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If you have a business, processing payroll is something you can’t avoid. While this job may seem daunting, it doesn’t have to be complicated and time-consuming.
There are many ways you can complete your payroll, as well as tons of tools and resources that you can take advantage of.
That said, there’s no one-size-fits-all approach to this task. What works for you may not work for another business owner.
But regardless of the method you choose to do payroll in the Philippines, it’s important to follow the necessary steps to ensure that your payroll is accurate and compliant with the regulations in the country.
What is Payroll?
Payroll is the process of calculating and distributing salaries or wages to employees in a company.
How it works
You may think payroll only involves depositing your employee’s wages into their bank accounts or issuing a check. However, it’s more than that.
Running a payroll system involves various calculations based on hours worked, overtime, bonuses, and other factors such as taxes and deductions.
The secret to successful and easy payroll is to ensure the process you select addresses all your pain points. If not followed properly, you may end up dealing with costly penalties for filing this incorrectly.
How to Setup a Payroll
Setting up your payroll system from scratch involves a few steps. Follow these instructions below to make your journey easier.
1. Register your business with government agencies
Once you’ve made the decision to set up your payroll process, the first step is to apply for an Employer Identification Number (EIN) with the Bureau of Internal Revenue. After this is complete, you can register as an employer with PhilHealth, SSS, and Pag-IBIG.
2. Establish Your Payroll Process
The second thing you must accomplish is to create your company’s payroll process. This involves integral components such as:
Will you be paying your employees weekly, bi-weekly, monthly, or on a different schedule? Make sure to communicate this to your employees so they know when to expect their pay.
Having a reliable time tracker is crucial to ensure that the hours worked by your employees are accurately recorded. This can be done manually, through a spreadsheet, or through an online cloud-based system.
Decide how you will be disbursing the payroll. Will you be writing checks? Giving your employees their wages in cash? or depositing payments directly into employee bank accounts?
3. Take into consideration Philippine labor laws
As you’re setting up your payroll process, it’s important to take into consideration Philippine labor laws.
You should be familiar with the minimum wage rates, overtime pay, holidays, paid and unpaid leaves, benefits, holiday and overnight differential pay, 13th-month pay, and other employee benefits required by law.
It’s also important to stay up-to-date with any changes or updates to these laws, as failure to comply could result in legal consequences.
4. Collect employee data
The third step in setting up your payroll is to collect employee data.
This includes basic information such as their full name, employee number, and position in the company. It also includes the following:
Employees also need to complete the Social Security System Form R-1A. This document must be submitted within the first month of their hire date.
Just like SSS, employees must complete registration of their Pag-IBIG Fund account within 30 days from their hire date. This can be done online.
Medical insurance is an integral part of your employee’s life. They must register with PhilHeath for this purpose. Employees may visit any PhilHealth office to register.
5. Open a payroll bank account
After completing the necessary steps above, you can now open a payroll bank account. This is a separate account from your business account.
Its sole purpose is so you can have a place to deposit all payroll-related transactions.
You’ll need to choose a reputable bank and provide the necessary documents needed, such as your business registration papers and identification documents.
Once your account is set up, you can start depositing funds for payroll.
Having a separate account for your payroll will make it easier to track all payroll-related expenses and will help you avoid confusion between your business and payroll transactions.
This will also make it more hassle-free to pay your employees since you won’t have to go through multiple transactions to get the job done.
Looking for the best payroll account in the Philippines? Check out our guide here.
6. Run your payroll
Once you have all the necessary information and processes in place, you can start running your payroll.
This involves calculating each employee’s pay based on their hours worked, overtime, and taking into account any additional benefits or deductions.
How to Calculate and Issue Employee Paychecks
Calculating paychecks for your employees begins with determining their wages, whether it’s salary-based or hourly-based.
After this, you need to subtract deductions and taxes to come up with the final amount.
When calculating hourly wages, you need to keep track of the number of hours worked by the employee.
For instance, if an employee is paid P312.5 per hour for an 8-hour work day, the equation would be:
- P312.5 x 8 = P2,500
- P2,500 x 20 (days worked per month) = P50,000 (monthly wage)
Calculating paychecks is easier if the employee is salary-based.
For example, if a person makes P50,000 per month and is paid on a bi-monthly basis, she will receive P25,000 twice per month, not accounting for tax and benefits deductions, as well as overtime pay (if there are any).
Want to issue paychecks? This is also simple. Just order checks from your bank where you have a business or payroll account. You can hand-write these checks.
