Payroll in the Philippines
What tax considerations are there?
The first thing to know is that companies need to obtain permits (locally referred to as barangay) from local officials before they can open for business in the area. They also need a permit from the Business Permits and Licensing Office, and a tax certificate from the City Treasurer’s Office. There must be co-ordination between the business and the Bureau of Internal Revenue.
Once these preparations have been carried out, employers need to be aware of the local law about corporate and personal tax.
Personal tax
Employees do not get taxed if their salary is below 250,001 PHP ($4812 USD). After this, the tax rate starts at 20%, and then increases with a cap of 35% on salaries of 8,000,000 ($154,000 USD) PHP and above.
In the Philippines individuals must file their taxes every year with the Philippine Bureau of Internal Revenue. This should be done on or before the 15th April, using BIR Form 1700. All residents, resident aliens, and non-resident aliens who carry out business in the Philippines and receive any kind of income from this, must all file their taxes.
Filipinos over the age of 15 contribute to the country’s Social Security System (SSS). This service covers things like maternity leave, sickness leave, and unemployment benefits. To claim a monthly pension, Filipinos must be over the age of 60 and they must have made a minimum of 120 monthly contributions.
Corporate tax
Businesses operating in the Philippines are all subject to tax. Domestic companies are subject to tax on their entire worldwide income, whereas foreign companies are only subject to tax on their income gained from Filipino sources.
The amount of corporate income tax (CIT) can vary. Usually CIT is 30% of a company’s net income. However, after four years of trading, it can change to 2% of a company’s gross income (known as MCIT, or minimum corporate income tax) if this amount is more than 30% of net income.
HR in the Philippines
What are the regular working hours in the Philippines?
In the Philippines most employees work a 40 hour week – eight hours a day from Monday to Friday. In some industries though, employees are expected to work 48 hours each week. If they work six days straight, employees must then have a 24 hour break.
Vacation, maternity and sickness
Employees in the Philippines are entitled to a minimum of 13 days of annual leave each year. After three years of work in a company, this should go up one day per year, up to 18 days. In addition to this, there are 17 days of paid national/public holidays. If an employee has to work on a national or public holiday, they are entitled to double pay.
Workers are also allowed up to 12 days of paid sick leave, with an additional day per year being given after two years at a company. This is capped at 15 days of paid sick leave.
Maternity leave is around 120 days (four months), during which women are paid their full salary through the country’s social security scheme. Fathers can also take up to seven days off with full pay.
Termination
Employers can terminate the employment of a member of staff as long as there is just cause – and this must be defendable in court. In most cases, the employer or employee must give one month’s notice to terminate their contract.
The 13th Month Policy
The Philippines has a 13th month pay policy in which after one year, all employees are entitled to an additional month’s worth of salary (i.e. 1/12th of their annual salary). If they haven’t worked an entire year, they should be paid the relative amount corresponding to the number of months they have worked. For instance, if they have worked for you for eight months, they should receive 1/8th of their total pay thus far.
