How to run payroll in Philippines

In the Philippines, most employers pay employees twice monthly (bi-monthly), typically on the 15th and 30th of each month. Here's the complete payroll cycle.

Payment frequency and timing

The Philippines follows a bi-monthly pay schedule as the standard practice. Most companies pay on the 15th and last day of each month, though some opt for the 15th and 30th.

Monthly payments are also common, particularly for management positions and foreign employees. Weekly payments are rare and typically limited to daily wage workers in specific industries.

Legal requirement: Employers must pay wages at least once every two weeks. Payment delays beyond this period can result in penalties from the Department of Labor and Employment (DOLE).

13th month pay

The 13th month pay is mandatory for all rank-and-file employees in the Philippines. This applies to both local and foreign companies operating in the country.

Calculation: One-twelfth (1/12) of the total basic salary earned during the calendar year. Overtime, night shift differentials, and other premiums aren't included in the calculation.

Payment deadline: Must be paid no later than December 24th each year. Many companies split this into two payments - mid-year bonus in June and the remainder in December.

Tax treatment: The first ₱90,000 of 13th month pay is tax-exempt for 2026. Any amount exceeding this threshold is subject to regular income tax.

Holiday and vacation pay

Service Incentive Leave (SIL): Employees who've worked for at least one year are entitled to five days of paid leave annually. Unused SIL must be converted to cash if not taken within the year.

Holiday pay calculation:

• Regular holidays: 200% of daily rate if worked, 100% if not worked
• Special non-working holidays: 130% if worked, no pay if not worked (unless company policy states otherwise)

Vacation leave payout: When employees resign or are terminated, unused vacation credits must be paid out at the employee's current daily rate. This is typically processed with the final pay, which should be released within 30 days of separation.

Payment methods

Bank transfer is the predominant payment method, especially post-COVID. The Bangko Sentral ng Pilipinas encourages electronic payments for better financial inclusion.

ATM payroll cards are popular for employees without traditional bank accounts. Many companies partner with banks to provide payroll cards that employees can use immediately.

Cash payments are still legal but increasingly rare. Companies using cash must ensure proper documentation and security measures.

International considerations: Foreign companies can maintain PHP accounts with authorized agent banks or use licensed money transfer services for payroll processing.

Payslip requirements

Every employee must receive a detailed payslip showing all earnings and deductions. This can be provided electronically or in paper format.

Required payslip elements:

• Employee name and ID number
• Pay period covered
• Basic salary and overtime hours
• All allowances and benefits
• Government contributions (SSS, PhilHealth, Pag-IBIG)
• Withholding tax (BIR)
• Net pay amount
• Year-to-date totals

Language: Payslips can be in English or Filipino. Most companies use English, especially multinational corporations.

Retention: Employers must keep payroll records for at least three years for labor law compliance and five years for tax purposes.

Payment Component	Timing	Notes
Regular salary	15th & 30th	Bi-monthly standard
13th month pay	By Dec 24	Mandatory for all employees
Final pay	Within 30 days	Includes unused leave credits
Holiday pay	Next regular payday	Based on holiday worked

Think you just withhold federal tax? Philippines adds local taxes and special rates for different employee types that catch many employers off guard.

The Philippines uses a progressive income tax system with rates from 0% to 35%. Most employees also face additional withholdings that vary by location and employment status.

Income tax brackets

The 2026 income tax rates apply to all resident employees:

Annual Income (₱)	Monthly Income (₱)	Tax Rate
₱0 - ₱250,000	₱0 - ₱20,833	0%
₱250,001 - ₱400,000	₱20,834 - ₱33,333	15%
₱400,001 - ₱800,000	₱33,334 - ₱66,667	20%
₱800,001 - ₱2,000,000	₱66,668 - ₱166,667	25%
₱2,000,001 - ₱8,000,000	₱166,668 - ₱666,667	30%
Over ₱8,000,000	Over ₱666,667	35%

Non-resident employees face a flat 25% tax rate on all income with no tax-free allowance.

Withholding requirements

You're responsible for withholding income tax from every payroll. The Bureau of Internal Revenue (BIR) requires monthly remittance by the 10th of the following month.

Register for withholding tax using BIR Form 1901 within 30 days of hiring your first employee. You'll receive a Tax Identification Number (TIN) that must appear on all tax documents.

