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How to Calculate Payroll in Philippines?

Payroll word in scrabble - how to calculate payroll

Other than professional experience and academic backgrounds, salaries and wages in the Philippines are determined by factors including nature of work, working hours, workplace location, type of industry and so on. Due to these differentiating factors, the Department of Labor and Employement (DOLE) and the National Wages Productivity Commission (NPWC) grants the relevant compensations and benefits including minimum wages, 13th-month pay, health and insurance benefits, and holiday pay. With these factors, it is therefore important for the employers and as well as the employees to determine how to calculate the payroll in the Philippines.

Below are the steps on how to calculate the payroll of employees.

1. Calculate Gross Pay

Gross Pay is composed of the following:

a. Minimum Wage

Republic Act (RA) No. 6727 ( the “Wage Rationalization Act”) established the fixing of minimum wage in the Philippines through the Regional Tripartate Wages and Productivity Boards which was authorized to determine the minimum wage rates on the following region based on the criterias set by the board.

Summary of Current Regional Daily Minimum Wage Rates by Region, Non-agriculture and Agriculture
As of August 2020

Summary of Current Regional Daily Minimum Wage Rates by Region, Non-agriculture and Agriculture as of August 2020
Source: NWPC’s website

Current Monthly Minimum Wage For Domestic Workers
As of August 2020

Current Monthly Minimum Wage For Domestic Workers as of August 2020
Source: NPWC’s website

Montly-Paid Employees and Daily-Paid Employees

Monthly-paid employees are those whose wages are paid every day of the month which includes unworked rest days, special days, and regular holidays. Meanwhile, daily-paid employees are those who are paid only on the days they actually worked and on an unworked regular holidays.

Computation of the Estimated Equivalent Monthly Rate of
Monthly-Paid Employees

365 days in a year is used to determine the equivalent annual and monthly salary of monthly-paid employees. The Estimated Equivalent Monthly Payroll (EEMR) are computed as follows:

Applicable Daily Rate (ADR) X 365=EEMR
12 months
Where 365 days/year=297Ordinary working days
52Rest days
12Regular holidays
4Special holidays
365Total number of equivalent days per year
Excerpt from DOLE’s Handbook on Workers’ Statutory Monetary Benefits

Computation of the Estimated Equivalent Monthly Rate of
Daily-Paid Employees

For those employees who are required to work everyday, including Sundays, rest days, regular holidays and special days.

Applicable Daily Rate (ADR) X 393.8=EEMR
12 months
Where 313 days/year=297Ordinary working days
67.6Rest days (52 x 130%)
24Regular holidays (12 x 200%)
5.2Special holidays (4 x 130%)
393.8Total number of equivalent days per year

For those employees who do not work and are not considered paid on Sundays and rest days

Applicable Daily Rate (ADR) X 313=EEMR
12 months
Where 365 days/year=297Ordinary working days
0Rest days (52 x 0)
12Regular days
4Special days
313Total number of equivalent days per year
Excerpt from DOLE’s Handbook on Workers’ Statutory Monetary Benefits

For those employees who do not work and are not considered paid on Saturdays, Sundays and rest days

Applicable Daily Rate (ADR) X 261=EEMR
12 months
Where 365 days/year=245Ordinary working days
0Rest days (52 x 0)
12Regular days
4Special days
261Total number of equivalent days per year
Excerpt from DOLE’s Handbook on Workers’ Statutory Monetary Benefits

b. Holiday Pay

Holiday pay refers to the paid regular daily wage for any
unworked regular holiday.

Coverage of Holiday Pay

The following group of employees are exempted from receiving a holiday pay:

a. Government employees
b. Workers for retail and service companies with less than 10 employees
c. Managerial employees
d. Officers and members of managerial staff
d. Kasambahay and persons in personal service of another
e. Field personnel and other employees whose time and performance is
unsupervised by the employer, including those who are engaged on
task or contract basis, purely commission basis or those who are
paid a fixed amount for performing work irrespective of the time
consumed in the performance thereof.

Holidays in the Philippines

Regular Holidays

Every employee covered by the Holiday Pay Rule is entitled to a100% of his/her minimum wage (daily basic wage and COLA) even if he/she did not report to work. Work performed on that day entitles the employees at least twice (200%) of his/her daily wage.

