Fundamentals of the Philippine Payroll Process

Payroll is the backbone of every business that wants to maintain accurate employee compensation and ensure organizational compliance.

In the Philippines, payroll is especially complex because it involves a blend of labor laws, tax rules, and mandatory government contributions. It is also highly time-sensitive and demands close attention to detail to guarantee timely and correct salary disbursements. Therefore, understanding the fundamentals of the Philippine payroll process is important for HR professionals and business owners alike.

Mastering these basics can help prevent costly errors as well as guarantee operational efficiency. Furthermore, it supports a compliant internal payroll system.

Read along as we discuss the key components of the Philippine payroll structure that could help your organization. If you are aiming to strengthen your payroll knowledge, this blog is definitely for you!

Fundamentals of the Philippine Payroll Process

The fundamentals of the Philippine payroll process are the following:

Legal and Regulatory Framework

The Philippine payroll operates within a well-defined legal and regulatory framework designed to uphold employee rights and ensure proper remittance of government contributions.

The key legislation is the Labor Code of the Philippines, which establishes the rights and responsibilities of both employers and employees. The law covers areas such as working hours, compensation, benefits, as well as termination.

There are also several government agencies that are tasked with enforcing these laws and ensuring payroll compliance, which includes:

Department of Labor and Employment (DOLE): Oversee general labor practices and enforce employment standards.
Bureau of Internal Revenue (BIR): Regulates income tax withholding and ensures the timely filing and remittance of taxes.
Social Security System (SSS): Manages employee social insurance benefits, including retirement, sickness, maternity, and disability.
PhilHealth: Administers national health insurance coverage for employees.
Home Development Mutual Fund (Pag-IBIG): Provides housing loans and savings programs for workers.

Strict adherence to these regulations is not only a legal obligation but also a best practice for risk management. In addition, a clear understanding of the roles of these agencies and the requirements they enforce is important for businesses to maintain payroll accuracy and compliance.

Wage and Compensation

Wages and compensation are also key components of the payroll structure and understanding the difference between wages and compensation is essential in managing payroll. In general, wages refer to the employee’s basic pay for work performed. On the other hand, compensation includes the full package of financial benefits an employee receives.

In the Philippines, compensation structures are basically guided by the labor laws. They can also vary based on industry, job role, and region. A typical compensation package may include:

Basic Salary: The fixed amount specified in the contract of employment.
Cost of Living and Transportation Allowances: Provided to support daily work-related expenses.
Overtime Pay: Compensation for hours worked beyond the standard 8-hour workday.
Holiday and Rest Day Pay: Additional pay for work performed on regular and special holidays or designated rest days.
Night Shift Differential: Extra pay for work done between 10 PM and 6 AM.
13th Month Pay: A mandatory benefit equivalent to one-twelfth of the employee’s annual basic salary, typically given before the end of the year.

Payroll Calculation and Frequency

Payroll calculation involves determining an employee’s net pay by subtracting all mandatory deductions from their gross pay. These deductions basically include taxes, government contributions, and any applicable loans or salary adjustments.

The frequency of payroll varies by company but the most common schedules in the Philippines are bi-monthly (semi-monthly), monthly, and weekly. Because of the defined work hours and entitlements, every payroll has designated cut-off periods. This ensures accuracy in calculating wages. In addition, it allows time for approvals, adjustments, and bank processing before the date of salary disbursement.

To ensure transparency, DOLE stated that employers are required to issue payslips that clearly outline the breakdown of earnings and deductions. This is in compliance with labor laws and serves as a record for both the employer and employee. Moreover, issuing such help in resolving any payroll disputes.

Now, How Much Do Filipino Workers Earn?

The Philippines actually has no national minimum wage rate. Instead, minimum wage rates are set locally by the Regional Tripartite Wages and Productivity Boards (RTWPBs). This approach guarantees that wage policies reflect the unique economic conditions and cost of living in each area, which promotes a more equitable system across the country.

As of 2025, minimum wages in the Philippines remain at PHP 645 per day, unchanged from 2024. Historically, wages have increased steadily from PHP 89 per day in 1989 to the current rate, averaging PHP 363.90 over the years. Across other regions, minimum wages typically range from PHP 400 to PHP 600 per day. Nevertheless, it depends on the region’s economic profile.

