Payroll in the Philippines: A Comprehensive Guide for Employers

Running payroll in the Philippines isn’t just about handing out paychecks. It’s about ensuring legal compliance, protecting your business from penalties, and fostering employee trust. Whether you're a Filipino business owner, a startup founder, or an international company with employees in the Philippines, understanding how payroll works is crucial.

Payroll refers to the end-to-end process of compensating employees for their work within a specific period. It is not just about calculating salaries — it includes tracking employee work hours, determining applicable benefits and bonuses, deducting government-mandated contributions and taxes, and ensuring timely salary disbursement.

At its core, payroll ensures that employees are paid accurately and on time based on their contracts, performance, and legal entitlements. It also ensures that employers remain compliant with the labor code, tax regulations, and government contribution requirements.

Standard payroll process in the Philippines is as follows:

A small mistake in payroll can lead to compliance issues, employee dissatisfaction, and financial loss — making accuracy and consistency essential.

Payroll in the Philippines is composed of several key elements that determine how much an employee earns and how much must be deducted. A proper understanding of these components ensures both compliance with labor laws and accurate employee compensation.

This is the fixed amount stipulated in the employment contract. It is typically computed on a monthly basis and serves as the foundation for calculating benefits such as 13th month pay, leave conversions, and government-mandated contributions.

For daily-paid workers, the salary is computed based on the number of actual days worked, considering holidays, absences, and approved leaves.

Allowances are additional forms of compensation given to employees to cover specific needs. They can be taxable or non-taxable, depending on the type and amount.

If these allowances go beyond the non-taxable thresholds, they become part of the employee’s taxable income.

Employees who work beyond the standard 8 hours a day are entitled to overtime pay, which is computed as:

Overtime rates vary depending on the day and time the extra hours are rendered. Proper tracking of work hours is essential to ensure employees are compensated fairly and to avoid potential labor disputes.

Under Philippine labor law, employees who work during the night shift (between 10:00 PM and 6:00 AM) are entitled to a night shift differential of at least 10% of their regular hourly rate.

This premium is given in addition to any overtime, holiday, or rest day pay that may apply. All rank-and-file employees are covered unless their role is explicitly exempt under the Labor Code or other relevant regulations.

There are two types of holidays recognized in the Philippines:

Employers must monitor the holiday calendar released annually by the government to ensure correct pay computation.

The 13th month pay is a mandatory monetary benefit required under Presidential Decree No. 851 and its implementing rules, applicable to all rank-and-file employees.

All rank-and-file employees, regardless of employment status (regular, probationary, contractual, project-based, etc.), are entitled to 13th month pay as long as they have worked at least one month during the calendar year.

The 13th month pay is calculated as:

Commissions, overtime pay, allowances, and other monetary benefits are excluded, unless the employment contract or company policy specifically includes them in the computation.

Employers are required by law to pay the 13th month pay on or before December 24 of each year.

These are compulsory employee benefit contributions required by Philippine law. Employers must deduct the employee’s share from their salary and remit both employee and employer shares to the appropriate government agencies:

Employers are responsible for:

Withholding Tax is the portion of an employee’s salary that is deducted by the employer and remitted to the Bureau of Internal Revenue (BIR) as an advance payment of the employee’s income tax.

This is based on the employee’s taxable income and is calculated using the BIR’s withholding tax table, in accordance with the TRAIN Law.

Key points to note:

Proper withholding and remittance are essential to maintain tax compliance and avoid penalties for both the employer and the employee.

Under the Department of Labor and Employment (DOLE) regulations in the Philippines, employers are mandated to issue itemized payslips to employees every payday. Payslips ensure transparency and help employees understand how their compensation is computed.

Each payslip must clearly show the following details:

Employers are also legally obligated to keep detailed payroll records for each employee. These records must include attendance, salary details, leave credits, and all payroll-related transactions.

In the Philippines, payroll isn’t just about computing wages — it’s also about upholding employee rights and staying compliant with labor standards set by the Department of Labor and Employment (DOLE). Employers must be familiar with key labor provisions to avoid disputes, penalties, or costly litigation.

Here are the core areas of compliance:

Even well-intentioned businesses can encounter payroll issues that result in penalties, employee dissatisfaction, or legal problems. To ensure smooth operations and compliance, it's important to proactively identify and avoid these common payroll mistakes:

Incorrect computation of overtime rates, holiday pay, and night differentials can result in underpayment or overpayment. This is often due to:

Late or missed remittances for SSS, PhilHealth, Pag-IBIG, and Withholding Tax can result in:

SSS, PhilHealth, Pag-IBIG, and BIR regularly adjust contribution rates and tax brackets. If you don’t update your payroll system:

Poor timekeeping — manual logs, buddy punching, or outdated systems — can lead to:

According to DOLE regulations, employers must issue payslips every pay period. Not doing so may be seen as a red flag during audits or inspections.

Common issues include:

Getting payroll right isn't just about compliance — it's about building trust with your team and protecting your business. With the many moving parts involved, from statutory contributions to labor laws, staying updated and accurate is key.

Whether you handle payroll in-house or seek professional support, the goal is the same: to ensure your employees are paid correctly and on time. Because when payroll runs smoothly, your business runs better.