Payroll in the Philippines runs on three government contributions, monthly tax withholding, and a mandatory 13th month pay. Two of the contribution rates are still climbing on a legislated schedule. This guide sets out the 2026 rates and ceilings, the deadlines, and the ways to run payroll, whether you use your own entity or outsource it to AYP.
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Running payroll in the Philippines means remitting to three separate agencies, withholding income tax each month, and setting aside for a 13th month payment that is not optional. The calculations are steady, but two of the three contribution rates are mid-way through legislated increases, so the figures that were right two years ago are not right now.
This guide covers what employers are legally required to do: the 2026 contribution rates and ceilings, withholding tax, 13th month pay, the minimum wage, the filing calendar, and the ways to actually run payroll once you have staff on the ground. It sits alongside AYP's wider APAC payroll services and the full payroll country guides.
The table below is the quick reference most employers need. Rates and ceilings are current for 2026.
Four bodies set the rules. The Bureau of Internal Revenue administers income tax and the withholding system. The Social Security System, PhilHealth and the Pag-IBIG Fund each run one of the three mandatory contributions. The Department of Labor and Employment oversees the Labor Code, including the regional minimum wage and 13th month pay.
Payroll is processed and paid in Philippine Pesos. The Labor Code requires wages to be paid at least twice a month at intervals of no more than 16 days, so a semi-monthly cycle is the norm. The tax year follows the calendar, and the Philippines withholds income tax at source, reconciled through an annualisation at year end.
The framework rests on the Labor Code, the TRAIN law for income tax, and the separate charters of SSS, PhilHealth and Pag-IBIG. Both SSS and PhilHealth are part way through multi-year rate increases legislated some years ago, which is why their figures keep moving.
Three contributions run through every compliant Philippine payslip. Each remits to a different agency, and each uses a different base and ceiling, so they cannot be calculated as one combined percentage.
Two details sit alongside the headline rates. On SSS, the employer also pays a small Employees' Compensation contribution and, for higher salary credits, part of the contribution goes to the mandatory provident fund known as WISP. On PhilHealth, income below the PHP 10,000 floor is charged as if it were PHP 10,000, and income above PHP 100,000 is capped there, giving a monthly premium between PHP 500 and PHP 5,000. Pag-IBIG contributions for employees earning PHP 1,500 or less drop to 1% on the employee side.
Employers withhold income tax from each payroll on the graduated scale set by the TRAIN law. These rates have not changed since the second phase took effect in January 2023, so the 2026 table is the same as recent years. Annual income up to PHP 250,000 is exempt, which means employees earning about PHP 20,833 a month or less have no withholding.
Government contributions are deducted before tax, so they reduce the taxable base. Most employees do not file their own return, because the employer carries out a year-end annualisation that trues up the tax withheld, a process the BIR calls substituted filing.
The 13th month pay is the part of Philippine payroll that foreign employers most often miss when budgeting. It is a statutory entitlement, not a discretionary bonus, for every rank-and-file employee who has worked at least one month in the calendar year.
It equals one twelfth of the basic salary earned during the year, so a full-year employee receives roughly one month's basic pay. It must be paid on or before 24 December, though many employers split it, paying half mid-year. It is exempt from income tax up to a combined ceiling of PHP 90,000 for 13th month pay and other benefits, with any excess taxed. Because it lands once a year across the whole workforce, it should be accrued monthly rather than met from December cash flow.
The Philippines sets its minimum wage by region through regional wage boards, not nationally, so the rate depends on where the employee works. In the National Capital Region, Wage Order NCR-27 raised the non-agriculture daily minimum wage to PHP 755 from 19 July 2026, with a further step to PHP 780 from 20 January 2027. Other regions set their own rates, generally lower than the NCR.
Minimum wage earners are exempt from income tax on their statutory minimum wage, including holiday pay, overtime, night differential and hazard pay, which is a distinctive feature of the Philippine system and needs handling correctly in payroll.
The three contributions and the withholding tax remit to four different agencies, and the exact SSS and Pag-IBIG dates depend on the employer's registration number, so a compliance calendar is worth keeping.
Most payroll problems for foreign employers in the Philippines come from a few recurring issues rather than the base calculations.
The first is the moving contribution rates. SSS and PhilHealth are part way through legislated increases, and both moved again for 2026, so payroll running on older tables under-deducts across the year.
The second is the 13th month pay. It is mandatory and applies to the whole rank-and-file workforce, so employers that treat it as a discretionary bonus face both a large December outflow and a compliance breach if it is missed.
The third is three separate agencies with three different bases and ceilings. Calculating SSS, PhilHealth and Pag-IBIG as if they shared one salary base produces errors, particularly for higher earners where each hits a different cap.
The fourth is the minimum wage tax exemption. Statutory minimum wage earners are exempt from income tax on their minimum wage and related pay, so applying ordinary withholding to them is a common and costly error.
Once you have people to pay, there are three practical ways to handle Philippine payroll, and the right one depends on whether you already have a local entity and how many staff you expect to hire.
Building payroll in-house gives full control but needs local expertise and someone tracking the SSS and PhilHealth increases. A local provider takes the processing off your plate while you keep the employer relationship. Outsourced or managed payroll goes further, covering withholding tax, the three contributions, 13th month pay and year-end returns as a single service.
If you have not set up a Philippine entity yet, or you want to hire before you do, an Employer of Record is the usual route, since it lets you employ staff compliantly without your own local company. That is a broader hiring decision than payroll alone, so it is covered separately in AYP's Employer of Record Philippines service and the guide to hiring in the Philippines. For a comparison of running payroll internally against outsourcing it, AYP's team has written on in-house versus outsourced payroll.
AYP handles Philippine payroll for companies that would rather not track three agencies and the annual rate changes themselves. The platform withholds income tax and files with the BIR, calculates and remits SSS, PhilHealth and Pag-IBIG against the right base for each, administers 13th month pay, applies the correct regional minimum wage, and issues payslips. Pricing is a predictable monthly fee, set out on the pricing page.
The same team supports payroll across 18 Asian markets, so a company scaling from the Philippines into the wider region keeps one provider rather than stitching together local vendors. To see how it maps to your headcount, speak to the AYP team. Employers new to the process can also read AYP's note on the common payroll mistakes businesses make.
SSS is 15% of the monthly salary credit, split 10% employer and 5% employee, on a credit from PHP 5,000 to PHP 35,000. PhilHealth is 5% of basic salary split equally, on income from PHP 10,000 to PHP 100,000. Pag-IBIG is 2% from each side, capped at a PHP 10,000 fund salary, so usually PHP 200 each.
Yes. Every rank-and-file employee who has worked at least one month in the calendar year is entitled to 13th month pay, equal to one twelfth of basic salary earned that year. It must be paid on or before 24 December and is tax-free up to a combined PHP 90,000 with other benefits.
Employers withhold monthly on the TRAIN graduated scale of 0% to 35%, with annual income up to PHP 250,000 exempt. Government contributions are deducted before tax. Most employees do not file their own return because the employer performs a year-end annualisation known as substituted filing.
Minimum wage is set by region. In the National Capital Region, the non-agriculture daily minimum wage is PHP 755 from 19 July 2026 under Wage Order NCR-27, rising to PHP 780 on 20 January 2027. Statutory minimum wage earners are exempt from income tax on that wage.
Not directly through a standard payroll provider, which needs an entity to register with the BIR, SSS, PhilHealth and Pag-IBIG. Employers who want to hire and pay staff before incorporating typically use an Employer of Record instead.