
Managing the payment of an employee’s wages is typically a task assigned to members under the Finance and Human Resources Department of an employer. In the Philippines, payment of wages is governed by Presidential Decree No. 442 (P.D. 442), otherwise known as the Labor Code.
Under the decree, payroll computation is simply:
Gross Pay – Deductions = Net Pay
Gross Pay typically consists of different variables, with the usual being the following:
- Basic Salary
- Overtime Pay (if applicable)
Deductions, on the other hand, are usually the following:
- Compulsory Government Deductions (SSS, PagIBIG, PhilHealth, BIR)
- Undertime/Late
Employee wages should comply with the Wage Rationalization Act (R.A. 6727), which sets the minimum wage rate for each region, province, and industry sector. Workers should be able to receive their wages twice monthly, at intervals not exceeding 16 days. If payment cannot be made due to force majeure, wages must be paid immediately once the issue is resolved. Employers cannot pay wages less often than once a month, per Article 103 of the Labor Code.
Work Hours Benefits and Conditions
Other work and wage benefits and conditions in the Labor Code include:
- Article 86 – Night shift differential. Employees working between 10 PM and 6 AM must receive a night shift pay of at least 10% of their regular hourly wage.
- Article 87 – Overtime. Employees working beyond eight hours a day must be paid overtime, with an extra 25% of their regular hourly wage. Overtime pay on holidays or rest days includes the holiday or rest day rate plus an additional 30%.
- Article 93 – Compensation for Rest Day, Sunday or Holiday Work. Premium pay is given on non-working days. Employees working on their rest day, including Sundays if designated, must receive an additional 30% of their regular wage. For those without fixed workdays or rest days, the same 30% applies for work on Sundays and holidays. Special holiday work is paid with an extra 30%, increasing to 50% if it falls on the employee’s rest day. Employers must also honor higher premium rates set by contracts or agreements.
- Article 94 – Right to holiday pay. Workers are entitled to their regular daily wage on regular holidays, except those in retail and service establishments with fewer than 10 employees. Those required to work on a holiday should be compensated twice their regular rate.
- Article 95 – Right to service incentive leave. Employees with at least one year of service are entitled to five days of paid service incentive leave annually. This excludes those who already enjoy this benefit, those with at least five (5) days of paid vacation leave, and those employed in establishments regularly employing only less than ten (10) people or establishments exempted by DOLE.
- Article 96 – Service charges. Service charges collected by hotels, restaurants, and similar establishments are distributed 85% to employees and 15% to management. Employees’ share is divided equally among them, and if the service charge is removed, their share is added to their wages.
- 105-Day Expanded Maternity Leave Law (RA 11210) and SSS Maternity Benefit. All female workers in government, private, or informal sectors are entitled to 105 days of fully paid maternity leave, with an option to extend for 30 days without pay. Solo parents are granted an additional 15 days of paid leave. Maternity leave must be taken continuously before or after delivery, and in cases of miscarriage or emergency termination, 60 days of fully paid leave is provided.
The daily maternity benefit is 100% of the female member’s average daily salary credit (ADSC) for:
- 105 days for live childbirth (normal or caesarian).
- 120 days for solo parents, with an additional 15 days under the Solo Parents’ Welfare Act (RA 8972).
- 60 days for miscarriage or ectopic pregnancy, including stillbirth
Employed women receive full pay, combining their SSS maternity benefit and a salary differential from their employer.
- Paternity Leave Act of 1996 (RA 8187). Married male employees in both private and public sectors are entitled to seven days of fully paid paternity leave for the first four deliveries of their legitimate, cohabiting spouse. They must notify their employer of their spouse’s pregnancy and the expected delivery date.
- P.D. 851 – 13th Month Pay and DOLE Labor Advisory No. 18 Series of 2021. All rank-and-file employees in the private sector are entitled to a 13th-month pay, regardless of their position, designation, or employment status. The only requirement is that they have worked for at least one month during the calendar year. The 13th-month pay must be at least one-twelfth (1/12) of the total basic salary earned by the employee within a calendar year. For example, if an employee earned a total basic salary of ₱106,147 for the year, their 13th-month pay would be ₱8,845.58.
- Article 183 – Employer’s contributions. Starting from the last day of the month when an employee’s compulsory coverage begins, and every month thereafter, the employer must remit a contribution to the system equal to one percent of the employee’s monthly salary credit.
- Social Security System Act of 1997 (RA 8282). This law guarantees that contributions to the Social Security System (SSS) cover benefits for unemployment, maternity, injury, sickness, and disability, while also functioning as a retirement plan for private employees.
- Home Development Mutual Fund Law of 2009 (RA 9679 – HDMF/Pag-IBIG). This requires employers to register their employees with the Pag-IBIG Fund and contribute monthly, with both employers and employees sharing the cost. Pag-IBIG’s goal is to offer savings programs, affordable housing loans, and financial assistance to its members.
- National Health Insurance Act of 1995 (RA 10606 – PhilHealth). Employers must remit their employees’ PhilHealth contributions, which are shared equally between the employer and employee and based on the employee’s salary. This law ensures that employees and their dependents have access to affordable, quality healthcare services.
Setting Up Payroll
Setting up the company’s payroll system requires strict observance and adherence to the relevant local laws encompassing it. To set up the payroll:
- Register the Company with the Bureau of Internal Revenue (BIR) to obtain your Employer Identification Number (EIN).
- Establish a general compensation structure based on payroll policies and mandated deductions.
- Collect relevant employee data for proper payment of their government dues.
- Pay the employee per the required payroll cycle.
- Keep proper documentation of the payments.
The Labor Code protects the rights of employees; employers who commit labor standards violations may be reported before the DOLE or its regional offices by filing the appropriate complaint. Similarly, employees can file a report to SSS, Philhealth, and/or Pag-IBIG for non-remittance of contributions.