A complete guide to running compliant payroll in the Philippines—pay schedules, statutory deductions, employer costs, and year-end obligations.

If you’re hiring employees in the Philippines (directly or through an Employer of Record), payroll isn’t just “salary minus deductions.” Philippine payroll has specific legal requirements: pay frequency rules, government contributions, withholding tax, holiday/overtime premiums, and 13th month pay.

This guide explains the full system—what to pay, how to compute it, and how to avoid the most common compliance pitfalls.

Who This Guide Is For

This guide is relevant if you are:
• Hiring your first employees in the Philippines
• Currently using contractors who function like full time staff
• Operating under a BPO model but want more control and ownership
• Switching from an existing EOR provider
• Planning to build the Philippines as a long term hiring market

What You’ll Learn

By the end, you’ll understand:
• Required pay frequency and why monthly-only payroll is risky
• The exact structure of SSS, PhilHealth, and Pag IBIG contributions (who pays what and how caps work)
• How withholding tax is computed using official payroll tax tables
• How 13th month pay is computed, what counts as “basic salary,” and the deadline
• Why holiday, overtime, night shift, and rest day pay cause payroll mistakes
• How Lennorhive’s EOR payroll process keeps this compliant end-to-end

Payroll Basics in the Philippines

Philippine payroll has two big differences versus many Western countries:

1. Pay frequency is regulated (you can’t pay purely once a month if that violates the maximum interval rule).
2. Payroll is a compliance system: it must include statutory contributions, tax withholding, and legally required wage premiums.

A compliant payroll run produces:
• Gross pay and time-based adjustments (attendance, OT, holidays, night work)
• Employee deductions (statutory + tax)
• Employer counterpart costs (statutory)
• Payslip breakdown and remittance reporting

Required Pay Frequency (and common legal payroll schedules)

The legal principle

Wages must be paid at least:
• once every two weeks or
• twice a month
with intervals not exceeding 16 days.

The practical implication

This is why most employers run payroll semi monthly (commonly “15/30”) or “every two weeks.”

Common semi-monthly schedule used in practice

• Pay Day 1: mid-month payout
• Pay Day 2: end-month payout

Lennorhive Way

If a payday falls on a weekend or a bank holiday, employers typically release pay on the preceding working day to avoid delay issues.

Payroll Building Blocks: Gross Pay → Net Pay

Layer 1 — Earned Pay

• Basic salary (regular hours)
• Allowances (taxable or non-taxable depending on type)
• Premium pay: overtime, night shift, holiday, rest day

Layer 2 — Employee Statutory Deductions

• SSS (employee share)
• PhilHealth (employee share)
• Pag IBIG (employee share)

Layer 3 — Withholding Tax

• Computed on taxable compensation after mandatory deductions

Layer 4 — Net Pay

• What the employee actually receives

Statutory Payroll Contributions — Mandated by Law

These are legally required for all employees in the Philippines.
They cannot be waived, replaced, or paid out in cash.

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These statutory contributions form part of mandatory payroll compliance and apply irrespective of whether the employer is local or foreign, operating directly or through an Employer of Record (EOR).

Statutory Contributions (SSS, PhilHealth, Pag IBIG) — Full Computation

A) SSS (Social Security System)

What it’s for

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SSS is the Philippine social insurance system covering benefits such as sickness, maternity, disability, retirement, and death.

Core structure (employed members)

• Total contribution rate: 15% of MSC
• Employer share: 10%
• Employee share: 5%
• MSC minimum: ₱5,000
• MSC maximum: ₱35,000
• EC: employer-only fixed contribution
• MPF: applies at higher salary credits

EC (Employees’ Compensation)

EC is employer-only andfixed per bracket:

• ₱10 if MSC is ₱14,500 and below

• ₱30 if MSC is ₱15,000 and above

MPF (Mandatory Provident Fund)

At higher salary credits, theschedule includes an MPF component which is credited to the member’s individualprovident fund account.

How to compute SSS (step-by-step)

1. Identify the employee’s salary range and corresponding MSC

2. Pull the exact amounts from the SSS schedule row (EE share, ER share, EC, MPF where applicable)

3. Deduct employee share from payroll

4. Remit total to SSS

SSS reference examples (showingreal bracket behavior)

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B) PhilHealth

What it’s for

PhilHealth is the Philippines’ national health insurance program.

What salary is used

PhilHealth is computed using Monthly Basic Salary (MBS):
• MBS is the fixed basic rate of an employee
• It excludes: overtime pay, allowances, commissions, 13th month pay, bonuses, and other gratuities

Core structure

• Premium rate: 5%
• Salary floor: ₱10,000
• Salary ceiling: ₱100,000
• Shared equally (50/50):
o Employee share: 2.5%
o Employer share: 2.5%

How to compute PhilHealth

1. Determine base:
   o If MBS < ₱10,000 → base = ₱10,000
   o If ₱10,000 ≤ MBS ≤ ₱100,000 → base = MBS
   o If MBS > ₱100,000 → base = ₱100,000
2. Total premium = base × 5%
3. Employee share = total ÷ 2
4. Employer share = total ÷ 2

PhilHealth examples

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C) Pag IBIG (HDMF)

What it’s for

Pag IBIG is a housing and savings program supporting member savings, housing loans, and short-term loans.

