Philippines payroll means administering a stack of mandatory programs on top of income tax withholding: the Social Security System (SSS), PhilHealth for health insurance, and the Pag-IBIG housing fund, plus the 13th month pay every rank-and-file employee receives before Christmas. The rates moved in January 2025, when the final step of a statutory schedule took the combined SSS contribution to 15% of the monthly salary credit. A US company hiring in the Philippines without an entity cannot run this itself; it either engages an employer of record or builds a local presence, and either way the numbers below are what the employment actually costs.
The 2025 SSS contribution step-up
From January 2025 the combined employer and employee SSS contribution rose to 15% of the monthly salary credit, from 14%, completing the phased increases mandated by the Social Security Act of 2018 (RA 11199). The split is not even: employers now contribute 10% (up from 9.5%) and employees 5% (up from 4.5%). The salary credit range widened at the same time, with the minimum monthly salary credit rising to PHP 5,000 and the maximum to PHP 35,000, so higher earners saw contributions rise on both the rate and the base. For an employer, the practical reading is that the SSS line on the payslip is fixed by a published table, not negotiated, and quoting a Philippine salary without the employer share on top understates the cost of employment.
Income tax withholding on compensation
Compensation income is taxed on a graduated scale that has applied since January 2023: the first PHP 250,000 of annual taxable income is exempt, then rates step through 15%, 20%, 25% and 30% across the brackets, reaching 35% on taxable income above PHP 8,000,000. The employer withholds this monthly against the annual table and files it with the Bureau of Internal Revenue. Resident citizens are taxed on worldwide income while non-residents are taxed only on Philippine-source compensation, which matters for split-role executives. Fringe benefits given to managerial employees are handled separately through a final tax rather than through the compensation table, so a package heavy on benefits does not simply slide through payroll withholding.
PhilHealth, Pag-IBIG and the rules for foreign hires
Beyond SSS, employers remit PhilHealth premiums and Pag-IBIG (HDMF) contributions, and the anchor rule across all of them is that employers are required to match the employees' contributions according to each program's schedule. Foreign nationals working in the Philippines get two specific carve-outs worth knowing: they are no longer required to contribute to Pag-IBIG at all, and PwC's 2025 summary puts the maximum combined annual SSS and PhilHealth contribution for a foreign national employee at PHP 51,000. On top of the contribution stack sits 13th month pay, a mandatory extra payment to rank-and-file employees due each December; it is a statutory obligation under Presidential Decree 851, not a discretionary bonus, and labor inspectors monitor compliance.
What this means for a foreign employer
None of these programs can be run from abroad, because each requires a registered Philippine employer to enroll workers and remit monthly. That leaves three routes: incorporate and register with SSS, PhilHealth, Pag-IBIG and the BIR before the first payday; hire through an employer of record whose local entity already carries those registrations and simply invoices you salary plus contributions plus fee; or engage people as independent contractors, which avoids the contribution stack only if the relationship genuinely is one of independent contracting rather than disguised employment. When comparing EOR quotes for the Philippines, ask for the contribution lines itemized against the published tables; the tables are public, so a quote that will not itemize them is hiding something in the fee.
Questions people ask about philippines payroll
What is the SSS contribution rate in 2025?
The combined rate is 15% of the monthly salary credit: 10% from the employer and 5% from the employee, applied between a minimum monthly salary credit of PHP 5,000 and a maximum of PHP 35,000. This was the final step of the increases scheduled by the Social Security Act of 2018.
How much Philippine income tax does an employee pay?
Annual taxable compensation up to PHP 250,000 is exempt; above that, graduated rates run from 15% to a top rate of 35% on income over PHP 8,000,000. The employer withholds monthly against the BIR's tables.
Do foreign employees in the Philippines pay into all the funds?
Not all. Foreign nationals are no longer required to contribute to Pag-IBIG, and their combined annual SSS and PhilHealth contributions are capped; PwC's 2025 figure for the maximum is PHP 51,000 per year.
Is 13th month pay mandatory?
Yes, for rank-and-file employees, under Presidential Decree 851. It is due in December and enforced by the Department of Labor and Employment, and it should be built into any cost-of-hire calculation rather than treated as a bonus.