The Philippines, located in the Pacific Ocean, is a member of the WTO, the UN, ASEAN, and APEC. It is becoming one of the top internal markets for consumers as the government is taking measures for business to thrive. This is why many organisations are finding it interesting to invest and start the business in the Philippines.
However, with all the opportunities provided in the Philippines for business, there is a lot of responsibility involved in looking after and managing the business in a fully compliant manner as per the labour laws in the Philippines. One of the most important things after the business setup is to know the way of handling the payroll i.e. calculating the employee’s salary and the mandatory benefits in a correct manner.
A payroll service provider ensures that your payroll processes run smoothly and in an efficient manner. They help in paying employees accurately and on time, taking away the stress of these complex and time-consuming processes. Using the payroll outsourcing service helps to keep the process up to date and compliant with the changing legislation in the Philippines.
Let’s look at what are the things to be considered while managing the payroll in the Philippines.
Payroll in the Philippines
Whether there are 10 employees or 10,000, there are provisions regulated by the Department of Labor and Employment (DOLE) that must be included in payroll computation and Employers are required to consider these payroll compliance regulations while paying the salary to the employees in the Philippines including the monthly withholding obligations. Following are the three main types of payroll contributions that need to be deducted from employee salaries every month.
Social Security (SSS)
This includes the general social insurance that covers sickness, disability, old age, and
maternity. The contribution is dependent on the salary of the employee, mostly with a salary
of PHP 20,000 or more per month. Employers are also required to pay a share of the SSS
contribution for the employee.
Philippine Health Insurance Corporation (PhilHealth)
This is a national health insurance program in the Philippines, aiming to give quality services
in Medical and Healthcare for all the employees. An equal share for PhilHealth is paid by
employer and the employee.
Home Development Mutual Fund (Pag-IBIG)
It is a national savings housing program developed to help provide short term loans to all
employees in the Philippines. All the Mandatory contributions to Philippine social security
schemes are required to be withheld and must be paid monthly to the Bureau of Internal
Revenue 10 to 15 days after the end of the tax month. Employees are required to be provided
with a payslip which can be issued online. Foreign companies that are new to the Philippines
market need to develop a payroll solution which takes care of the employees’ pay needs.
Individual Income Tax Rates in Philippines
For Individual Citizens and Resident Aliens Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession
Graduated Income Tax Rates under Section 24(A)(2) of the Tax Code of 1997, as amended
by Republic Act No. 10963
| Amount of Net Taxable Income | Rate | |
| Over | But Not Over | |
| – | P250,000 | 0% |
| P250,000 | P400,000 | 20% of the excess over P250,000 |
| P400,000 | P800,000 | P30,000 + 25% of the excess over P400,000 |
| P800,000 | P2,000,000 | P130,000 + 30% of the excess over P800,000 |
| P2,000,000 | P8,000,000 | P490,000 + 32% of the excess over P2,000,000 |
| P8,000,000 | P2,410,000 + 35% of the excess over P8,000,000 |
It is a really tough and confusing job of accurately calculating an employee’s salary and the taxable income taking care of all the salary adjustments. Not having a legal entity in the Phillies makes this whole process even more complicated. In such a case, companies can use the Employer of Record (EOR)service.
Options for managing payroll in Philippines
In the Philippines, it is the responsibility of the employers to take care and withhold the employees taxes from their salaries and it is essential to compute the taxable income of employees before their salary distribution.
All of this is quite confusing as the mandatory contributions are not that simple as it seems to compute for the employees and employers find it quite confusing.
There are two options for managing Payroll for employees.
- Payroll outsourcing service:
For companies who have registered their business in the Philippines under either branch office or representative office (RO) prefer to outsource other companies to manage their payroll. The service is provided by the payroll provider who is responsible for the compliance with the employment regulations in the Philippines and takes care of all the calculations related to the salary payment.
- Having Internal payroll system:
Multinational Companies might wish to run their own payroll for the employees but the only condition to this is that they need to have their company incorporation and registered business and hir the employees directly. Any personnel who knows the Philippines regulations can handle the tax and mandatory requirements in a compliant manner. This option needs the local knowledge of the labour regulations in the Philippines and also requires a significant amount of investment.
Considering all the complexities associated with payroll regulations in the Philippines, the best option is to have a payroll service provider for providing the payroll solution to provide the cost effective and payroll service as per local rules compliance.
Conclusion
Payroll compliance as per the Philippines labour law can be very challenging for any business who is new to the market in the Philippines. One needs to have an updated knowledge related to the labour laws to compute the salary calculations correctly.
The best solution is outsourcing the payroll management to a professional payroll service provider to overcome all the complexities related to the payroll and benefits. NNRoad has a team of local experts who will take off all the payroll burden from your shoulders and compute employees’ salary in total compliance with the local labour regulations in the Philippines. Companies can save all the time and resources for their businesses generating activities as we will take all the pain of managing employee’s compensation and benefits.
