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The essential guide to payroll in the Philippines

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Whether you’re considering setting up payroll operations in the Philippines, or you’re joining an established team there, you’ll need to be across the basics of payroll compliance. Here’s what you need to know.

While the Philippines is still considered an emerging market, it enjoys a strong and stable economy with low-interest rates, a focus on growing industries such as manufacturing and agribusiness, and a young and educated workforce. This has helped it become one of the fastest-growing economies in Asia.

The Philippines boasts a population of almost 90 million people who are considered to be the second most confident consumers in the world. Many foreign business owners are attracted to expansion within the Philippines due to incentives such as tax deductions and exemptions, and permanent resident status for foreign investors.

Overview of payroll requirements

Tax

  • Personal income tax in the Philippines ranges from 0% – 35%. However, once an individual’s income reaches PHP 400,000 they are required to pay a lump sum as well as being taxed on the remainder of their income over that threshold. For example, an income of PHP 400,000 – PHP 800,00 would incur taxes of PHP 30,000 + 25% of the excess over PHP 400,000.
  • Non-resident employees are taxed at a flat rate of 25%, however, there are exceptions where the nature of their income differs.
  • Some non-taxable allowances are often factored into a worker’s salary package. These may include a medical allowance, uniform allowance or meal allowance. There are limits set by the Bureau of Internal Revenue also known as de minimis benefits on the taxability of certain allowances.

Leave

  • If an employee arrives late to work or leaves early, their employer is entitled to deduct this time from their salary. This is usually specified in the company’s leave policy.
  • Employees who have paid at least 3 months of Social Security contributions are entitled to 120 days of paid leave at a rate of 90% their usual daily salary. The contributions to Social Security must have been paid in the 12 months prior to taking the leave.
  • Eligible female employees are entitled to 105 days of maternity leave with full pay, with an option to extend for another 30 days without pay.
  • Men seeking paternity leave must be legally married to the mother of the child. They are entitled to 7 days of paid leave which must be taken within 60 days of the birth or miscarriage. Alternatively, a female worker entitled to maternity leave benefits may, if she chooses, allocate up to 7 days of benefits to the child’s father, whether or not they are married.
  • Paid parental leave for single parents and domestic violence leave for women who meet the eligibility criteria are also available in the Philippines.

Social Security

  • In the Philippines, the Social Security System is in place to provide benefits to workers who are unable to work temporarily or permanently.
  • Both employees and employers make contributions to the fund, and the contribution amount is dependent on the individual’s salary. Contributions are capped once total compensation reaches PHP 19,750.00.
  • Each month, 3% of a worker’s salary is deducted so it can be contributed to PhilHealth, the country’s health insurance program.
  • Home Development Mutual Fund (Pag-IBIG), a national home loan and housing fund, also exists in the Philippines. Each month, PHP 100 is deducted from each worker’s salary to contribute to its efforts.

Reporting and compliance

  • Employers are obligated to withhold tax from their employee’s salaries. Tax must then be paid to the authorities by the 10th day of the following month, except for December’s tax, which can be paid by 15th

Philippines

Quirks of payroll in The Philippines to take note of

In the Philippines, the rate of pay increases when work is performed between the hours of 10 pm and 6 am the following day. The increase must be at least 10% more than the average rate of pay. There are some exceptions to the types of workers who are eligible for this rate increase, such as government workers.

There is no national fixed minimum wage in the Philippines. The minimum rate of pay varies from region to region and also depends on the industry in which the work is done.

Overtime must be paid for time spent working more than 8 hours per day. The minimum amount of overtime that should be paid is 125% of the worker’s usual rate of pay. This rate may increase further if the overtime occurs on a public holiday, a rest day or during a night shift.

Retirement pay is to be made to employees over the age of 60 who have been with the same organisation for at least five years before retirement. The minimum requirement is half a month’s salary for every year of service. Retirement pay is tax-exempt.

There is a “double holiday” in the Philippines, where two public holidays happen to fall on the one day. In this instance, workers are entitled to double their usual holiday rate. Employees who work overtime or a night shift on a double holiday will also be entitled to additional pay on top of the double holiday rate.

A concept referred to as “13-month pay” is also found in the Philippines. By 24th December each year, employees who have worked at their organisation for at least 1 month are to be paid an amount of 1/12th their usual yearly salary. This is essentially a bonus, which is non-taxable for amounts under PHP 90,000.

Of course, these are just the basics of payroll compliance in The Philippines. As with any country’s payroll, there are a lot more complexities you’ll need to be across.

To ensure you’re fully compliant, team up with a seasoned payroll partner like Ascender. We have local experts in the Philippines who can guide you through the process and ensure you’re up-to-date with changing legislation. Get in touch to find out more.

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