How to pay employees in the Philippines: A 2026 guide for global employers

Hiring and paying employees in the Philippines? Running payroll here isn’t complicated, but the rules are specific. Miss a contribution rate, file late, or misclassify a worker, and you’re looking at penalties from the Bureau of Internal Revenue (BIR)—or worse.

This guide walks you through how Philippine payroll works in 2026, what you’re on the hook for as an employer, and how to set it all up without becoming an expert in Philippine labour law.

How is payroll calculated in the Philippines?

Philippine payroll comes down to two things: an employee’s gross pay and their deductions. 

Gross pay covers base salary, overtime pay, 13th month pay, and other bonuses. Deductions cover withholding tax on compensation (the BIR’s term for employee income tax), Social Security (SSS), PhilHealth, and Home Development Mutual Fund (Pag-IBIG).

As an employer, you’re legally responsible for getting both sides right and remitting on time. Errors here are expensive, so accuracy matters.

Key payroll deductions and statutory contributions in the Philippines

Before you hire in the Philippines, get familiar with the Labor Code (Presidential Decree No. 442). It governs wages, working hours, and most employment standards. Here are the components that show up on every payslip:

• Minimum wage: Wages are set regionally, not nationally. Metro Manila has the highest minimum wage at PHP 695 per day for non-agriculture workers and PHP 658 per day for agriculture, retail, and small manufacturing. Other regions range from roughly PHP 366 to PHP 600 per day.

• Overtime: Anything over eight hours in a day counts as overtime and pays 125% of the regular hourly rate. Higher rates apply on rest days and special holidays.

• Holiday pay: Regular holidays (like Independence Day) pay 100% of daily wage if the employee doesn't work and 200% if they do. Special non-working days (like Ninoy Aquino Day) are "no work, no pay", with a 30% premium for those who work.

• Cost of living allowance (COLA): A regional top-up paid alongside base pay. In some regions it's built into the minimum wage; in others it's a separate line item.

• Social security system (SSS): The state-run program funding retirement, sickness, maternity, disability, and death benefits. The 2026 contribution is 15% of the employee's Monthly Salary Credit, split 10% employer and 5% employee.

• PhilHealth: Mandatory national health insurance. The premium is 5% of monthly basic salary, split 50/50 between employer and employee, capped at PHP 5,000 a month. 

• Home development mutual fund (Pag-IBIG): A government savings and housing loan fund. Both sides contribute 2% of the employee's Monthly Fund Salary, capped at PHP 200 each.

• Separation pay: Required when employment ends due to authorised causes, like redundancy. The amount varies depending on the cause and employee’s length of service.

Non-taxable benefits: Small tax-free perks on top of base pay (uniform allowances, rice subsidies, unused leave converted to cash). The BIR sets per-category limits.

How to run payroll in the Philippines

Here’s the order of operations, from setting up an entity to filing your first taxes.

Step 1. Set up a local entity in the Philippines or use an employer of record (EOR)

To hire and pay employees in the Philippines, first you need a legal employer here. That means either establishing your own entity or partnering with an employer of record.   

An EOR acts as the legal employer on your behalf. They handle hiring, payroll, taxes, and compliance with Philippine labour law, while your team manages day-to-day work. 

When do companies use an EOR? 

Most companies expanding into the Philippines start with an EOR. This is because setting up your own entity can take months, depending on how you apply, and whether the BIR manually reviews your registration. It’s a significant administrative load, and most smaller companies don’t have the time or resources to spare. For smaller teams or anyone testing the market, an EOR is faster and lighter.

When do companies create their own entity?

Once headcount and tenure in the Philippines justify the cost, companies typically transition from an EOR to their own entity. The break-even point varies, but it usually comes down to per-employee EOR fees outweighing the fixed costs of running a local entity.

To set up your own entity in the Philippines, you need to register your business with the BIR for a Tax Identification Number (TIN) and pay the applicable filing fees. From there, you register with the government agencies you’ll be remitting contributions to so you can stay compliant with Philippine labour law:

• Social Security System (SSS)

• Philippine Health Insurance Corporation (PhilHealth)

• Home Development Mutual Fund (HDMF), also known as the Pag-IBIG Fund

• Department of Labor and Employment (DOLE) 

Step 2. Pick a global payroll software solution

Outsourcing payroll saves time, reduces errors, and gives you compliance support. Before you pick a provider, you should understand the two types of global payroll solutions on the market: 

• Global payroll processors actually process payroll, transmit funds, and calculate and file taxes in every country through their own software. You can pay your international and local employees in a single pay run.

