The Philippines has always been a favored outsourcing destination. However, the country promises so much more for business than a BPO haven. The high degree of education and the business-friendly nature of local government makes cities like Manila and Cebu 2 of the most attractive business destinations for startups.
Given its status as a frontier market though, setting up administrative tasks like payroll can seem daunting. Here’s a quick primer on how payroll works in The Philippines.
Payroll Contributions and Cycles
Employer payroll contributions amount to 11.75% before provident fund contributions of 425 pesos per month. Social security accounts for 8%, while health insurance comes in at 1.75%. The remaining 2% is accounted for by the Home Development Mutual Fund (HDMF) contribution.
Employees pay 4% towards social security, while the HDMF contributions depend on monthly income. Those earning greater than 1,500 pesos pay 2%, while those below that figure pay 1.5%. Another 1.75% goes towards health insurance which brings total employee contributions to 7.75%. A provident fund contribution of 225 pesos per month rounds out employee payroll contributions.
Salaries are typically paid bi-monthly on the 15th and 30th of each month. On Christmas, it’s customary for employers to pay a 13th salary by Dec. 24. Some employers pay this amount fully, but it’s equally acceptable to pay this amount in halves, one at the beginning of the school year in June, and the other on Dec 24.
Income Tax and Minimum Wages
The Philippines’ tax brackets run from zero to a top rate of 35%. This handy wiki on Philippines’ payroll outlines the different income threshold limits. Residents don’t pay any taxes for the first 250,000 pesos they earn every year. Those earning greater than 8 million pesos fall under the highest tax bracket.
The government has specified a minimum wage of 500 PHP per day for the agricultural sector and 537 PHP for the non-agricultural sectors. Enforcement varies despite the legislation, however.
Working Hours and Leave
The Philippines’ working hours are in line with most of the world with 8 hours per day and 6 days per week. Supervisory positions are excluded from overtime pay benefits. For all other positions, hours worked above the minimum work hours must be compensated with 125% additional pay. On special holidays, this rises to 130%. Working overtime on legal holidays is compensated with double pay.
Employees who have worked for a year are entitled to 5 days of leave, taken as holidays or sick leaves. If employees choose to not use these days, employers can compensate them monetarily. There are 21 holidays with 9 non-working holidays.
With regards to maternity leave, if the employee has paid at least 3 monthly contributions within the 12 months before birth, she is entitled to 105 days of leave. Mothers of twins or triplets are not entitled to additional maternity leave. Mothers can file maternity benefits for up to 10 years.
In the event of a miscarriage, the employee is entitled to 60 days of leave as long as she has paid at least 3 monthly contributions within the 12 months before the incident. 7 days of paternity leave is granted to all married male employees for their first 4 children. Single parents are entitled to 7 working days of additional leave every year.
The Philippines Labor Code defines a series of just and authorized causes for termination and employees can be terminated for violating them or any other rules and regulations as prescribed by the company. Employees who quit must provide minimum 30-day notice periods.
Severance pay applies only if the employee was terminated for authorized cases. 1 month’s salary multiplied by the length of service in years is usually the norm.
Probationary periods can last for a maximum of 6 months. After this time, the employment contract becomes permanent.
While the Philippines gained its reputation in the business world on the back of its BPO friendly business atmosphere, the country has much more than that to offer. With a comparatively low VAT rate of 12%, the country is open for business and holds much promise thanks to its highly educated and youthful population.