Make sure it includes key information such as your company name, the check number and date, net pay amount, the name of the employee, and the issuer.
How to Determine Withholding Taxes in the Philippines
Withholding tax is based on graduated tax rates that range from 0% to 35%. You can use this helpful calculator by the BIR to help you compute this.
Take a look at this table to see the revised withholding tax effective January 1, 2023 and onwards.
|REVISED WITHHOLDING TAX TABLE|
|Effective January 1, 2023 and onwards|
|Compensation Range||₱685 and below||₱685 -₱1,095||₱1,096 – ₱2,191||₱2,192 – ₱5,478||₱5,479 – ₱21,917||₱21,918 and above|
|Prescribed Withholding Tax||0.00||0.00 +15% over ₱685||₱61.65 +20% over ₱1,096||₱280.85 +25% over ₱2,192||₱1,102.60 +30% over ₱5,479||₱6,034.30 +35% over ₱21,918|
|Compensation Range||₱4,808 and below||₱4,808 – ₱7,691||₱7,692 – ₱15,384||₱15,385 – ₱38,461||₱38,462 – ₱153,845||₱153,846 and above|
|Prescribed Withholding Tax||0.00||0.00 +15% over ₱4,808||₱432.60 +20% over ₱7,692||₱1,971.20 +25% over ₱15,385||₱7,740.45 +30% over ₱38,462||₱42,355.65 +35% over ₱153,846|
|Compensation Range||₱10,417 and below||₱10,417 – ₱16,666||₱16,667 – ₱33,332||₱33,333 – ₱83,332||₱83,333 – ₱333,332||₱333,333 and above|
|Prescribed Withholding Tax||0.00||0.00 +15% over ₱10,417||₱937.50 +20% over ₱16,667||₱4,270.70 +25% over ₱33,333||₱16,770.70 +30% over ₱83,333||₱91,770.70 +35% over ₱333,333|
|Compensation Range||₱20,833 and below||₱20,833 – ₱33,332||₱33,333 – ₱66,666||₱66,667 – ₱166,666||₱166,667 – ₱666,666||₱666,667 and above|
|Prescribed Withholding Tax||0.00||0.00 +15% over ₱20,833||₱1,875.00 +20% over ₱33,333||₱8,541.80 +25% over ₱66,667||₱33,541.80 +30% over ₱166,667||₱183,541.80 +35% over ₱666,667|
Doing Payroll In-House Vs. Using Professional Services
There are two ways you can do payroll services in the Philippines: In-house or Outsourced.
Take a look at the advantages and disadvantages of both below. This way, you can have a clearer picture on what will suit your business better.
In-house payroll is when your business has an internal department that works on the payroll process. These employees are paid through the payroll system that they also manage.
An in-house payroll staff can either be a part of the HR department or finance department.
You can have more control over your payroll process
When you have an in-house team to process your payroll, it means you also have full control over the entire process.
You can customize the process based on your needs and make changes to it whenever necessary. You can also ensure the quality of the output since you have direct supervision over it.
You won’t have to deal with learning curves
Since you have control over the entire process, you won’t have to worry about learning a new system or hiring a third-party service provider.
This can save you time and money in the long run.
You can simply hire an employee with expertise in the payroll process
It will give you peace of mind if you have someone on your team who has expertise in payroll processing. You’re certain that your payroll is being handled by someone you trust.
It’s more complicated
Processing payroll in-house can be more complicated than outsourcing it, especially if you have a large number of employees.
You’ll need to invest time and resources to train your payroll team and ensure that they stay up-to-date with changes in tax laws.
There’s a higher risk of errors
Mistakes in payroll can be costly, both financially and in terms of employee satisfaction.
If you have an in-house team, there’s a higher risk of errors since they may not have the same level of expertise as a professional payroll service provider.
Managing payroll in-house can be a time-consuming process. It can take up a lot of time that could be spent growing your business.
This is especially true during tax season or when there are changes in labor laws.
Outsourced payroll is when businesses delegate its payroll operations to a third party. These professionals are in charge of data security, claims, tax reporting, and regulatory compliance.
It’s more efficient
Outsourcing your payroll means you don’t need to worry about learning a new system or hiring new staff.
Professional payroll service providers already have systems in place that are specifically designed to process payroll quickly and efficiently.
This means that you can focus on growing your business instead of wasting time and money as you deal with payroll issues.
You may save more on costs
Outsourcing your payroll can be more cost-effective than in-house processing, especially if you have a large company.
By outsourcing, you don’t need to spend money on hiring and training an internal team. You also don’t need to buy payroll software, which can be quite expensive.
