically reducing your compliance risk.

2. You Have a The Philippines Entity: Run In-Country Payroll

If you already operate a local entity, or you’re planning to establish one, running payroll directly gives you maximum flexibility and control. You can set your own policies, design benefits, and align payroll closely with your finance and internal approval processes. But this also comes with greater operational responsibility.

What you’re responsible for:

Registering with relevant authorities and maintaining compliance with statutory bodies (often involving CSS/IPRES or similar local institutions).
Accurately calculating and remitting payroll taxes and contributions every month – plus handling year-end requirements.
Issuing compliant payslips and maintaining audit-ready payroll documentation.

When this option makes sense:

You’re hiring at scale and want payroll fully “in-house,” even if you partner with a local provider for execution.
You need deeper integration with finance systems or custom benefit structures.

If you want to keep the entity but offload the admin, many employers choose global payroll services to handle calculations, filings, and payments while they remain the legal employer.

3. Contractors Only: Use Contractor Management

Paying independent contractors is often simpler than setting up full payroll, especially for short-term or highly specialized work.

However, you need to watch out for misclassification risk. In The Philippines, as in many jurisdictions, someone may legally qualify as an employee based on how they work – not what their contract says. If they’re under your direction, working like an employee, you may be responsible for full employer obligations.

When contractor payments work well:

You need specialised expertise for a defined scope or timeframe
The contractor operates independently, not under your control or supervision

You can also use contractor management services to streamline compliant contracts, invoicing, and payments.

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What To Know About Payroll Processing In The Philippines

Understanding payroll taxes in the Philippines is essential for both small business owners and larger enterprises to ensure compliance with local regulations and maintain positive employee relations. Employers must navigate various taxes, including income tax withholding, social security contributions, and health insurance premiums. Managing these obligations can be challenging, and non-compliance may lead to penalties and strained employee relationships. This article aims to guide you through the key aspects of payroll taxes in the Philippines, covering calculations, deadlines, and filing procedures, while noting that tax laws may vary based on factors such as location, income, or business size.

What is the Fiscal Year in the Philippines?

The Philippines follows the calendar year: 1 January to 31 December is the standard accounting and tax reporting period for both businesses and individuals.

What is the Payroll Cycle in the Philippines?

Under Article 103 of the Philippine Labor Code, wages must be paid at least twice a month at intervals not exceeding 16 days. In practice, most employers pay on the 15th and the last working day of the month. Monthly payroll is also common, particularly in larger companies, though twice-monthly is the statutory minimum.

Are Employees in the Philippines Entitled to a 13th Month Pay?

Yes; it's mandatory. Under Presidential Decree 851, all rank-and-file employees who have worked for at least one month during the calendar year are entitled to 13th month pay equivalent to 1/12 of their total basic salary earned during that year. It must be paid on or before December 24. The 13th month pay is tax-exempt up to PHP 90,000 when combined with other bonuses, per the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

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Types Of Payroll Taxes In The Philippines

The Philippines has four main statutory payroll obligations: income tax withholding and contributions to SSS, PhilHealth, and Pag-IBIG. Here's how each works.

Income Tax Withholding

Employers act as withholding agents, deducting income tax from employees' monthly wages based on a graduated tax schedule under the TRAIN Law (Republic Act No. 10963, Tax Schedule 2, effective January 2023). Withheld taxes must be remitted to the Bureau of Internal Revenue (BIR) by the 10th day of the following month via BIR Form 1601-C.

The annual income tax brackets are:

Annual Taxable Income (PHP)	Tax Rate
0 – 250,000	0% (exempt)
250,001 – 400,000	15% of excess over PHP 250,000
400,001 – 800,000	PHP 22,500 + 20% of excess over PHP 400,000
800,001 – 2,000,000	PHP 102,500 + 25% of excess over PHP 800,000
2,000,001 – 8,000,000	PHP 402,500 + 30% of excess over PHP 2,000,000
Over 8,000,000	PHP 2,202,500 + 35% of excess over PHP 8,000,000

Mandatory SSS, PhilHealth, and Pag-IBIG contributions are excluded from the taxable income computation.

