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  • Writer's pictureAnn Abayari

The Basics of Payroll in the Philippines: A Comprehensive Guide

Payroll management is an essential aspect of running a business. It involves the process of calculating employee wages, deductions, and taxes, ensuring compliance with labor laws and regulations, and maintaining accurate financial records. In the Philippines, payroll management follows specific guidelines and requirements that employers must adhere to. This article serves as a comprehensive guide to understanding the basics of payroll in the Philippines.

Payroll processing in the Philippines with cloud-based software

  1. Registering with Appropriate Agencies: Before initiating the payroll process, businesses must register with the relevant government agencies in the Philippines. The primary agencies include the Bureau of Internal Revenue (BIR) and the Social Security System (SSS). Registering with these agencies enables employers to obtain the necessary identification numbers and fulfill their legal obligations.

  2. Determining Wages: The first step in payroll management is determining employee wages. In the Philippines, minimum wages are set by region or industry and are subject to periodic adjustments. Employers must ensure compliance with the minimum wage requirements and accurately calculate wages based on factors such as hourly rates, daily rates, or monthly salaries.

  3. Computing Income Tax: Income tax deductions are a crucial aspect of payroll management. The Philippine tax system operates on a progressive tax scale, which means that tax rates increase as income levels rise. Employers are responsible for deducting the appropriate amount of income tax from employee salaries and remitting it to the BIR.

  4. Social Security and Health Insurance Contributions: Contributions to the Social Security System (SSS) and Philippine Health Insurance Corporation (PhilHealth) are mandatory for both employees and employers. Employers are responsible for deducting the employee's share of contributions from their salaries and remitting it, along with the employer's share, to the respective agencies. These contributions provide employees with various benefits such as retirement pensions, medical coverage, and maternity benefits.

  5. Pag-IBIG Fund Contributions: The Home Development Mutual Fund (HDMF), also known as Pag-IBIG Fund, is another mandatory contribution for employees in the Philippines. Employers must deduct the employee's contribution from their salaries and remit it, along with the employer's share, to Pag-IBIG Fund. The funds accumulated in Pag-IBIG accounts can be utilized by employees to obtain housing loans or for provident savings.

  6. Overtime, Bonuses, and Deductions: Payroll management includes accounting for overtime work, bonuses, and deductions. Overtime pay is typically calculated based on specific rules and rates defined by the Philippine Labor Code. Employers must accurately calculate and compensate employees for any overtime worked. Additionally, bonuses, such as the mandatory 13th-month pay, must be factored into the payroll process. Deductions, on the other hand, can include loan repayments, absences, or any other authorized deductions agreed upon by the employer and employee.

  7. Payslip Generation and Record Keeping: Employers are required to provide employees with a detailed payslip for each pay period. The payslip should include essential information such as the employee's basic salary, allowances, deductions, and net pay. Additionally, employers must maintain accurate records of payroll-related information, including employee contracts, attendance records, tax forms, and payment receipts, as these documents may be required for audits or legal purposes.

Payroll software makes Philippines payroll compliant and more efficient

Managing payroll in the Philippines involves a range of legal and administrative responsibilities. By understanding the basics of payroll management, businesses can ensure compliance with labor laws, maintain accurate financial records, and foster positive employee relations. Employers should seek professional advice or consult with local authorities to ensure they meet all the requirements and obligations related to payroll management in the Philippines.


KarbonPay can help keep your business compliant with all these regulations. Contact us now to find out more.


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