Our guide to Payroll in Philippines

Doing Business in Philippines

Investing in Philippines

The government provides various incentives to encourage inward investment in the Philippines, ranging from special economic zones, tax holidays, and reduced corporate income tax rates.

Basic Facts about Philippines

Full Name: Republic of the Philippines

Population: 117 million (2025 estimate)

Capital: Manila

Major Language: Filipino, English (both official)

Major Religion: Predominantly Christianity

Main Exports: Electrical machinery, clothing, food, live animals, chemicals, and timber products

GNI per Capita: US $4,230.00 (World Bank, 2023)

Internet Domain: .ph

International Dialing Code: +63

How to say:

Hello: Kumusta

Good morning: Magandang umaga

Good evening: Magandang gabi

Do you speak English? Nagsasalita ba kayo ng Ingles

Goodbye: Paalam

Thank you: Salamat

See you later: Hanggang sa muling pagkikita

Registrations and Establishing an Entity

All entities must be legally registered in the Philippines to be able to process payroll:

• Sole proprietorships register with the Department of Trade and Industry (DTI).
• Partnerships and corporations register with the Securities and Exchange Commission (SEC).

Any company wanting to employ staff in the Philippines must meet the following basic requirements to set up a business in the Philippines:

• Obtain bank certificate of deposit of the paid-in capital
• Register with the Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI)
• Obtain Community Tax Certificate (CTC), Barangay (district) clearance and mayor’s permit/municipal license
• Register at the Bureau of Internal Revenue (BIR)
• Pay Documentary stamp Tax
• Obtain special books of account (one set of four books: the cash receipts account, the disbursements account, the ledger, and the general journal) for presentation
• Obtain the authority to print receipt/invoices from the Bureau of Internal Revenue (BIR)
• Register with the Social Security System (SSS), Home Development Mutual Fund (HDMF or Pag-ibig Fund) and Philippine Health Insurance Corporation (Philhealth)

Banking

It is mandatory to make payments to both employees and the authorities from an in-country bank account if the client is making the payments themselves. However, if the payroll is outsourced and all cash transactions are dealt with from overseas, a Philippine bank account is not required for payroll purposes as the payroll provider can make payments on the employers’ behalf using their own bank account.

Most banks operate Monday to Friday, 9:00 AM to 3:00–4:00 PM. Selected branches, particularly in shopping malls, may open on Saturdays.

Working Week

The working week is Monday to Friday. The working day for commercial offices is usually eight hours, exclusive of mealtimes. Some services require that some employees work for 6 days or 48 hours.

Employment Law

Holiday Accrual

Employees who have rendered at least one year of service are entitled to a yearly Service Incentive Leave (SIL) of five (5) days with pay.

Maternity Leave

• Normal Childbirth or Caesarean Delivery: 105 days of paid maternity leave, with an option to extend for an additional 30 days without pay (written notice required 45 days before the original leave ends).
• Single Mothers: 120 days of paid maternity leave.
• Miscarriage or Emergency Terminations: 60 days of paid maternity leave.

Paternity Leave

• Company Benefit: Up to 7 days of paternity leave for the first to fourth deliveries of the legitimate spouse. A birth certificate is required.
• Private Sector: All married male employees are granted 7 days of paternity leave with full pay, regardless of employment status.

Sick Leave

• No Legal Entitlement: The yearly Service Incentive Leave (SIL) can be used for sick leave purposes. Additional sick leave is at the company's discretion.
• SSS Sickness Benefit: SSS members can avail of a daily cash allowance equivalent to 90% of their average daily salary credit for the number of days they are unable to work due to sickness or injury. Employers must advance the payment and will be reimbursed by SSS upon submission of necessary documents.

National Service

There is no compulsory military service in the Philippines.

Tax & Social Security

The tax year runs from January 1 to December 31.

In the Philippines, employers are required to deduct and withhold taxes on employees' compensation according to the law. This means personal income tax is collected from the employee through payroll, with the employer acting as the withholding agent and must remit mandatory contributions to SSS, Pag-IBIG, and PhilHealth.