Additionally, outsourcing can save you time and money when it comes to keeping up with changes in tax laws.
You can save time
Since professional payroll service providers have necessary expertise and systems in place, outsourcing your payroll can save you a lot of time.
You won’t have to spend time managing the process of keeping up with changes in tax laws. You also don’t have to worry about employee turnover in your payroll team.
You will have less control over your payroll process
When you outsource your payroll, you’ll have less control over the process. You’ll need to rely on the service provider to accurately process your payroll and ensure that it’s done on time.
This can be a disadvantage if you prefer to have more control over your payroll process.
You may end up paying for features you don’t really need
Outsourcing your payroll means that you’ll be paying for the services that the provider offers, even if you don’t need some of the features.
For example, if you only have a small number of employees, you may not need all of the benefits that a professional payroll service provider offers. This can lead to unnecessary expenses.
How to Automate Payroll in the Philippines
As technology advances, many businesses are turning to automation to streamline their payroll processes.
Here are some of the options to choose from that can allow your business to automate its payroll system.
Price: Starts at P5,000 per month
When it comes to tax services and bookkeeping in Southeast Asia, OneCFO is one of the biggest players.
This provider lets you get access to tech-enabled and AI driven services that are perfect for small and large businesses.
Therefore, business owners like you can focus more on growing your company. The OneCFO package is also flexible so you can change it as your business grows.
- Cloud‑based payroll solutions processing
- Online and timely processing of your mandatory labor‑mandated government contributions
- Processing of employee tax returns during onboarding and offboarding
- Bonus free annualization of your employee withholding taxes at year‑end
Price: Not available online. Book a consultation here.
Sprout has been revolutionizing people management by providing one of the most reliable end-to-end HR platforms businesses can get.
It’s great not only for startups and small businesses but also companies with thousands of employees.
Additionally, local government and HR intricacies are already built into its system to enable companies to grow at scale without worrying about anything else.
- Automated 201 File Onboarding
- Integrated with SSS, BIR, Pag-IBIG, PhilHealth, Certificate of Contribution, Certificate of Loan
- Automatically filled in forms with employee data
- Constantly checked to be government compliant
- Attendance tracking
- Dedicated man-hour time to payroll
- Automated payroll processing
- Up to 90% reduction of payroll processing time
- Highly accurate payroll reports
- Employee Self-Service
- Payroll processing in just a few clicks
- Software covers 32 types of pay rates (basic holiday, rest day, chains SH-ND-OT, and many more)
- Customizable payroll for diverse work schedules
Price: $5 per user per month (up to 150 users)
With the Salarium payroll system, you can take away the stress of payroll. Since 2013, this company has been one of the leading payroll software in the Philippines.
It aims to be the go-to payroll solution that provides cutting-edge software at a low price point. This way, clients can enjoy a simple solution to payroll without outsourcing it.
- Free weekly webinars
- In-app walk-through
- Over 100 video guides and tutorials
- Custom payroll groups and unlimited custom roles
- Powerful payroll engine that produces payroll in seconds
- Government reports for filing directly from the system (SSS, HSMF, PhilHealth, and BIR)
- Outputs like general ledger for finance and accounting, government reports, payslips, and disbursement instructions for banks
- Receipt tracking through the employee portal
- Pay list is broken down clearly for employees so they understand how their pay was computed
- Access to modules and permission like delete, edit, or view
Price: Not available online. Kindly contact +63.969.374.9908 or +63.995.531.8930
This is a service made with Filipino entrepreneurs in mind. It offers robust and well-supported solution services to make HR Timekeeping and Payroll easier.
Although it’s a fairly new player in the industry, business owners love SweldoMo for its intuitiveness and flexibility.
- Accurate computations for additions and deductions in your employees’ salaries within minutes
- Easy data management
- Pre-formatted reports
- Payroll register that is in compliance with BIR, SSS, PhilHealth, and HDMF
- Tax Reform for Acceleration & Inclusion Ready (R.A. No. 10963)
- Multiple payroll types and scheduling capability
- Payslips/individual salary reports
- Bank payroll file preparation
- Loan management
- Allowances management
- Salary adjustments
Price: not available online. Kindly contact ClearMile directly here.
Thanks to ClearMile, you can simplify your payroll system in a way that matches your specific needs, reduces the amount of manual work, and ensures the accuracy of your payroll.
With ClearMile, you can choose from various payroll systems if you want to run your payroll on your own. You may also take advantage of the ClearMile payroll outsourcing service.
