HR and Payroll Processing in the Philippines: Ultimate Guide

Human resources (HR) and payroll management work hand in hand to guarantee that an organization's staff is managed smoothly. Hence, their relationship is symbiotic. The strategic and people-oriented facets of employee management, including hiring, training, performance reviews, and employee engagement, are the emphasis of HR. 

While HR manages employee data and ensures compliance, payroll handles salaries, benefits, and taxes. Both rely on each other for accurate data: HR provides payroll with correct information, while payroll data helps HR with strategic decisions and workforce planning.

In this blog, we will help you calculate a payroll in the Philippines, letting you understand the payroll process in clear and other essential details.

How is Payroll Calculated in the Philippines?

In the Philippines, the employee's basic salary is used to calculate payroll, to which overtime pay, night differentials, allowances, and benefits are added. 

Salary calculations often follow this formula: Net Salary = Gross Salary - Deductions

Contributions to PhilHealth, Pag-IBIG, Social Security System (SSS), and other approved deductions are all considered deductions, as is income tax withholding. It is required to receive the thirteenth month's pay, which is one-twelfth of the base wage. The employee's net pay is the outcome after subtracting all deductions. 

Companies are required to submit accurate pay stubs and follow government reporting guidelines. Regular updates on tax rates and labor laws are essential for accurate payroll processing. 

What Are the Various Types of Payroll Options Available for Employees in the Philippines?

The cloud-based payroll software market is experiencing remarkable growth, showcasing an impressive Compound Annual Growth Rate (CAGR) of 12.1% between 2022 and 2028. Let’s take a look at the four types of Payroll options available for employees in the Philippines:

1. Remote Payroll

   In the Philippines, calculating compensation for remote work, termed remote payroll, involves starting with the regular salary and adding extra pay like overtime. Employers may need to adjust costs for remote work, and clear communication about remote employees' earnings and deductions, provided through a detailed payslip, is essential.

2. Internal Payroll

   Internal payroll is the process through which a business determines and pays employee salaries and benefits. This involves creating detailed pay stubs, maintaining accurate records, and fulfilling government reporting requirements. Additionally, internal payroll may take into account factors such as incentives, bonuses, and other compensation-related matters.

3. Local Payroll Administration

   Local payroll administration oversees employee compensation and related tasks specific to a particular region or country. This includes adherence to national labor rules, tax laws, and social security payments in the Philippines. Local payroll administrators handle reporting obligations, ensure compliance with local employment laws, and stay updated on any changes to labor regulations.

4. Fully Outsourced Payroll & Employment

   When all payroll and human resources (HR) duties are transferred to an outside service provider, this is referred to as fully outsourced payroll and employment.  Services like worker law compliance, benefit and leave management, and employee onboarding are frequently included in this all-inclusive outsourcing approach. 

How is Payroll Processed in the Philippines?

Due to the challenging nature of navigating payroll regulations in the Philippines, many companies delegate this task to external service providers. 

The manual payroll process can be easily understood:

• Collect comprehensive information, including Tax IDs, bank details, addresses, and job roles.
• Decide on remuneration for different positions, calculating gross pay and applicable taxable benefits.
• Select a weekly, bimonthly, or monthly payment frequency based on company needs.
• You should consider statutory deductions per the Philippine Labor Code, accounting for leaves, absences, holidays, and overtime.
• You must ensure adequate funds for salary disbursement in the main company account, maintaining detailed accounting records.
• Maintain accurate records, generate employee salaries, and ensure proper tax deductions are filed with government agencies.

How Does HR and the Payroll Process Work Together in the Philippines?

In the Philippines, HR manages employee-related aspects, ensuring compliance with regulations, while payroll handles financial elements like salaries and benefits, following tax laws. Both collaborate to maintain accurate employee data, which is essential for seamless HR and payroll processes. Here are some key roles of HR in the payroll process:

1. Assessing Data Privacy

   In the Philippines, data privacy evaluation is critical regarding payroll and HR administration. One important component is compliance with the Data Privacy Act of 2012, and Human Resource Information Systems (HRIS) are essential for ensuring this. 

   Darwinbox employs robust data encryption, safeguarding sensitive employee information like salaries and tax details. Additionally, fine-grained access controls ensure that only authorized personnel can view and manage payroll data. 

2. Determining Employee Benefits 

   HR and payroll play a crucial role in determining employee benefits by managing and administering various perks, such as health insurance and retirement plans. They ensure compliance with regulations, streamline benefit calculations, and communicate effectively with employees, contributing to a transparent and efficient benefits administration system.

3. Maintaining Safety and Health Standards

   HR and the payroll process collaborate to uphold safety and health standards by implementing and enforcing policies, conducting training programs, and ensuring compliance with regulations. They manage employee records related to safety training, track certifications, and contribute to a safe working environment. 

   Payroll processes may involve health and safety compliance benefits, ensuring a holistic approach to employee well-being.