Core structure (Monthly Membership Savings)

Contribution rates depend on the employee’s Fund Salary:
• Fund Salary ₱1,500 and below
o Employee: 1%
o Employer: 2%

• Fund Salary over ₱1,500
o Employee: 2%
o Employer: 2%

Maximum Fund Salary (MFS) cap

Pag IBIG contributions are computed only up to a Maximum Fund Salary of ₱10,000. So the maximum monthly contribution is:
• Employee: ₱10,000 × 2% = ₱200
• Employer: ₱10,000 × 2% = ₱200
• Total max = ₱400

How to compute Pag IBIG

1. Determine Fund Salary base
2. Apply cap: base = min(Fund Salary, ₱10,000)
3. Compute employee share (1% or 2%)
4. Compute employer share (2%)

Pag IBIG examples

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Withholding Tax (BIR) — Full Computation (Payroll Tables)

Withholding tax is deducted by the employer and remitted to the tax authority as an advance payment of the employee’s income tax.

Key principle

Withholding tax is based on taxable compensation, generally computed after subtracting mandatory employee contributions.

Official withholding tables (effective Jan 1, 2023 onwards)

Below are the commonly used Semi Monthly and Monthly withholding tax tables (the same structure applies for daily/weekly too).

Semi Monthly Withholding Tax Table (2023 onwards)

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Monthly Withholding Tax Table (2023 onwards)

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Worked withholding example (semi monthly)

Assume semi monthly taxable compensation is ₱40,000:
• Bracket: ₱33,333 – ₱83,332
• Tax = ₱4,270.70 + 25% of (₱40,000 – ₱33,333)
• Excess = ₱6,667
• 25% of excess = ₱1,666.75
• Withholding = ₱5,937.45

Lennorhive note: People often confuse “tax bracket” as a flat rate. In reality, only the excess over the threshold is taxed at the marginal rate.

13th Month Pay — Full Computation and Rules

Coverage

13th month is a mandated benefit and applies to rank-and-file employees in the private sector who worked at least one month in the calendar year, regardless of employment status or wage structure.

Amount and formula

Minimum 13th month pay must not be less than:
Total basic salary earned during the year ÷ 12

What counts as “basic salary”

Basic salary includes earnings for services rendered. It generally excludes:
• overtime pay
• premium pay
• night shift differential
• holiday pay
• allowances not integrated into basic salary
• unused leave conversions
• COLA
unless a company policy or agreement states otherwise.

Deadline and compliance posture

• Must be paid on or before December 24
• No exemption or deferment requests are allowed
• Employers must comply with DOLE reporting requirements

13th month examples

Example A (full year):
Monthly basic salary ₱50,000 × 12 = ₱600,000
13th month = ₱600,000 ÷ 12 = ₱50,000

Example B (6 months worked):
Monthly basic salary ₱50,000 × 6 = ₱300,000
13th month = ₱300,000 ÷ 12 = ₱25,000

Payroll Premiums Employers Commonly Miss (Holiday/OT/Night/Rest Day)

These are statutory wage-related benefits that are often incorrectly computed:

Holiday Pay (Regular Holidays)

• If employee does not work: 100% daily wage (subject to rules)
• If employee works: 200% daily wage (first 8 hours)

Premium Pay (Rest Day / Special Day)

• Work on rest day or special day: 130% daily rate
• Special day falling on rest day: 150% daily rate
• Regular holiday falling on rest day (worked): 260% daily rate

Overtime Pay

• OT on ordinary day: hourly rate × 125%
• OT on rest day/special day/regular holiday: applies additional premium rates

Night Shift Differential

• Additional 10% of hourly rate for work between 10:00 PM and 6:00 AM

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Employer Cost Planning (Sample Total Employer Cost)

Total employer cost = Gross Salary + Employer Statutory Shares + 13th month accrual + other employer-paid benefits

Example scenario: ₱50,000 monthly basic salary
• Employer SSS share (plus EC, MPF where applicable)
• Employer PhilHealth share
• Employer Pag IBIG share
• 13th month accrual (~1/12 monthly basic)
• Other benefits if applicable

Remittance & Payroll Timing (Operational Reality)

• Contributions deducted each payroll cycle
• Employer remits based on agency schedules
• Payslips must show earnings, deductions, tax, and net pay
• Year-end includes 13th month payout and tax annualization

Real Consequences of Non-Compliance

• Employee complaints and audits
• Back payments and correction runs
• Penalties and interest (depending on agency rules)
• Disputes during resignation or termination

How Lennorhive EOR Handles Payroll & Statutory Compliance

When Lennorhive acts as EOR:
• Runs compliant payroll cycles
• Computes and remits statutory contributions
• Processes 13th month pay per DOLE rules
• Provides payslips and payroll reports
• Clients retain operational control over employees

Key Takeaways

• Philippine payroll is strictly regulated
• Contributions have caps, thresholds, and formulas
• 13th month pay is mandatory
• Holiday/OT/night rules stack and are error-prone
• Proper payroll documentation is essential

FAQs

Can we pay employees once a month?

Only if payroll structure complies with legal pay interval rules. Most companies use semi-monthly cycles.

Why are deductions full even for mid-month hires?

Contributions follow payroll rules, not simple proration in many cases.

Is 13th month pay a bonus?

No. It is a statutory requirement.

Does overtime affect PhilHealth?

No. PhilHealth is based on Monthly Basic Salary only.

What is the maximum Pag IBIG contribution?

₱200 employee + ₱200 employer due to the ₱10,000 cap.

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