File monthly withholding returns using BIR Form 1601C by the 10th of each month. Late filing triggers a ₱1,000 penalty plus 25% annual interest on unpaid amounts.

Annual reconciliation happens through BIR Form 1604C, due by January 31st. This matches your monthly withholdings against employees' actual annual income.

Tax registration

New employers need three key registrations before running payroll:

• BIR registration - Form 1901 for income tax withholding
• SSS registration - For social security contributions
• PhilHealth registration - For health insurance contributions

Complete all registrations within 30 days of incorporation or hiring your first employee. Missing these deadlines means ₱10,000 penalties per registration.

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Special tax considerations

Non-resident employees pay 25% flat tax with no deductions or allowances. This applies to foreign workers without permanent Philippine residence.

Tax treaties can reduce withholding rates for certain countries. The US-Philippines treaty drops rates to 15% for technical services. Always verify treaty benefits before applying reduced rates.

Local taxes vary by city. Makati City adds 0.5% business tax on gross receipts. Quezon City charges different rates based on business type.

Common tax mistakes

Misclassifying residents costs companies big. Treating a resident as non-resident means overpaying 25% instead of progressive rates. The BIR won't refund overpayments without lengthy appeals.

Missing monthly deadlines triggers automatic ₱1,000 penalties. Late payments add 25% annual interest that compounds monthly.

Incorrect treaty applications can void all benefits retroactively. The BIR requires pre-approval for treaty rates through proper documentation.

Employer contributions in Philippines add 12.5% to every salary. Budget for it.

Contribution breakdown

Contribution Type	Employer Rate	Employee Rate	Monthly Cap
SSS (Social Security)	4.5%	4.5%	₱2,700
PhilHealth	5%	5%	₱4,500
Pag-IBIG (Housing)	2%	2%	₱200
EC (Employment Compensation)	1%	0%	₱300
Total	12.5%	11.5%	-

Total employer cost example

For a ₱60,000 monthly salary:

• Base salary: ₱60,000
• SSS contribution: ₱2,700 (capped)
• PhilHealth: ₱3,000
• Pag-IBIG: ₱200 (capped)
• Employment Compensation: ₱300 (capped)

Total employer cost: ₱66,200 Cost multiplier: 1.10 (employer pays 10% more than base salary)

The percentage drops for high earners due to contribution caps. Someone earning ₱100,000 monthly only adds ₱6,200 in contributions, making the multiplier just 1.06.

Contribution caps and ceilings

Three contributions hit monthly caps that benefit high earners:

SSS caps at ₱2,700 for salaries above ₱30,000. Your ₱100,000 earner pays the same SSS as someone earning ₱30,000.

Pag-IBIG caps at ₱200 for salaries above ₱10,000. Nearly everyone hits this cap.

Employment Compensation caps at ₱300 for salaries above ₱30,000.

Only PhilHealth continues rising with salary, capping at ₱4,500 monthly for salaries above ₱90,000.

Registration requirements

Register with all four agencies before your first payroll:

SSS (Social Security System) - Register within 30 days of operations. You'll need SEC registration, business permits, and employee lists.

PhilHealth - Register within 30 days of hiring your first employee. Bring your business registration and employee details.

Pag-IBIG Fund - Register within 30 days of operations. Similar documentation to SSS.

DOLE (Department of Labor) - Register for Employment Compensation Program within 30 days.

Payment deadlines

Monthly contributions due by the 10th of the following month. If the 10th falls on a weekend or holiday, the deadline moves to the next business day.

Late payment penalties are steep:

• 3% monthly penalty on unpaid contributions
• Additional 3% monthly penalty on unpaid penalties
• Potential criminal liability for willful non-remittance

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Pay online through each agency's portal or authorized payment centers. Most employers use the online systems for faster processing and automatic receipts.

Philippines has 18 public holidays in 2026. Work on these days? Pay double.

Annual leave, sick days, and parental benefits all hit your payroll calculations differently in the Philippines. Some come from your budget, others from government funds. Here's what affects your monthly payroll runs.

Annual leave

Philippine employees earn 5 days of service incentive leave after one year of service. That's the legal minimum - many companies offer more.

You'll calculate vacation pay at the employee's regular daily rate. No complicated formulas here - just their standard daily wage times the days taken.

