Hiring in the Philippines gives you access to a large, English-speaking talent pool with strong technical and professional skills. But running payroll correctly requires more than transferring a salary. Philippine labor law sets specific rules on pay frequency, mandatory benefits, overtime calculations, and tax withholding, and the penalties for getting it wrong can be significant. This guide covers everything a foreign employer needs to know before processing their first payroll run.
Pay frequency and pay dates
Philippine law requires employers to pay employees at least twice a month, with no more than 16 days between payments. The standard schedule runs on the 15th and the last working day of each month. You can agree to more frequent payments, but you can’t pay less often than bi-monthly.
Wages must be paid in Philippine Pesos (₱ or PHP) and must be paid directly to the employee. Deductions are only allowed for items permitted by law or by written employee consent.
Working hours and overtime
Standard hours
The standard working week in the Philippines is 8 hours per day and 48 hours per week. Any work beyond 8 hours in a single day qualifies as overtime, regardless of how many hours the employee has worked that week.
Overtime rates
Overtime pay rates depend on when the extra hours are worked:
- Regular working day: 125% of the employee’s hourly rate
- Rest day or special holiday: 130% of the regular hourly rate
- Regular holiday: 200% or more, depending on the combination of holiday type and whether it falls on a rest day
Employers need to track daily hours carefully. Underpaying overtime is one of the more common compliance issues foreign employers run into when they’re managing Philippine payroll remotely.
Night shift differential
Employees who work between 10pm and 6am are entitled to a 10% premium on top of their regular hourly rate for those hours. This applies whether or not the shift also involves overtime.
Minimum wage
Minimum wage in the Philippines is set by region and sector, so the rate that applies to your employees depends on where they’re based and what industry they work in.
In Metro Manila (the National Capital Region), the current minimum wage for non-agriculture workers is ₱695 per day, under Wage Order NCR-26, which took effect on July 18, 2025. For workers in agriculture, or in small service and retail establishments with 15 or fewer workers, the rate is ₱658 per day.
Outside the NCR, rates are lower and vary by region. Employers should check the applicable Regional Tripartite Wages and Productivity Board (RTWPB) order for any region where they have employees.
Mandatory benefits and contributions
Philippine payroll isn’t just salary. Employers are required to contribute to three government programs on behalf of their employees.
Sss, philhealth, and pag-ibig
- SSS (Social Security System): Employer contribution is 10% of the employee’s monthly salary credit
- PhilHealth (health insurance): Employer contribution is 2.5% of the monthly basic salary
- Pag-IBIG (housing fund): Employer contribution is 2%, capped at ₱200 per month
These contributions are remitted monthly to the respective agencies. Failure to remit on time carries penalties and interest.
13Th month pay
Thirteen-month pay is mandatory for all rank-and-file employees in the Philippines. It’s calculated as 1/12 of the employee’s total basic salary earned during the calendar year and must be paid out by December 24 each year.
Employees who haven’t completed a full year of service still receive a pro-rated amount based on the months they’ve worked. Probationary employees are included: workers on probation (up to 6 months) carry the same payroll entitlements as regular employees and are entitled to 13th month pay.
Tax withholding and compliance
Philippine employers are responsible for withholding creditable withholding tax from each employee’s monthly salary and remitting it to the Bureau of Internal Revenue (BIR).
Monthly withholding
Tax is withheld monthly based on the employee’s taxable income and the applicable withholding tax table. The amount varies with salary level and personal exemptions, so each employee’s withholding calculation may differ.
Annual reconciliation
At year end, employers file BIR Form 1604-C to reconcile total taxes withheld during the year. Each employee also receives BIR Form 2316, which serves as their certificate of compensation payment and tax withheld. Employees use this document when filing their own income tax return (or when certifying that their employer has already handled substituted filing on their behalf).
De minimis benefits
Certain employee benefits are partially tax-exempt under Philippine law. These include:
- Rice subsidy: up to ₱2,000 per month
- Clothing allowance: up to ₱6,000 per year
- Medical cash allowance: up to ₱750 per month
Any amount above the applicable threshold becomes part of the employee’s taxable income.
The 13th month pay exemption is also worth noting: up to ₱90,000 in combined 13th month pay and other benefits is tax-exempt per year. Amounts over this threshold are taxable.
Employing through an Employer of Record
Foreign companies that want to hire in the Philippines without setting up a local entity often use an Employer of Record (EOR). The EOR becomes the legal employer on record, handling payroll processing, statutory contributions, tax withholding, and compliance with Philippine labor law, while you retain day-to-day control over the work.
This approach removes the burden of staying current with regional wage orders, BIR filing deadlines, and benefit calculations, which is particularly useful if you’re hiring a small team across multiple regions. If you’re evaluating providers, it’s worth comparing EOR services to understand what’s included and how they handle local compliance.
FAQ
What is the standard payroll schedule in the Philippines?
Employers must pay employees at least twice a month. The most common schedule is the 15th and the last working day of the month, with no more than 16 days between pay periods.
Is 13th month pay mandatory in the Philippines?
Yes. All rank-and-file employees are entitled to 13th month pay equivalent to 1/12 of their total basic salary earned during the year. It must be paid by December 24. Employees who haven’t completed a full year receive a pro-rated amount.
What are the overtime pay rates?
Overtime on a regular working day is paid at 125% of the hourly rate. On a rest day or special holiday, the rate is 130%. On a regular holiday, rates go to 200% or more depending on the specific combination of circumstances.
Do foreign employers need a local entity to run payroll in the Philippines?
Not necessarily. Foreign employers can hire and pay employees in the Philippines through an Employer of Record, which handles all local employment and payroll obligations. This is a common option for companies that want to hire before committing to a full local entity setup.
