Managing payroll taxation in the Philippines is a pivotal aspect of business operations, demanding attention to statutory obligations to ensure compliance and the financial well-being of employees. Both employers and employees are required to fulfill several mandatory contributions and deductions, which are essential for funding public services and safeguarding employee welfare. This blog showcases the key components of payroll taxation in the Philippines, offering insights into compliance requirements and best practices for effective payroll management.
Key Components of Payroll Taxes
Withholding Tax on Compensation
The Philippines employs a graduated income tax system. As of 2025, the tax rates are structured as follows:
| Net Taxable Income (PHP) | Tax Rate | Calculation |
| Up to 250,000 | 0% | No tax due |
| 250,001 to 400,000 | 15% | 15% of excess over 250,000 |
| 400,001 to 800,000 | 20% | 22,500 + 20% of excess over 400,000 |
| 800,001 to 2,000,000 | 25% | 102,500 + 25% of excess over 800,000 |
| 2,000,001 to 8,000,000 | 30% | 402,500 + 30% of excess over 2,000,000 |
| Over 8,000,000 | 35% | 2,202,500 + 35% of excess over 8,000,000 |
Note: These rates are based on the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which aims to create a simpler, fairer, and more efficient tax system in the Philippines.
Example Calculation:
For an individual with a net taxable income of PHP 1,000,000:
- The first PHP 800,000 is taxed as per the previous brackets.
- The remaining PHP 200,000 (i.e., 1,000,000 – 800,000) is taxed at 25%.
So, the total tax would be:
- PHP 102,500 (fixed amount for the first 800,000) + 25% of 200,000 = PHP 102,500 + PHP 50,000 = PHP 152,500
Employers are responsible for withholding the appropriate tax amounts from employee salaries and remitting them to the Bureau of Internal Revenue (BIR).
Social Security System (SSS) Contributions
The SSS provides protection against disability, sickness, maternity, old age, and death. Effective January 2025, the total SSS contribution rate has risen from 14% to 15%. For employed members, this means employers now contribute 10% (up from 9.5%), while employees contribute 5% (up from 4.5%).
PhilHealth Contributions
PhilHealth offers health insurance coverage. As of 2024, the contribution rate is 5% of the employee’s base monthly wage, shared equally between employer and employee, with an income ceiling of PHP 100,000.
Pag-IBIG Fund Contributions
Pag-IBIG is a government-guaranteed savings fund primarily aimed at helping employees finance new homes. Employers contribute 2% of the employee’s monthly compensation, while employees contribute 1% on salaries of PHP 1,500 or below and 2% on salaries over PHP 1,500.
Employer Responsibilities and Compliance
Employers must ensure accurate computation of all mandatory deductions and adhere to specific deadlines for remitting contributions to avoid legal penalties. For instance, income tax withholdings are due by the 10th day of the following month, while SSS contributions are due by the 15th.
Best Practices for Payroll Management
- Automate Payroll Processes: Utilizing reliable payroll software can streamline calculations, deductions, and record-keeping, reducing manual errors.
- Stay Updated on Regulations: Regularly monitor changes in tax laws and labor regulations to ensure ongoing compliance.
- Conduct Regular Audits: Perform periodic internal audits to identify and rectify discrepancies promptly.
- Partner with Professional Payroll Services: Consider outsourcing payroll functions to specialized providers to manage compliance complexities effectively.
Managing payroll taxation in the Philippines requires meticulous attention to statutory obligations to ensure compliance and employee satisfaction. Given these challenges, partnering with industry experts like Alldigi Tech can significantly enhance payroll management processes. Alldigi Tech, formerly known as Allsec Technologies Limited, has established itself as a global leader in outsourcing solutions, offering comprehensive services in Human Resources Operations (HRO) and Digital Business Services (DBS). With over two decades of experience, the company serves 400 clients, including Fortune 100 companies, across 60+ countries, processing over 1.5 million payslips monthly.
In the Philippines, Alldigi Tech’s deep understanding of local payroll regulations ensures accurate computations and timely remittances, helping businesses maintain compliance and enhance operational efficiency. Alldigi Tech’s advanced technology and tailored solutions address the intricacies of the Philippine tax system, aligning payroll processes with strategic business goals. To know more, alldigitech.com