Social Security System (SSS) Contributions

The SSS provides protection against disability, sickness, maternity, old age, and death. According to the Social Security System under SSS Circular 2024-006 (effective January 2025, pursuant to Republic Act No. 11199), the total contribution rate is 15% of the employee's Monthly Salary Credit (MSC):

Employer share: 10%
Employee share: 5%
MSC range: PHP 5,000 (minimum) to PHP 35,000 (maximum)
Maximum employee contribution: PHP 1,750 per month
Maximum employer contribution: PHP 3,530 per month (including PHP 30 Employees' Compensation contribution)

Remittances are due by the 15th day of the following month via the My.SSS portal.

Philippine Health Insurance Corporation (PhilHealth) Contributions

PhilHealth provides national health insurance coverage. According to PhilHealth Advisory PA2025-0002 (pursuant to Republic Act No. 11223, the Universal Health Care Act), the premium rate is 5% of the employee's Monthly Basic Salary (MBS), shared equally between employer and employee:

Total rate: 5% of MBS
Employer share: 2.5%
Employee share: 2.5%
Salary floor: PHP 10,000 (minimum monthly contribution: PHP 500 per side)
Salary ceiling: PHP 100,000 (maximum monthly contribution: PHP 2,500 per side)

Remittances are due by the 10th day of the following month via the PhilHealth Electronic Premium Remittance System (EPRS).

Home Development Mutual Fund (Pag-IBIG) Contributions

Pag-IBIG is a government savings and housing finance fund. Under HDMF Circular No. 460 (effective February 2024, pursuant to Republic Act No. 9679), the Maximum Fund Salary (MFS) was raised from PHP 5,000 to PHP 10,000:

Employee rate: 1% for MFS of PHP 1,500 or below; 2% for MFS over PHP 1,500
Employer rate: 2% (all salary levels)
Maximum contribution: PHP 200 per side per month (total PHP 400)

Remittances are due by the 10th day of the following month via the Virtual Pag-IBIG platform.

How To Pay Employees In The Philippines

Payroll Set Up Checklist (Entity Vs No-Entity)

Proper payroll setup is crucial to comply with legal requirements and maintain employee trust. Employers must register with the BIR, SSS, PhilHealth, and Pag-IBIG, and ensure accurate calculation and timely remittance of all payroll taxes and contributions.

How do you Calculate Payroll Taxes in the Philippines?

Calculating payroll taxes in the Philippines involves several moving parts, from identifying what’s taxable to applying the correct government rates. Here’s how employers can compute payroll taxes accurately and stay compliant with the Bureau of Internal Revenue (BIR) and other agencies.

‍Step 1: Start with the employee’s gross pay: Begin with the total compensation an employee earns for the pay period. This includes basic salary, taxable allowances, overtime pay, commissions, and other forms of compensation. Non-taxable benefits should not be added here yet.‍
Step 2: Identify and exclude non-taxable benefits: Certain benefits are excluded from tax calculations. These include the 13th-month pay and other bonuses up to ₱90,000, as well as government-mandated de minimis benefits like rice subsidies or uniform allowances within prescribed limits. Subtract these from the gross pay to arrive at the taxable portion of income.‍
Step 3: Deduct mandatory employee contributions: Employers must withhold and remit contributions to the three key social agencies:‍
- SSS (Social Security System) – Provides retirement, sickness, and maternity benefits.‍
- PhilHealth – Covers health insurance contributions.‍
- Pag-IBIG Fund – Serves as a savings and housing fund.
- These deductions reduce the employee’s taxable income and are shared by both employer and employee. The applicable rates are based on the employee’s salary bracket and are updated periodically.‍
Step 4: Determine the employee’s taxable income: Taxable income is what remains after subtracting non-taxable benefits and mandatory contributions from the gross pay. This figure is the basis for computing the withholding tax.‍
Step 5: Apply the BIR withholding tax table: Using the most recent BIR withholding tax schedule, identify the correct tax rate corresponding to the employee’s taxable income and pay frequency (monthly, semi-monthly, or weekly). Compute the withholding tax and deduct it from the employee’s pay.‍
Step 6: Compute the employee’s net pay: Finally, subtract all deductions, withholding tax plus employee shares of SSS, PhilHealth, and Pag-IBIG, from the gross pay. The result is the employee’s net take-home pay for the period.