Here are the withholding tax rates for 2025:

• Up to ₱250,000: 0%
• ₱250,001 to ₱400,000: 20% of excess over ₱250,000
• ₱400,001 to ₱800,000: ₱30,000 + 25% of excess over ₱400,000
• ₱800,001 to ₱2,000,000: ₱130,000 + 30% of excess over ₱800,000
• ₱2,000,001 to ₱8,000,000: ₱490,000 + 32% of excess over ₱2,000,000
• Over ₱8,000,000: ₱2,410,000 + 35% of excess over ₱8,000,000

Home Development Mutual Fund

The Home Development Mutual Fund (HDMF), commonly known as the Pag-IBIG Fund, provides a national savings program and affordable housing financing for Filipino workers. Membership is mandatory for all employees, workers, professionals, officers, and companies covered by the Social Security System (SSS) and Government Service Insurance System (GSIS).

Here are the mandatory contribution rates for Pag-IBIG Fund members in 2025:

Monthly Compensation of ₱1,500 and below:

• Employee Share: 1%

• Employer Share: 2%

Monthly Compensation over ₱1,500:

• Employee Share: 2%

• Employer Share: 2%

• Maximum contribution capped at ₱200 each (Employee and Employer) per month (Based on 2% of ₱10,000 MFS).

Social Security System (SSS)

SSS is a privatized social insurance program established to protect members and their families against the hazards of disability, sickness, maternity, old age, death and other contingencies resulting in loss of income or financial burden.

All private employees and employers are compulsorily covered under this program. The Social Security premium of both the employee and employer will vary depending on the employee’s monthly compensation bracket (see www.sss. Gov.ph). Employers must deduct the Social Security contributions from the employees’ salary and remit these contributions, together with the employer’s share of contributions, to the SSS or any accredited banks

Republic Act No. 11199, otherwise known as the Social Security Act of 2018, which includes a provision increases the following effective year 2025:

1. Contribution rate to 15% (Employer and Employees)
2. Minimum Monthly Salary Credit (MSC) to P5,000.00
3. Maximum MSC to P35,000.00

An SSS employee-member should:

• Secure their SSS numbers;

• Ensure that they are reported for coverage under the SSS by their employers;

• Pay their monthly share of contributions and ensure that these contributions are remitted to the SSS by their employers;

• Submit to their employer SSS Salary Loan Voucher or Statement if any, to commence loan amortization deductions from their monthly payroll. Ensure that the employer has done the necessary ML2 posting.

An employer is obliged to:

• Require to see the SSS number of a prospective employee;

• Report all employees for SSS coverage within thirty (30) days from the date of employment

• Deduct from the employees the monthly SSS contributions based on the schedule of contributions;

• Submit a summary of all employees’ contributions

• Ensure that Monthly SSS Electronic Collection Lists with Payment Reference Number (PRN) where employees’ names are included, are submitted to the SSS with payment.

• The employer shall be responsible for the collection and remittance to the SSS of the amortization due on the member-borrower’s salary loan through payroll deduction.

Philippine Health Insurance Corporation (PHILHEALTH)

The Philippine Health Insurance Corporation, popularly known as PhilHealth, is a government-funded health care system in the Philippines.

Contribution Rates (2025):

• 4% of monthly salary, shared equally by employer and employee
• Subject to minimum and maximum salary base

Reporting

Social Security System (SSS)

• Electronic Collection List (e-CS) with PRN: Replaces R3 and R5 forms for real-time payment posting.
• SSS SL ML1 and ML2: Salary Loan Payment Return Form (ML1).

PhilHealth

• SPA Online: Contribution Payment Return for remitting monthly premiums via ePRS.
• Form ER2: Report of Employee-Members.
• Form RF-1: Employer’s Remittance Report.

Pag-IBIG Fund

• Form MCRF: Membership Contribution Remittance Form for reporting monthly contributions.

