As your remote team in the Philippines grows, one of the first major hurdles you’ll face is payroll. The critical question quickly becomes: how do you pay everyone correctly and compliantly from another country?
In addition to making the salary payments, it is the employer’s responsibility to navigate contributions to multiple government agencies (like SSS and PhilHealth), withhold taxes correctly for the BIR, and follow all the local labor rules.
It’s no surprise that the Philippines is often cited as one of the most complex payroll environments in the region.
Making a mistake isn’t hard to do, and it can lead to frustrating penalties. Therefore, this guide will walk you through your core responsibilities and your options for managing payroll in the Philippines to help you avoid issues.
Understanding Payroll Components in the Philippines
In the Philippines, payroll and employment regulations are primarily governed by the Labor Code, which is enforced by the Department of Labor and Employment (DOLE). Since there’s no national minimum wage, every region’s Regional Tripartite Wages and Productivity Board determines that aspect.
Here are the essential components of payroll in the Philippines and your responsibilities as an employer:
Wages and Pay Cycles
Your first responsibility under the Labor Code is to pay the correct wage on a predictable schedule. This means adhering to the minimum wage rates, which vary by region across the Philippines. You also need to pay your employees at least twice a month (or semi-monthly), and the time between paydays cannot be longer than 16 days.
Income Tax Withholding
You also play a direct role in tax collection. The Bureau of Internal Revenue (BIR) requires you to act as a “withholding agent.” In simple terms, this means you must calculate the employee’s income tax based on their salary, deduct it from their pay, and remit it to the government on their behalf each month.
Mandatory Social Contributions
A key feature of Philippine employment is the mandatory social security system. It provides a vital safety net for your employees in the country. Both you and your employee need to contribute monthly to three separate government agencies:
- SSS (Social Security System): Covers essentials like sickness, disability, retirement, and maternity benefits.
- PhilHealth: The national health insurance program.
- Pag-IBIG Fund: A national savings program that also provides housing loans.
Recommended reading: Navigating Payroll and Taxation in the Philippines for details on taxes and contributions.
13th Month Pay
Finally, you need to account for a unique and legally required benefit known as “13th month pay.” This is not a discretionary bonus; it’s a mandatory payment equivalent to one-twelfth of an employee’s basic salary earned during the year. You must pay this to all rank-and-file employees no later than December 24th each year.
Your Options for Paying Employees in the Philippines
As a foreign company hiring employees in the Philippines, you have three legally compliant paths for handling payroll. You can either register your own company and manage everything in-house, use a managed payroll service after company setup, or use an Employer of Record service to manage both employment and payroll.
Let’s take a look at these options to understand what might be the right choice in your case.
1. In-House Payroll Processing
This is the traditional route where your own HR or finance department manages everything. To do this, you must first register your company in the Philippines and register with all the government bodies (SEC, BIR, SSS, etc.).
The main challenge, however, is the upfront complexity and time required to establish a legal entity. You also take on the full burden of keeping up with constantly changing local labor and tax regulations. And let’s not forget the additional costs of having a dedicated local HR and finance team.
Since there is a lot more work and responsibility, it is generally advisable only for large, established companies that are looking to establish a long-term presence.
2. Local Payroll Outsourcing
Another option for managing payroll for employees in the Philippines is outsourcing to local providers such as Recruitgo.
This option can be a good middle ground if you already have a local entity but want to offload the administrative tasks to a third party. In this case, our experts will handle the monthly calculations and reporting for you.
While this simplifies your workload, the key thing to remember is that you remain the legal employer of your Filipino team. This means your company is still fully responsible for all legal compliance, even though your partner company is handling the paperwork.
3. Using an Employer of Record (EOR)
If you are not planning to open a company, an Employer of Record (EOR) is your only option to legally hire employees in the Philippines. It’s a model that separates the legal employment responsibilities from your day-to-day management, giving you a safe and simple way to build your team.
In case you are not familiar with it, it’s a pretty straightforward service. An established local company in the Philippines like Recruitgo hires your chosen candidate on your behalf. This means you don’t have to go through the time and expense of registering your own entity there.
The EOR partner handles all the official HR and payroll tasks in compliance with local regulations. For instance, employment contracts, processing monthly pay, managing taxes, and handling social contributions. Meanwhile, your responsibility is to manage your employee just like any other member of your team
Making the Right Payroll Choice for Your Team in the Philippines
As we’ve covered, you have different paths for managing payroll in the Philippines. The key is choosing the model that fits your business goals while minimizing your legal risks.
For many foreign companies, especially those building remote teams, using an Employer of Record in the Philippines offers the clearest and safest path. It removes the need for entity setup and places the burden of compliance on dedicated local experts.
RecruitGo’s EOR service in the Philippines can help you handle all payroll administration, including salary computation, tax withholding, and mandatory government contributions.
Simplify your payroll management in the Philippines with RecruitGo. Talk to our local experts in the Philippines by filling out the form below!
Frequently asked questions
It is strongly recommended and generally required to pay salaries in the local currency, the Philippine Peso (PHP). This ensures compliance with local regulations and avoids issues with fluctuating exchange rates.
When using an EOR, your partner ensures that your team is paid as per local regulations.
13th-month pay is a legally required benefit under the Labor Code. It is calculated as one-twelfth of an employee’s basic salary earned during the year and must be paid by December 24th. A common practice in the market is to pay this bonus at the beginning of December every year.
Under Philippine labor law, you must pay your employees at least once every two weeks or twice a month. The interval between these paydays cannot be longer than sixteen (16) days.
The key difference between employees and contractors is their legal status.
Employees
An employee is covered by the Labor Code, which means they are entitled to a regular salary, benefits like SSS and PhilHealth, paid leave, and severance pay. As the employer, you withhold their taxes and social contributions.
Contractor
A contractor, on the other hand, is governed by the Civil Code. They operate independently, invoice for their work, are not entitled to statutory benefits, and are responsible for managing their own taxes.
You are legally required to keep general payroll records for at least three years. However, for tax-related documents, the Bureau of Internal Revenue (BIR) mandates a longer retention period of up to ten years.
Severance pay (also called separation pay) in the Philippines is computed based on the employee’s monthly salary and years of service. The Labor Code of the Philippines provides two calculations depending on the reason for termination:
- One month’s salary for every year of service applies if the termination is due to redundancy, installation of labor-saving devices, or closure of business not caused by serious losses.
- Half a month’s salary for every year of service applies if the termination is due to retrenchment to prevent losses, cessation of business operations, or termination due to disease where employment is prohibited by law.
You can use our severance pay calculator to determine the exact amount.