Carryover and payouts

Unused service incentive leave doesn't automatically carry over to the next year. You can set your own policy, but most companies allow carryover with management approval.

When employees leave, you must pay out unused vacation days at their final daily rate. This includes the cash equivalent of any accrued service incentive leave.

Sick leave

The Philippines doesn't mandate paid sick leave beyond what's covered by PhilHealth and SSS benefits. Your payroll typically covers the first few days while employees wait for government benefits to kick in.

Most companies provide 5-15 paid sick days annually. You'll pay the employee's regular rate, then they can claim SSS sickness benefits starting day 4 of illness.

Medical certificates

Employees need medical certificates for sick leave over 3 consecutive days. Without proper documentation, you can treat the absence as unpaid leave.

SSS pays sickness benefits at 90% of the average daily salary credit for up to 120 days per year. This doesn't come from your payroll - SSS handles these payments directly.

Parental leave

Maternity leave gives female employees 105 days (15 weeks) of paid leave. SSS pays this benefit, not your company payroll.

Paternity leave provides 7 days of paid leave for fathers. Again, SSS covers this cost.

Solo parent leave

Solo parents get an additional 7 days of paid leave annually. Your company pays this directly - it's not covered by government benefits.

Public holidays 2026

Date	Holiday	Premium Pay
Jan 1	New Year's Day	200%
Feb 12	Chinese New Year	130%
Feb 25	EDSA People Power Revolution	200%
Apr 9	Araw ng Kagitingan	200%
Apr 17	Maundy Thursday	200%
Apr 18	Good Friday	200%
May 1	Labor Day	200%
Jun 12	Independence Day	200%
Aug 21	Ninoy Aquino Day	130%
Aug 31	National Heroes Day	200%
Nov 1	All Saints' Day	130%
Nov 2	All Souls' Day	130%
Nov 30	Bonifacio Day	200%
Dec 8	Feast of Immaculate Conception	130%
Dec 25	Christmas Day	200%
Dec 30	Rizal Day	200%
Dec 31	Last Day of the Year	130%

Regular holidays require 200% pay for work performed. Special non-working days need 130% pay if employees work.

Mandatory benefits affecting payroll

13th month pay

You must pay employees their 13th month pay by December 24th each year. Calculate this as 1/12 of the employee's total basic salary earned during the year.

This isn't a deduction - it's an additional expense that hits your December payroll. Budget accordingly.

Government contributions

While SSS, PhilHealth, and Pag-IBIG contributions don't directly create leave, they fund the benefits that replace your payroll costs during extended absences.

De minimis benefits

The Philippines allows certain tax-free benefits up to specific limits. Rice allowance (₱2,000 monthly), uniform allowance (₱6,000 annually), and medical allowance (₱10,000 annually) don't affect payroll taxes when within limits.

Employment contracts in Philippines must include specific mandatory clauses or they're legally invalid. Missing elements like probationary periods, termination procedures, or salary breakdowns can trigger Department of Labor and Employment (DOLE) penalties starting at ₱25,000 per violation.

What monthly filings are required?

BIR tax withholding returns

File BIR Form 1601C by the 10th of the following month for income tax withheld from employees. Late filing incurs a ₱1,000 penalty plus 25% surcharge on unpaid taxes.

Submit through the BIR eFPS system - paper filings are no longer accepted for employers with 20+ employees.

SSS contributions

SSS Form R-3 must be filed by the 10th of the following month. The penalty for late filing is 3% per month of unpaid contributions, with a minimum penalty of ₱750.

Pay contributions through any authorized SSS collection partner or online via the My.SSS portal.

PhilHealth and Pag-IBIG filings

PhilHealth contributions are due by the 10th via the PhilHealth online portal. Pag-IBIG contributions follow the same deadline through their Virtual Pag-IBIG system.

What are the annual reporting requirements?

Year-end BIR reconciliation

Submit BIR Form 1604CF (Annual Information Return) by January 31, 2027. This reconciles all monthly withholding tax returns filed during 2026.

Late filing penalty is ₱1,000 plus 25% of any additional tax due. The BIR audits approximately 15% of employers annually, focusing on discrepancies between monthly and annual returns.

Employee tax certificates

Issue BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld) to all employees by January 31, 2027. Employees need this for their annual income tax returns.