Withholding Taxes

As discussed, Filipino workers typically receive their salaries twice a month. This semi-monthly payroll structure influences how taxes are withheld and reported.

In the Philippines, employers are designated as withholding agents. They are legally required to deduct income taxes from employees’ salaries. Then, they must remit them to the Bureau of Internal Revenue (BIR). The amount withheld depends on the employee’s income bracket and the company’s payroll schedule.

Income Tax Brackets for Individuals (As of 2025)

Amount of Net Taxable Income		Rate
Over	But Not Over	Rate
₱0	₱250,000	0%
₱250,000	₱400,000	20% of the excess over ₱250,000
₱400,000	₱800,000	₱30,000 + 25% of the excess over ₱400,000
₱800,000	₱2,000,000	₱130,000 + 30% of the excess over ₱800,000
₱2,000,000	₱8,000,000	₱490,000 + 32% of the excess over ₱2,000,000
₱8,000,000		₱2,410,000 + 35% of the excess over ₱8,000,000

Tip: You can also use the BIR’s online income tax calculator to estimate monthly or annual income tax withholdings.

Moreover, keep in mind that under Republic Act No. 9337, foreign companies operating in the Philippines are subject to a 30% income tax based on taxable income from the previous fiscal year. However, the minimum corporate income tax is 2% of gross income, which may vary based on the industry and total annual revenue.

Are There Exemptions?

There are also forms of employee compensation that are exempt from income tax, such as:

13th Month Pay (up to ₱90,000 is tax-exempt under the TRAIN Law),
Work-related reimbursements or injury compensation,
Life and group insurance premiums paid by the employer,
Performance bonuses,
Incentives tied to corporate goals, employment commencement, or promotions (up to certain thresholds).

Common Payroll Challenges

Despite its critical role in business operations, payroll processing remains susceptible to errors. In fact, over 53% of employees have experienced at least one payroll issue during their careers. These problems not only impact on employee satisfaction but can also lead to serious compliance risks. Some of the common challenges are:

Manual Errors and Miscalculations

Due to the amount of data being processed manually, errors and miscalculations can easily occur. This results in incorrect payouts, missed deductions, or overpayments that can cause employee dissatisfaction altogether.

Delayed Government Remittances

Some companies miss deadlines for remitting mandatory government contributions because of poor financial management and lack of proper planning. This can obviously result in hefty penalties and fines from government agencies.

Frequent Changes in Laws and Contribution Rates

For smaller HR teams in particular, keeping abreast of tax laws, government contribution rates, and labor laws can be overwhelming. As a result, they frequently make mistakes regarding employee payroll.

Inadequate Record-Keeping

The amount of workload can cause poor documentation or missing payroll records. This can hinder audits, delay reconciliations, and expose businesses to non-compliance penalties during government inspections.

What Can You Do to Minimize Errors?

Effective payroll management helps businesses stay compliant, avoid penalties, as well as maintain employee trust. To minimize errors, HR teams must regularly monitor changes in government regulations to ensure compliance with the latest rules, tax codes, and regulations.

Organizations must also establish a clear payroll schedule to ensure consistent salary processing, timely deductions, and proper reporting. Furthermore, having detailed documentation is essential for audits, reconciliations, and employee inquiries.

Manual payroll often takes a lot of time aside from being prone to error. Thus, using technology can greatly improve your team’s payroll process. Besides, there are digital tools like HRIS that have built-in tax compliance updates, automated calculations, and real-time reporting, which can greatly reduce administrative burdens.

In addition, having a cloud-based payroll platform like Hurey also offers a smarter way to manage payroll. By automating complex tax and contribution computations as well as generating accurate, real-time payslips, you can surely focus on strategic initiatives that will lessen errors on payroll management.

A Smarter Way to Manage Your Payroll

As your company grows, manual payroll systems can quickly become a burden. This is why mastering the fundamentals of the Philippine payroll process is critical to staying compliant, maintaining employee trust, and avoiding costly penalties.

With the help of Hurey, you will certainly have an easier time enabling smarter, more strategic payroll management. No matter what your organization’s size is, Hurey will help you build a more efficient and compliant business.

Discover how Hurey can help you stay compliant and take the hassle out of payroll management today.