Managing payroll in the Philippines can be a complex task for employers, requiring knowledge of local labor laws and accurate calculations. It’s not only a legal requirement for Philippine businesses, but it also ensures employees receive the correct salary and gain better access to social security benefits through remittance of government-mandated contributions. To help you understand this multi-step process, we’ll explain the different components of payroll, how to compute them, and how to remit them.
What is Payroll
Payroll refers to the process of calculating and distributing employee compensation, including salaries, wages, bonuses, and deductions. In the Philippines, payroll management involves adhering to regulations set by the Department of Labor and Employment (DOLE), the Bureau of Internal Revenue (BIR), and other government agencies. It encompasses computing gross pay, withholding taxes, and mandatory contributions like the Social Security System (SSS), PhilHealth, and Pag-IBIG, ensuring employees receive their net pay accurately and on time.
Effective payroll management ensures compliance, boosts employee satisfaction, and avoids penalties for non-compliance. It requires understanding local laws, maintaining accurate records, and using reliable systems or software for efficiency.
Payroll Sample Sheet
A payroll sheet organizes employee payment details for clarity and record-keeping. Below is a simplified example of a payroll sheet for a single employee:
| Employee Name | Basic Salary | Overtime Pay | Gross Pay | SSS | PhilHealth | Pag-IBIG | Withholding Tax | Net Pay |
| Paula Garcia | ₱20,000 | ₱2,000 | ₱22,000 | ₱1,100 | ₱500 | ₱200 | ₱0 | ₱20,200 |
This sheet includes the employee’s basic salary, additional earnings (e.g., overtime), mandatory deductions, and net pay. Employers can expand this format to include multiple employees, allowances, or other deductions.
We’ll show you how we got these figures in the computation section.
How to Compute Payroll
Computing payroll in the Philippines involves several steps to ensure accurate compensation and compliance:
- Determine Gross Pay: Calculate the total earnings, including basic salary, overtime, bonuses, and allowances. For example, an employee with a ₱20,000 monthly salary with ₱2,000 in overtime pay has a gross pay of ₱22,000.
- Gross Pay = Basic Salary + Overtime Pay/Bonuses/Allowances
- Gross Pay = ₱20,000 + ₱2,000 = ₱22,000
- Calculate Mandatory Deductions (Rates are based on the contribution tables used in 2025)
- SSS: 5% of monthly compensation (including overtime and taxable allowances), capped at MSC
- PhilHealth: 2.5% of basic salary only
- Pag-IBIG: 2% of monthly compensation, capped at ₱10,000 (max ₱200 employee share)
| Contribution | Employee Share
Rate (%) |
Base for Juan | Employee |
|---|---|---|---|
| SSS | 5% | ₱22,000 | ₱1,100 |
| PhilHealth | 2.5% | ₱20,000 | ₱500 |
| Pag-IBIG | 2% on ₱10k | ₱10,000 | ₱200 |
- Compute Taxable Income and Withholding tax: Subtract mandatory deductions from gross pay, then apply the correct tax rate based on the current Withholding Tax Table.
- Taxable income = ₱22,000 − ₱1,100 − ₱500 − ₱200 = ₱20,200
- This falls in the ₱0 – ₱20,833 bracket (which is exempted from paying withholding tax)
- No withholding tax = ₱0.00
- Taxable income = ₱22,000 − ₱1,100 − ₱500 − ₱200 = ₱20,200
- Compute Net Pay: Calculate the amount to be paid to your employee by subtracting withholding tax.
- Net Pay = Taxable Income − Withholding Tax
- Net Pay = ₱20,200 − ₱0 = ₱20,200
Keep in mind that this is a simplified example. Other factors, such as loans and company-specific deductions, can affect the final net pay. Additionally, changes in government contribution rates or tax regulations may impact calculations over time. From our example, you can see that computing payroll can be a complicated process.
Computing and recording payroll might be doable with spreadsheet software like Excel and Google Sheets for businesses with only a few employees. However, this method is tedious, time-consuming, and prone to mistakes for businesses with numerous employees.
Medium to large businesses are strongly encouraged to use a payroll service. Our experienced accountants and advanced payroll outsourcing service ensure the accurate recording and timely computation of employee pay.
How to Process Payroll
Processing payroll in the Philippines involves systematic steps to ensure timely and accurate payments:
- Gather Employee Data: Collect timesheets, attendance records, and details of bonuses or deductions.
- Compute Payroll: Use a spreadsheet to calculate gross pay, deductions, and net pay. Our expert team and advanced payroll software can help streamline this difficult step.
- Prepare Payslips: Generate payslips detailing earnings, deductions, and net pay for transparency.
- Disburse Payments: Transfer salaries via bank deposits, checks, or cash, ensuring payments align with the company’s payroll schedule (e.g., bi-monthly or monthly).
- File Reports: Submit contributions and taxes to SSS, PhilHealth, Pag-IBIG, and BIR within deadlines.
- Maintain Records: Keep payroll records for at least three years for audits and compliance.
Final Thoughts
Managing payroll in the Philippines requires knowledge, timeliness, and accuracy to meet legal requirements and correctly pay employees. Understand payroll components, use tools like sample sheets, and follow structured computation and routine steps to streamline the process. Remember to stay updated on SSS, PhilHealth, Pag-IBIG, and BIR regulations.
If you’re having difficulty processing payroll, don’t hesitate to contact us. We can manage the process for you so you can focus on running your business.
Are You Looking for an Easy Way to Process Payroll? You Can Find Expert Assistance Here.
Proper payroll processing is a legal requirement for Philippine businesses. The process can be complex, involving accurate salary computations, timely deductions and remittances, and proper recordkeeping. Managing these tasks can be especially challenging for businesses without a dedicated payroll team.
Thankfully, Business Registration Philippines offers professional support for your business, including bookkeeping, payroll, auditing, and other accounting tasks. Our team specializes in accounting and compliance-related services, ensuring your internal audits are thorough and aligned with Philippine regulations.
Contact us today to schedule an initial consultation with our experts.
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