Here are its payroll systems:
Standalone payroll system:
- Does not track employee time and attendance
- Calculates employee premiums including overtime and holiday pays
- Calculates SSS, Pag-IBIG, and PhilHealth contributions
- Calculates tax dues
- Generates bank upload files and employee payslips
Timekeeping and payroll system:
- Tracks the arrival and departure times of employees
- Identifies lates, undertimes, and absences
- Calculates employee premiums such as overtime and holiday premiums calculates SSS, PhilHealth, and Pag-IBIG contributions
- Calculates tax due
- Generates bank upload file Generates employee payslips
Excel payroll system:
- Includes an Excel spreadsheet set up with premiums and tax calculations
- All payroll system comes with these features:
- Zero-click payroll that uses machine learning
- Total-solution time-keeping tool
- Cloud-based HRIS
- Leave management and approvals for the next 12 months
- Government and management reporting
- Internal audit
- Employee engagement
- Employee knowledge base
- Quizzes and surveys
- Applicant tracking
- Workforce management (for the BPO industry)
If you prefer outsourcing, here are the features:
- Time tracking
- Timely and reliable
- Trusted and secure
- Global best practices in data security
Tips for Managing Your Payroll
Whether you choose to manage your payroll in-house or outsource it to a professional service provider, here are some tips to help you manage your payroll effectively:
1. Stay organized
Ensuring your payroll information stays organized is crucial to ensure accurate and timely processing.
Keep all of your payroll records in one place and make sure they are up-to-date. This includes employee information, tax forms, and payment records. By staying organized, you can ensure that your payroll process runs smoothly and efficiently.
Next, have a payroll calendar. A calendar will ensure you’re on track of important payroll dates such as payday, tax filing deadlines, and employee benefit enrollment periods.
Third, make sure to update employee information. This applies to when employees get promoted, get a raise, change address, or have other changes that impact their payroll.
2. Stay up to date with payroll legislation
Payroll legislation can change frequently, so it’s important to stay up-to-date with the latest laws and regulations.
This will help you avoid costly mistakes and ensure that your payroll process is compliant with government regulations.
3. Get help from experts if you can
If you’re new to managing payroll or if you’re finding it challenging to keep up with changes in tax laws, consider getting help from experts. This could be in the form of a:
- Professional payroll service provider
- Tax lawyer
These experts can provide you with the guidance and support you need to manage your payroll effectively.
They can also help you navigate complex tax laws and regulations.
4. Be transparent with your payroll process
Transparency is key when it comes to managing your payroll.
Make sure that your employees understand how their pay is calculated and what deductions are being taken out.
Provide your employees with pay stubs.
This document should detail their earnings, taxes, and any other deductions. Following this tip will ensure your employees understand their pay. It also helps prevent issues and disputes down the line.
Communicate any changes to your payroll process.
This should be done in a clear and timely manner to build trust and ensure that everyone understands how the process works.
5. Automate your payroll process
One of the most effective ways to manage your payroll is by automating the process.
By automating your payroll, you can save time, reduce errors, and ensure accuracy in your calculations.
6. Standardize your turnover process for payroll staff
To minimize the impact of turnover on your payroll process, consider standardizing your turnover process.
Create a detailed training program.
This program must cover all aspects of your payroll process. It should include clear procedures and guidelines in place for new staff to follow.
Not only that, but all your in-house payroll staff should be familiar with the payroll process.
Standardize your turnover process.
This way, you can ensure that new staff is quickly up-to-speed and that your payroll process remains efficient and accurate.
This can help you to avoid any disruptions to your payroll, which can be costly and time-consuming to resolve.
7. Document your payroll process
Another important tip for managing your payroll effectively is to document your payroll process.
This means writing down step-by-step instructions for every task involved in the payroll process, from calculating salaries to generating payroll reports.
By documenting your payroll process, you can ensure that everyone involved in the process is following the same procedures and that there are no mistakes or misunderstandings.
It also makes it easier to train new staff and to identify areas where improvements can be made.
This tip also includes doing reviews and updating your documentation regularly to ensure that it remains accurate and up-to-date with any changes to your payroll process or legislation.
Related: Financial Management Guide
8. Don’t miss payroll-related deadlines
Missing payroll-related deadlines can result in serious consequences for your business, including penalties and fines.
It’s important to stay on top of important deadlines such as tax filings, employee benefit enrollment periods, and paydays.
Consider setting up automatic payments for employee salaries and tax filings.
This will ensure that these are always paid on time. Automating payments can help avoid any unnecessary stress or complications down the line.