Bureau of Internal Revenue (BIR)

• Form 1601-C: Monthly Remittance Return of Income Tax Withheld on Compensation.
• Form 1604-C: Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes.
• Form 1905: Certificate of Update of Exemption and of Employer’s and Employee’s Information.
• Form 1700: Annual Income Tax Return for non-substituted filers.
• Alphalist Data File Reporting: Includes various schedules for employee information and tax remittances.
• Form 2316: Employer’s Certificate of Compensation Payment/Tax Withheld, issued to employees annually.

Filing Types

• Substituted Filing: For employees with income from only one employer during the taxable year.
• Non-Substituted Filing: For employees with mixed sources of income, multiple employers or income from both employment and business/self-employment.

Authorization

• Payroll vendors may act as authorized representatives for transactions with statutory agencies, provided they have clear authorization from the client and a documented Secretary’s Certificate or Board Resolution.

Payroll

It is legally acceptable in the Philippines to provide employees with online payslips.

Every employer shall pay their employees by means of a payroll wherein the following information and data shall be individually shown:

• Length of time to be paid;
• The rate of pay per month, week, day or hour etc.;
• The amount due for regular work;
• The amount due for overtime work;
• Deductions made from the wages of the Employees;
• Amount actually paid.

Reports

All employment records that are required to be kept and maintained by Employers must be kept for 5 years from the date of the last entry in the records.

New Employees

To ensure compliance with Philippine regulations, new employees must be registered with the authorities by their start date. Here's what they need to submit:

• Social Security Number (SSS No.)
• PhilHealth Number
• Pag-IBIG Membership ID Number (MID)
• Taxpayer Identification Number (TIN)

Registration Process

New employees must register with the SSS, PhilHealth, and HDMF within 30 days of employment to facilitate the processing of their statutory contributions.

Required Information

While there's no specific template mandated by Philippine law, the following basic information is required to set up a new employee:

• Name
• Gender
• Marital Status
• Date of Birth
• Nationality and Citizenship
• Address
• Social Security Number
• PhilHealth Number
• HDMF Number
• Taxpayer Identification Number (TIN)
• Tax Status (Marital Status and Number of Dependents)

Additionally, the Certificate of Compensation Payment and Taxes Withheld (BIR Form 2316) from the employee’s previous employer should be submitted to the current employer within 30 days of employment.

Leavers

When an employee leaves, their final payment will be issued 10 days after they complete the exit clearance requirements. It's the employer's responsibility to notify the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund (HDMF) of the employee’s resignation within 30 calendar days from the date of separation.

Employee Benefits

• Allowances integrated into payroll are taxable if regular.

Certain de minimis benefits (e.g., rice subsidy, uniform allowance, medical cash allowance within limits) are non-taxable.

Visas & Work Permits

Work Visa and TIN Requirements

• TIN Requirement: All applications for work permits and working visas must be supported by a Taxpayer Identification Number (TIN). This applies regardless of the duration of the assignment.
• Provisional Work Permit (PWP): Allows foreign nationals to start working in local establishments for up to three months while their work visa is pending. PWPs also require a TIN.
• Eligibility: Candidates must have a sponsor, i.e., a Philippines-based company. The employment offer must be demonstrated through a letter of request from the sponsoring employer and an affidavit of support and guarantee.

Leaving the Philippines

• Notification: Work visa holders must notify the Philippines immigration services about their intention to leave the country.
• Cancellation: A letter of cancellation must be presented to the Bureau of Immigration, and the Alien Employment Permit must be returned.
• Employers should also ensure that all statutory contributions (SSS, PhilHealth, Pag-IBIG, and BIR withholding taxes) are settled before the employee departs.

Family Immigration

• Dependents: Only married partners and dependent children can be included in the main applicant's visa application. Unmarried partners are not categorized as dependents.
• Accompanying Family: The spouse and dependent children of the main applicant can accompany them to the Philippines for the same duration and may study in the Philippines if they choose to do so

Allowances included in monthly salary are subject to withholding. Non-substituted filing is required for individuals with multiple income sources. Dependents must be officially declared to benefit from tax exemptions. All statutory registrations and reporting platforms require accurate and timely employer-led processing.

Further Information

For more information, or assistance with Philippines Tax inquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.