4. Government Reporting

   HR and the payroll process play an important role in government reporting by ensuring the accurate and timely submission of employee-related information to regulatory authorities. They manage records, such as tax withholding details and employment data, ensuring compliance with government regulations and tax laws. 

Effect of Employment Contracts in the HR and Payroll Process in the Philippines

In the Philippines, employment contracts significantly influence payroll and HR procedures. These legally binding agreements specify the terms and conditions of employment and provide the framework for managing the workforce as a whole, payroll, and benefits administration. 

Let’s explore some of the crucial effects of employment contracts in the HR and payroll process in the Philippines:

1. Clarity and Transparency

A well-defined contract sets clear expectations regarding job duties, compensation, benefits, and termination procedures for both employer and employee. This clarity promotes transparency and minimizes disputes during the employment lifecycle.

2. Streamlined Onboarding and Payroll Processing

The employment contract is a reference document for HR and payroll during onboarding. Information like salary, deductions, and benefits is readily available, streamlining data entry and ensuring accurate payroll processing.

3. Compliance with Labor Laws

Employment contracts must comply with Philippine labor laws, ensuring employees receive minimum wages, mandated benefits, and proper termination procedures. This protects both parties from legal issues and ensures responsible employment practices.

4. Dispute Resolution

A valid contract is a legal document in case of disputes between employer and employee. It provides clear terms of reference for resolving compensation, benefits, or termination issues, potentially preventing conflicts and facilitating mediation.

5. Managing Expectations and Retention

A well-defined contract fosters trust and understanding by setting clear expectations for both parties. This can improve employee satisfaction and retention, as employees feel secure and informed about their rights and obligations.

How Is the Payroll Scheduled for the Employees in the Philippines?

A crucial component of human resource management in the Philippines is the payroll schedule, which guarantees the timely and accurate distribution of compensation to employees. 

Payroll schedules in the Philippines are usually followed by employers on a monthly or semi-monthly basis; the exact frequency is determined by the company's regulations and procedures.

1. Scheduling of Payroll 

   Payroll is processed regularly by a large number of enterprises in the Philippines. Employees in this arrangement get paid once a month, usually at the end of the workday. This method offers consistency to both companies and employees while streamlining the payroll processing process.

   Some companies choose to opt for a semi-monthly payment plan, in which workers get paid twice a month. This usually happens on the fifteenth or last day of the month. 

2. The 13th Month Policy

   In the Philippines, the 13th-month pay policy, mandated by Presidential Decree No. 851, ensures that employees receive an additional one-twelfth of their base income as a Christmas bonus by December 24th each year. This legal requirement, offering financial assistance during the holiday season, has exceptions for certain workers based on annual compensation or duration of employment.

3. Employees’ Compensation Program

   In the Philippines, the Employees' Compensation Program (ECP) is a significant part of employee benefits, providing additional support for illnesses, injuries, or work-related deaths. Employers typically contribute to the ECP, covering medical expenses, financial aid during recovery, and compensation for disabilities or death for both the employee and their dependents. The Employees' Compensation Commission (ECC) oversees the ECP.

What are the Taxes Involved in the HR and Payroll Processes in the Philippines?

Like many other nations, the Philippines' complicated tax system immediately affects payroll and human resources (HR) procedures. For companies doing business in the nation, it is essential to comprehend and manage these tax requirements. 

In the Philippines, the main taxes associated with payroll and HR procedures include personal and corporate taxes and Social Security System payments.

1. The Corporate Taxes

   In the Philippines, the corporate income tax rate is 30%, with SMEs enjoying a reduced rate if their net taxable income is below PHP 3 million. After four years, if the income exceeds 30%, it may shift to 2% of the gross income (MCIT). Companies must also pay the 12% Value Added Tax (VAT), requiring careful consideration by payroll experts to ensure proper application and remittance for compliance.

2. The Personal Taxes

   The Philippines has a progressive tax system, meaning tax rates increase with income. If an employee's pay is less than 250,001 PHP ($4812 USD), they are not subject to taxes. After that, the tax rate rises to 20% before peaking at 35% for salaries of PHP 8,000,000 ($154,000 USD) and higher.

3. The Social Security System

   In the Philippines, contributions to the Social Security System (SSS) are required of both employers and employees. Social insurance benefits, including retirement, maternity, illness, and death benefits, are provided by the SSS. 

Final Words

The comprehensive overview has delved into various elements, from employment contracts and the types and processes of payroll in the Philippines to payroll scheduling and the pivotal role of HR Information Systems (HRIS). 

Darwinbox streamlines payroll management through its cloud-based software. Automating calculations and integrating data with other HR functions minimizes manual work and potential errors. The mobile app lets Employees conveniently access their pay slips and manage tax information. 

Additionally, we offer support to help you stay compliant with local regulations. This comprehensive approach saves HR teams time and resources while improving payroll accuracy and employee satisfaction. To learn more about the product, schedule a demo with our specialists.