9. Double-check payroll by running reports
Double-checking your payroll is essential to ensure accuracy and avoid any potential errors. One effective way to do this is by running payroll reports.
These reports can provide you with detailed information on all aspects of your payroll process, including employee salaries, taxes, and deductions.
You can use this information to compare against your records and ensure that everything is accurate.
Running reports can also help you identify any potential issues, such as discrepancies in employee pay or errors in tax calculations.
By catching these issues early, you can correct them before they become bigger problems.
Still got questions about payroll? We’ll answer them below.
What information do I need to set up payroll?
To set up payroll, you’ll need several key pieces of information, including:
- Employee information
- This includes each employee’s full name, address, designation, pay rate, and other details.
- Company payroll information
- This includes your company’s legal name, address, and tax identification number.
- Payment information
- This includes how often you’ll pay your employees, as well as how you’ll pay them (direct deposit, check, cash), and what their pay rate will be.
- Benefits and deductions
- This includes any employee benefits you’ll offer, such as PhilHealth, PAG-IBIG, and SSS, as well as any deductions you’ll take out of their paychecks.
How often do I need to run payroll?
The frequency of running payroll can vary depending on your company’s payroll policies and applicable laws.
In the Philippines, the minimum frequency for paying salaries is twice a month, typically on the 15th and the last day of the month.
However, some companies may choose to pay their employees weekly, bi-weekly, or monthly.
It’s important to establish a consistent payroll schedule and communicate it clearly to your employees to avoid confusion and potential disputes.
How do I handle employee benefits, such as vacation or sick leave?
Handling employee benefits leaves is a crucial aspect of managing your payroll.
To ensure that you are handling these benefits correctly, it’s important to establish clear policies and guidelines, as well as comply with Philippine labor laws.
For instance, according to the DOLE 2022 Handbook, “every employee who has rendered at least one year of service is entitled to Service Incentive Leave of five days with pay.” This can be used for whatever purpose.
There’s also maternity leave which is up to 105 days (paid), and can be extended for 30 more days (without pay). Meanwhile, paternity leave can be up to 7 days. There is also solo parent leave, and magna carta of women leave.
When an employee takes a vacation or sick leave, you need to make sure that their pay is adjusted accordingly.
It’s important to keep track of your employees’ leave credits, so you have a record of how many days they have taken and how many are remaining.
This can help you to plan for staffing needs and ensure that you remain compliant with applicable labor laws.
How do I handle payroll for remote or part-time employees?
Handling payroll for remote or part-time employees can present unique challenges, but there are several strategies you can use to ensure that the process runs smoothly.
First, make sure that you have accurate records of each remote or part-time employee’s work hours. This may require using a time-tracking tool or having employees manually record their hours worked.
Next, determine how you will handle the payment for remote or part-time employees. You may need to set up a direct deposit or arrange for paper checks to be mailed to their location.
It’s also important to ensure that remote or part-time employees receive the benefits and deductions just as full-time employees (depending on company).
Your payroll system should also have the ability to handle different employee types and that you have a clear understanding of any applicable labor laws.
Lastly, communication is key. Make sure to regularly update your remote or part-time employees on any changes to the payroll process or deadlines, and be available to answer any questions they may have.
What are the legal requirements for payroll in the Philippines?
First off, all provinces in the Philippines have their own minimum wages that must be followed. Employers must pay their employees at least the minimum wage rate based on their respective regions.
In addition, employers are required to deduct and remit social security contributions to the Social Security System (SSS), Home Development Mutual Fund (PAG-IBIG), and PhilHealth.
These contributions are based on the employee’s salary and must be remitted on a monthly basis.
Finally, employers must comply with labor laws, including those related to minimum rest periods, leaves, overtime pay, and employee benefits.
How do I calculate payroll taxes in the Philippines?
Although employers don’t contribute to the income tax of their employees, they should act as a withholding agent by deducting taxes from the monthly wages of employees.
The country’s graduated tax income brackets should be followed. Please review the revised withholding tax table listed above or use the calculator by the BIR as a guide.
Disclaimer: Grit PH strives to post up-to-date information on all investment, banking, and other financial products we feature. However, information may change without notice. Therefore, we do not guarantee the accuracy of the information listed on the website, including those provided by third parties at any particular time.
It is best to review the updated terms and conditions of your chosen financial institution. Grit PH is not affiliated with the companies mentioned in the article. All testimonials and opinions are representative only of the writer’s experience, but the results will be unique to each individual.