Failure to provide certificates on time results in ₱1,000 penalty per missing certificate.

13th month pay reporting

Report all 13th month pay and other bonuses on BIR Form 1604E by January 31, 2027. This includes Christmas bonuses, productivity incentives, and any cash gifts exceeding ₱10,000.

What employee documentation is required?

Employment contract specifications

Contracts must be in English or Filipino and include probationary period terms (maximum 6 months), basic salary breakdown, work schedule, overtime rates, and grounds for termination.

Store signed originals for 30 years after employment ends - this is longer than most countries and strictly enforced.

Payslip requirements

Monthly payslips must show gross pay breakdown, all deductions (taxes, SSS, PhilHealth, Pag-IBIG), overtime calculations, and net pay. Include the pay period dates and employee ID number.

Missing any mandatory payslip element triggers a ₱5,000 penalty per affected employee.

Record retention

Keep all payroll records, timesheets, and tax documents for 10 years. Employee personnel files must be retained for 30 years after termination.

Digital storage is acceptable if you maintain backup systems and can produce records within 24 hours of a DOLE inspection.

What are the penalties for non-compliance?

Violation	Penalty
Late BIR tax filing	₱1,000 + 25% of unpaid tax
Missing payslip elements	₱5,000 per employee
Late SSS contributions	3% per month (min. ₱750)
Incorrect withholding	25% of underpayment
Missing employee certificates	₱1,000 per certificate
Unauthorized overtime	₱10,000 + back pay

Which agencies oversee payroll compliance?

Bureau of Internal Revenue (BIR)

Handles all income tax matters and withholding compliance. Use the BIR eFPS system for electronic filing at efps.bir.gov.ph.

Contact: 8981-8888 (trunkline) or visit your assigned Revenue District Office.

Department of Labor and Employment (DOLE)

Enforces labor standards, overtime rules, and employment contract requirements. File reports through the DOLE Integrated Livelihood and Emergency Employment Program portal.

Contact: 527-8000 or dole.gov.ph for online services.

Social Security System (SSS)

Manages social security contributions and benefits. Use My.SSS portal at sss.gov.ph for all filings and payments.

Contact: 8920-6446 for employer inquiries.

2026 brought several significant payroll changes to Philippines. Here's what you need to update.

Regional Minimum Wage Adjustments - Effective January 1, 2026

The Regional Tripartite Wages and Productivity Boards implemented new minimum wage rates across multiple regions. Metro Manila's minimum wage increased from ₱610 to ₱645 per day, marking a 5.7% increase.

Key regional changes include Calabarzon (₱470 to ₱495), Central Luzon (₱450 to ₱475), and Central Visayas (₱435 to ₱460). These adjustments affect over 2.8 million minimum wage workers nationwide.

Update your payroll systems immediately if you haven't already. The Department of Labor requires compliance within 15 days of the effective date.

SSS Contribution Rate Increase - Effective March 1, 2026

The Social Security System raised total contribution rates from 14% to 15% of monthly salary credit. Employee contributions increased from 4.5% to 5%, while employer contributions rose from 9.5% to 10%.

The maximum monthly salary credit remains at ₱30,000, so the highest monthly contribution is now ₱4,500 (₱1,500 employee, ₱3,000 employer). This represents a ₱321 monthly increase from the previous ₱4,200 total.

Adjust your payroll deductions starting with March 2026 pay periods. Late contributions incur 3% monthly penalties.

13th Month Pay Calculation Update - Effective December 2025

The Bureau of Internal Revenue clarified that overtime pay and night shift differentials must be included in 13th month pay calculations when these payments are regular and recurring.

This affects employees who consistently work overtime or night shifts. The change increases 13th month pay obligations for many employers, particularly in manufacturing and BPO sectors.

Review your 13th month pay calculations before the December 2026 payout. Underpayments may result in labor complaints and penalties.

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CREATE System Enhancement - Effective June 2026

The BIR's CREATE system now requires monthly submission of employee tax withholding details instead of quarterly reports. This change aims to improve tax collection efficiency and reduce year-end reconciliation issues.

Submit Form 1604CF monthly by the 10th of the following month. The system automatically generates compliance certificates upon successful submission.

Ensure your payroll software can generate the required monthly reports. Non-compliance results in ₱25,000 penalties per missed filing.