• Global payroll aggregators coordinate a network of local payroll providers. They pass your payroll files between you and those providers, which adds handoffs and lag.

You can dig into the difference in our guide.

Step 3. Determine your workers’ employment status

Before you onboard anyone, make sure you’re clear on who you’re paying in the eyes of Philippine law: Are your workers employees or contractors? Misclassification triggers fines, back contributions, and potential legal exposure.

Philippine Supreme Court rulings have established a four-fold test that looks at:

• Selection and engagement of the worker

• Payment of wages

• Power to dismiss

• The level of control the employer has over how the work is done (the most important factor)

If they’re an employee, you’re responsible for SSS, PhilHealth, Pag-IBIG, and income tax withholding. If they’re a contractor, they handle their own remittances.

See if you’re misclassifying an employee with 10 questions

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Step 4. Capture your new hires’ payroll information

Once you’ve picked between an EOR or your own entity, chosen a payroll solution, and confirmed worker classification, you can start collecting the information you need to pay your team in the Philippines. Just make sure each employee’s record covers:

• Full name (matching the bank account where you’ll deposit pay).

• Date of birth and date of hire.

• Contact information, including their mailing address in the Philippines.

• Bank account details.

• Salary in PHP (including any bonuses).

• Tax Identification Number (TIN).

• Social Security System (SSS) number.

• PhilHealth number. 

• Home Development Mutual Fund (Pag-IBIG) registration, available online.

Step 5. Pay in Philippine pesos (PHP)

You can base salaries in your local currency, but you should pay in PHP. It’s what employees expect, what their banks process most cleanly, and what local tax and contribution agencies require.

Of course, paying in PHP from outside of the Philippines comes with a few challenges. The peso-to-USD exchange rate can vary, which can affect your effective wage cost month to month. Currency volatility also creates accounting work when reconciling financial statements. But most global payroll platforms handle the conversion for you.

Step 6. Run payroll

With an entity (either your own or via an EOR), a payroll system, and properly classified employees in place, you’re ready to run payroll. Wages must be paid at least twice a month at intervals not exceeding 16 days. Most Philippine employers run a semi-monthly cycle, typically paying on the 15th and the last day of the month.

Step 7. File your taxes in the Philippines

Once you’re up and running paying your employees in the Philippines, you need to withhold a certain amount of local taxes to send the BIR. You’re responsible for withholding and remitting:

• Income tax

• SSS contributions (covering retirement, unemployment, and maternity benefits)

• PhilHealth premiums

• Pag-IBIG contributions 

How much salary is taxable in the Philippines? It depends on the annual amount as withholding tax on compensation in the Philippines is graduated. The 2026 tax brackets look like this:

Run payroll in the Philippines with Rippling

The Philippines is one of the world’s most attractive talent markets, but the compliance overhead is real. Wage orders shift regionally, contribution rates step up on government schedules, and BIR and DOLE don’t grade on a curve. With Rippling’s global payroll and hiring software, you can hire, manage, and pay employees in the Philippines and 50+ other countries from a single system. No spreadsheet stack, no piecing together local providers, no manual tax tables. 

Rippling’s global payroll service helps you with: 

• Multi-country payroll processing: Calculate and pay employee salaries, wages, bonuses, and deductions across markets in a single pay run. 

• Tax compliance: File and pay payroll taxes in line with local laws and to the correct local entities. 

• Benefits administration: Manage employee benefits for your global workforce, including health insurance, retirement plans, and other perks. 

• Local compliance: Stay aligned with local labour laws and regulations across countries.

• Reporting: Generate detailed payroll data reports and analytics for internal and external use. 

• Multinational payments: Handle currency conversions for international payments in employees’ local currencies. 

• Employee support: Get payroll experts to help your HR team with employee payroll inquiries, pay stubs, payslips, and record keeping.