Example: Salary Calculation for a PHP 40,000/Month Employee

An employee earns PHP 40,000 per month (MSC and MBS at PHP 40,000):

SSS (employee 5%, capped at MSC PHP 35,000): PHP 1,750
PhilHealth (employee 2.5% of PHP 40,000): PHP 1,000
Pag-IBIG (employee 2%, capped at MFS PHP 10,000): PHP 200
Total employee contributions: PHP 2,950
Taxable income: PHP 40,000 − PHP 2,950 = PHP 37,050/month → PHP 444,600 annualised
Withholding tax (approx.): PHP 1,875/month (falls within 20% bracket above PHP 400k annual)
Net pay: PHP 40,000 − PHP 2,950 − PHP 1,875 = PHP 35,175

Withholding tax is an approximation. Actual amounts depend on the employee's complete annual compensation and the BIR's semi-monthly or monthly withholding table.

How do you Submit Payroll Taxes in the Philippines?

Employers can remit statutory contributions and taxes through:

Online portals: BIR eFPS or eBIRForms for tax filings; My.SSS for SSS; PhilHealth EPRS for PhilHealth; Virtual Pag-IBIG for Pag-IBIG.
Authorized Agent Banks (AABs): Accredited banks accept payments for BIR, SSS, and PhilHealth.
Over-the-counter: Direct payment at agency offices or designated payment centres.

What are the Payroll Tax Due Dates in the Philippines?

Agency / Tax	Due Date	Filing Reference
BIR — Income Tax Withholding	10th of the following month	BIR Form 1601-C
SSS Contributions	15th of the following month	My.SSS portal
PhilHealth Contributions	10th of the following month	EPRS / Statement of Premium Account
Pag-IBIG Contributions	10th of the following month	Virtual Pag-IBIG

Running Payroll Processing in The Philippines

So, what does it actually take to run payroll in The Philippines? It involves calculating monthly salaries, applying the right statutory deductions, and making sure your team gets paid accurately and on time, while staying fully compliant with local tax and labour laws.

Let’s walk through what that looks like in practice:

Monthly Payroll Workflow

Gather all the essentials: hours worked, leave taken, new joiners, leavers, and any salary or benefit changes.
Double-check timesheets, leave balances, overtime, and any variable pay to make sure everything is accurate.
Work out gross earnings, including base salary, bonuses, commissions, and allowances.
Apply mandatory and voluntary deductions, like income tax, pension contributions, benefits, and any company-specific deductions. Then, calculate net pay after all deductions.
Run internal reviews, compare with previous payroll cycles, and get the necessary approvals.
Pay employees via bank transfer and share payslips through email or your payroll system.
Send statutory payments and required reports to tax authorities.
Update your records and ensure payroll entries flow correctly into your accounting system.
Share payroll summaries with finance and address any open questions or discrepancies.

How Playroll Streamlines Processing

Keeping track of all these steps, especially in a new market, is no easy task. Regulations change, requirements shift, and it’s easy for things to fall through the cracks. Playroll makes this effortless by managing the entire payroll process for you: onboarding employees, handling calculations and deductions, issuing payslips, transferring funds in Philippine Peso, and taking care of statutory filings and compliance.

Income Tax And Social Security In The Philippines

Understanding the tax obligations for both employers and employees is crucial when operating in the Philippines' business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in the Philippines.

What Does the Employer Pay on Top of Salary in the Philippines?

Employer payroll contributions are generally estimated at an additional 14% + 950 PHP on top of the employee salary in The Philippines.

Contribution	Employer Rate	Ceiling / Cap	Max Monthly Employer Cost
Social Security System (SSS)	10%	MSC PHP 35,000	PHP 3,500 (+ PHP 30 EC = PHP 3,530)
PhilHealth (PHIC)	2.5%	MBS PHP 100,000	PHP 2,500
Pag-IBIG Fund (HDMF)	2%	MFS PHP 10,000	PHP 200
Mandatory Provident Fund / Workers' Investment and Savings Program (WISP)	See SSS Circular 2024-006	Applicable to MSC above PHP 20,000	Up to PHP 950 [VERIFY]

Employee Payroll Tax Contributions

In The Philippines , the typical estimation for employee payroll contributions cost is around 10% + 450 PHP.

Tax Type	Tax Rate
Social Security System (maximum contribution 900 PHP)	4.5%
Home Development Mutual Fund (Pag-ibig)	1% – Below 1,500 PHP
Home Development Mutual Fund (Pag-ibig) (Salary Ceiling of 10000 PHP)	2% – Above 1,500 PHP
Philippine Health Insurance Corporation (Salary Ceiling of 100000 PHP)	2.5%

What Does the Employee Pay in Payroll Deductions in the Philippines?

