Payroll, HR & labor compliance
How to compute payroll in the Philippines: a step-by-step guide for employers
Compute gross pay, overtime, holiday pay, SSS, PhilHealth, Pag-IBIG and withholding tax step by step, with a full worked example for Philippine payroll.
Computing payroll in the Philippines follows the same sequence every cutoff: gross pay → statutory deductions → taxable compensation → withholding tax → other deductions → net pay. The rules inside each step come from the Labor Code, the SSS, PhilHealth and Pag-IBIG schedules, BIR regulations and your own company policies.
This guide walks through each step with a full worked example, then lists the controls that keep a large payroll accurate.
Step 1: Establish the rates
Every computation starts from the employee's rate:
- Monthly-paid employees: monthly basic salary. For deductions and premium pay you also need a daily rate and hourly rate. Companies divide the annual salary by an approved number of paid days per year (the factor depends on which rest days and holidays are paid under your policy), then divide the daily rate by 8 for the hourly rate.
- Daily-paid employees: the daily rate, with pay based on days actually worked plus paid holidays and leaves.
Document the factor you use and apply it consistently. A wrong factor affects every overtime, absence and holiday computation.
Step 2: Compute gross pay
Gross pay for the cutoff includes:
- Basic pay for the period, less absences, tardiness and undertime
- Overtime pay: at least 25% above the hourly rate on ordinary days, more on rest days and holidays (overtime guide)
- Holiday and rest day premiums (holiday pay rules)
- Night shift differential: at least 10% of the hourly rate for work between 10 p.m. and 6 a.m. (night differential guide)
- Allowances, COLA, commissions and other earnings under your policies
Step 3: Compute statutory contributions
Deduct the employee shares and record the employer shares:
| Contribution | Employee share (2026) | Employer share (2026) |
|---|---|---|
| SSS | 5% of MSC (₱5,000 to ₱35,000) | 10% of MSC + EC (₱10 or ₱30) |
| PhilHealth | 2.5% of basic salary (floor ₱10,000, ceiling ₱100,000) | 2.5% |
| Pag-IBIG | 2% of up to ₱10,000 (max ₱200) | 2% (max ₱200) |
These are monthly obligations. With semi-monthly payroll, apply your policy on which cutoff carries the deduction.
Step 4: Compute taxable compensation
Taxable compensation = gross pay − mandatory employee contributions − non-taxable items. Non-taxable items include de minimis benefits within the BIR ceilings and 13th month pay and other benefits up to ₱90,000 per year. Statutory minimum wage earners are exempt on their minimum wage and related premium pay.
Step 5: Compute withholding tax
Apply the BIR withholding tax table for your payroll frequency to the taxable compensation.
Step 6: Apply other deductions and compute net pay
Subtract loans (SSS, Pag-IBIG and company loans), cash advances and other authorized deductions. Net pay = gross pay − employee contributions − withholding tax − other deductions.
Full worked example (monthly payroll)
Maria is a monthly-paid supervisor with a basic salary of ₱36,000. This month she worked 6 hours of ordinary-day overtime and has a ₱1,500 rice subsidy (within the de minimis ceiling). The company uses 261 paid days per year for its daily rate factor.
- Rates: daily rate = ₱36,000 × 12 ÷ 261 = ₱1,655.17; hourly rate = ₱206.90.
- Overtime: 6 hours × ₱206.90 × 125% = ₱1,551.75.
- Gross pay: ₱36,000 + ₱1,551.75 + ₱1,500 (rice subsidy) = ₱39,051.75.
- SSS: compensation is above ₱34,750, so the MSC is ₱35,000 and the employee share is ₱1,750.
- PhilHealth: 5% × ₱36,000 basic salary ÷ 2 = ₱900.
- Pag-IBIG: ₱200.
- Taxable compensation: ₱39,051.75 − ₱1,500 (non-taxable rice subsidy) − ₱1,750 − ₱900 − ₱200 = ₱34,701.75.
- Withholding tax: ₱1,875 + 20% × (₱34,701.75 − ₱33,333) = ₱1,875 + ₱273.75 = ₱2,148.75.
- Net pay (no loans): ₱39,051.75 − ₱1,750 − ₱900 − ₱200 − ₱2,148.75 = ₱34,053.00.
The employer additionally pays SSS of ₱3,500 plus ₱30 EC, PhilHealth of ₱900 and Pag-IBIG of ₱200.
Controls for large payrolls
Accuracy at scale comes from controls, not heroics:
- Approved inputs only. Overtime, leave and schedule changes should reach payroll only after approval. See timekeeping systems.
- Variance review. Compare each employee's net pay with the previous cutoff and investigate large changes before release.
- Table governance. Contribution and tax tables have effective dates and one owner.
- Segregation of duties. The person who edits rates should not be the one who approves the payroll.
- Regular audits. Use our payroll audit checklist.
Doing it in payroll software
Every step above can be configured in a payroll system so the payroll team reviews exceptions instead of recomputing. Cirquolus Payroll handles salary computation, income adjustments, statutory contributions, withholding tax, 13th month pay, annualization and approvals, and connects with timekeeping so approved attendance flows into the cutoff.
Frequently asked questions
What is the formula for net pay in the Philippines?
Net pay = gross pay − employee SSS, PhilHealth and Pag-IBIG contributions − withholding tax − other authorized deductions such as loans.
How do you compute the daily rate of a monthly-paid employee?
Multiply the monthly salary by 12 and divide by the number of paid days per year under your company's policy. The correct factor depends on which rest days and holidays are paid, so document and apply it consistently.
Are allowances included in taxable income?
It depends on the allowance. De minimis benefits within BIR ceilings are excluded; other allowances are generally taxable. Check current BIR regulations for each item.
How often must employees be paid in the Philippines?
The Labor Code requires wages to be paid at least once every two weeks or twice a month at intervals not exceeding sixteen days.
Bring this workflow to a Cirquolus demo.
Show us your current process, companies and branches. We will map it to the modules you need and propose a realistic rollout.