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Payroll in the Philippines FAQs

What are the payroll deductions in the Philippines?

Employers withhold three mandatory contributions from full-time employees’ pay each month, alongside income tax. The employer also pays a matching share for SSS, PhilHealth, and Pag-IBIG. Here’s what the employer side looks like in 2026:

What is the average salary for employees in the Philippines?

The average monthly salary of a Filipino employee is PHP 45,000, but it varies widely by industry, role, and experience. The top five salaries in the Philippines are:

What are the minimum wages in the Philippines?

The Philippines has no single national minimum wage. Regional Tripartite Wages and Productivity Boards (RTWPBs) set rates for each of the country’s 17 regions, and rates can vary further by sector and business size within a region.

Metro Manila has the highest rates, at PHP 695 per day for non-agriculture workers and PHP 658 per day for agriculture, retail, and small manufacturing. Other regions range from roughly PHP 366 to PHP 600. For the most current rates by region, check the National Wages and Productivity Commission.

Rates above reflect the latest issued wage orders as of May 1, 2026. Several regions have additional tranche increases scheduled later in 2026. Within each region, rates may vary by sector (non-agriculture, agriculture, retail/service), establishment size, and province. Verify the exact applicable rate for your workplace location with the National Wages and Productivity Commission.

What is the pay cycle in the Philippines?

The standard Philippines payroll cycle is semi-monthly, meaning employees must be paid at least every two weeks or twice a month, with no more than 16 days between paydays. Most employers pay on the 15th and the last day of the month. Weekly pay is also allowed, but once-a-month pay is not (except for managerial employees).

Do employers in the Philippines commonly use a probationary period for new hires?

Yes. Probationary periods are standard in the Philippines, typically lasting six months. During that time, employers assess whether a new hire meets the role’s requirements before deciding if they’re a good fit in the long run. 

Two things to keep in mind from a payroll perspective:

• Probationary employees are usually paid at the same pay rate as regular employees, though their benefits may differ depending on the company’s policy. 

• If you don’t decide to retain a probationary employee, the termination still has to follow due process under Philippine law. Whether severance pay applies depends on the cause of termination. 

How much does it cost to run payroll in the Philippines?

Most payroll software is priced per-employee or per pay run. Pricing usually depends on:

• Payroll frequency.

• Number of employees on your payroll.

• Number of regions where you employ employees.

• How often you add and remove payees.

• Add-on services like year-end processing or mailing out pay stubs.

Can I manually run payroll for workers in the Philippines?

You can, but the cost-benefit gets ugly fast. Some small business owners choose to run payroll themselves, using a payroll calculator and making a direct deposit to save on software fees. But as headcount grows the time and risk involved usually outweigh the savings.

Two risks to keep in mind:

Compliance: Manual payroll without using local payroll software puts you at risk of errors and missed remittances. Rippling helps you stay compliant with minimum wages and overtime rules, which can save you from costly penalties.

Security: Spreadsheets and paper records make sensitive employee data easier to lose, leak, or misuse than a system with proper access controls and audit trails.

What are the late tax filing penalties in the Philippines?

The BIR imposes several penalties for late or incorrect filings: 

Surcharge: A 25% civil penalty on the tax due for failure to file a return on time (50% for wilful neglect or fraud).

Interest: Unpaid taxes accrue interest at twice the legal interest rate set by the Bangko Sentral ng Pilipinas (currently 12% per year). 

Compromise: If you don’t file a return on time, provide inaccurate information, or fail to withhold the necessary tax deductions, you’re subject to fines of up to PHP 50,000, with potential imprisonment for serious violations. 

How do you pay contractors in the Philippines?

• Confirm the worker is correctly classified as a contractor (you can use Rippling’s free Worker Classification Analyser).

• Agree on the payment terms with the contractor: hourly or project rate, payment cadence, and method of payment. 

• Collect their payroll information, including their name, date of birth, contact details, and bank account.

• Use your payroll software to pay the contractor in PHP. With Rippling, you can pay contractors in Philippine pesos in a single pay run, without waiting on transfers or conversions.

Remember, when hiring contractors in the Philippines, you’re not responsible for withholding tax from their pay—they remit their own to the BIR. You’re still expected to keep accurate records of payments and the working relationship.