Individual income tax in the Philippines follows progressive rates ranging from 0% to 35%, with household status and the number of children being additional factors that can impact overall rates.

Contribution	Employee Rate	Ceiling / Cap	Max Monthly Employee Deduction
Social Security System (SSS)	5%	MSC PHP 35,000	PHP 1,750
PhilHealth (PHIC)	2.5%	MBS PHP 100,000	PHP 2,500
Pag-IBIG Fund (HDMF) — salary PHP 1,500 or below	1%	MFS PHP 10,000	PHP 100
Pag-IBIG Fund (HDMF) — salary over PHP 1,500	2%	MFS PHP 10,000	PHP 200

What are the Income Tax Brackets in the Philippines?

Individual income tax in the Philippines follows a progressive rate from 0% to 35% under the TRAIN Law, with the first PHP 250,000 of annual taxable income fully exempt. The brackets are shown in the withholding tax table above.

How Does the Philippine Pension System Work?

SSS contributions fund the public pension system. Members who have made at least 120 monthly contributions are eligible for a monthly pension upon retirement. The benefit can also be received as a lump sum if the minimum contribution requirement is not met.

Managing Common Payroll Challenges in The Philippines

Global employers operating in The Philippines often encounter unique payroll challenges that can affect compliance and efficiency, like navigating evolving tax laws and managing employee data. With a need for real-time accuracy, modern organizations must develop strategies to overcome these challenges effectively. Below, we explore some of the most common payroll hurdles and provide actionable solutions to streamline payroll processes in The Philippines.

Maintaining Accurate And Detailed Payroll Reports

Maintaining accurate global payroll reports is often challenging due to currency exchange complexities, data integration issues, and the need to keep employee information up-to-date –including tax information, hours worked, leave balances, and any changes in salary or job status. Generating accurate reports is easy with a comprehensive payroll automation tool that consolidates fragmented data sources, and can keep track of employee payments and deductions.

Keeping up with ever-changing tax laws & Compliance Laws

In The Philippines, tax laws and compliance regulations can change frequently, presenting a significant challenge for global employers. Monitoring updates to federal, state, and local tax codes is crucial to avoid non-compliance and costly penalties, but requires significant time and resources. Partnering with local experts or a reputable global HR platform is an effective way to maintain compliance. These services can help employers stay compliant with evolving regulations while freeing up time for more strategic work.

Consolidating Multi-Vendor Payroll Analytics

Managing payroll across multiple vendors often leads to fragmented data and inefficiencies, making it difficult to consolidate analytics. These challenges can hinder decision-making, especially when trying to gain a clear view of workforce costs and trends. To address this, organizations can invest in a centralized payroll management system that unifies data from multiple vendors. A consolidated platform simplifies payroll tracking, ensures data accuracy, and provides actionable insights into payroll expenditures.

Integrating Multiple HR & Payroll Systems

Global companies are prone to using multiple HR or payroll systems across regions, which can easily lead to fragmented payroll data, increasing the risk of delays and errors in employee compensation. To combat this, seamless integration between payroll and other systems is critical.

Payroll management systems that connect with existing HR and financial platforms can help streamline workflows by reducing manual inputs and ensuring that all departments operate with up-to-date, accurate information. In turn, this helps guarantee on-time, accurate payroll, boosting employee satisfaction.

How Playroll Can Streamline Payroll & Taxes In The Philippines

Expanding globally is an exciting milestone for any company, but it comes coupled with complex payroll challenges. It doesn’t have to be complicated. At Playroll, our easy-to-implement global payroll management software combines automation with hands-on support to make global payroll truly simple. Here's how Playroll helps:

Multi-Vendor Integration: Our platform syncs seamlessly with your providers and in-house systems to unify global payroll services in one platform.
Standardize Payroll Processes: Unify your operations in one dashboard to ensure payroll is running smoothly globally, with advanced approval flows and reports.
Improve Governance & Compliance: Improve compliance by centralizing all your compliance tasks and processes. Easily track your payment obligations, with digitized audit trails.
Advanced Reporting: Access and configure your data, your way, with a comprehensive suite of payroll analytics and reporting tools.

Disclaimer

THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Playroll does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect Playroll’s product delivery in any given jurisdiction. Playroll makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.

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