2020 Regular Holidays in the Philippines

There are 9 regular holidays in the Philippines, as follows:

New Year’s Day  –  January 1, 2020
Araw ng Kagitingan – April 9, 2020
Maundy Thursday – April 9, 2020
Good Friday – April 10, 2020
Labor Day – May 1, 2020
Independence Day – June 12, 2020
National Heroes’ Day – August 31, 2020
Bonifacio Day – November 30, 2020
Christmas Day – December 25, 2020
Rizal Day – December 30, 2020

Compensation for National Regular Holidays

a. If it is an employee’s regular workday

The employee:Compensation
Did not workDaily rate x 100%
WorkedDaily rate x 200%
Rendered overtimePlus 30% of hourly rate on the said day
Compensation Paid for Regular Holidays in the Philippines

b. If it is an employee’s rest day

The employee:Compensation
Did not workDaily rate x 100%
WorkedDaily rate x 230% (200% plus 30%)
Rendered overtimePlus 30% of hourly rate on the said day
Compensation Paid for Regular Holidays in the Philippines if it is an Employee’s Rest Day

c. Premium Pay

Premium pay refers to the additional remuneration for work
performed within eight (8) hours on non-working days, such as rest days and special days.

Coverage of Premium Pay

Premium pay is applicable to all employees except:

  1. Government employees,
  2. Managerial employees,
  3. Officers or members of a managerial staff,
  4. Kasambahay and persons in the personal service of another,
  5. Workers who are paid by results,
  6. Field personnel, as applicable.

Special Days in the Philippines

The following are the four (4) special days in a year that are being observed in the Philippines, unless otherwise modified by law, order, or proclamation:

  1. Ninoy Aquino Day Monday – nearest August 21
  2. All Saints Day – November 1
  3. Feast of Immaculate Conception of Mary – December 8
  4. Last Day of the Year – December 31

The “no work, no pay” is applicable during special days and on such other special days as may be proclaimed by the President or by Congress. Meanwhile, work performed on special days requires additional
compensation of at least thirty percent (30%) of the basic wage totaling the compensation to one hundred thirty percent (130%).

If the special day falls on the employee’s rest day, he/she shall merit an additional compensation of at least fifty percent (50%) of his/her basic wage totaling the compensation to one hundred fifty percent (150%).
special day falling on his rest day, he/she shall be entitled to an additional
compensation of at least fifty percent (50%) of his/her basic wage or a
total of one hundred fifty percent (150%).

Special Work Days

No premium pay is required during Special Work Days since work performed on that day is considered work on an ordinary workday.

Premium Pay Rates in the Philippines

The COLA is not included in the computation of premium pay and the minimum statutory premium pay rates are shown below:

For work performed on rest days or on special days – plus 30% of the daily basic wage

Sector (Industry)RateAmount
Non-agriculture₱537₱537 x 130% = ₱698.10
Retail/Service Establishment 500500 x 130% = 650.00

For work performed on a rest day which is also a special day – plus 50% of the daily basic wage of 100%

Sector (Industry)RateAmount
Non-agriculture₱537₱537 x 150% = ₱805.50
Retail/Service Establishment 500500 x 150% = 750

For work performed on a regular holiday which is also the employee’s rest day – 30% plus 30% of the regular holiday rate of 200% based on his/her daily basic wage rate or a total of 260%.

Sector (Industry)RateAmount
Non-agriculture₱537₱537×260% = ₱1,396.20
Retail/Service Establishment not employing more than 10 workers 500Not covered by holiday pay rule

d. Overtime Pay

Overtime pay refers to the additional remuneration paid for work performed beyond eight (8) hours a day.

Coverage

Same above as shown in Premium Pay.

Overtime Pay Rates

The COLA is not included in the computation of overtime pay. The minimum overtime pay rates vary according to the day the overtime work is performed, as follows:

  1. For work in excess of eight (8) hours performed on ordinary working
    days – plus 25% of the hourly rate
Sector/IndustryRateAmount
Non-agriculture₱537₱537/8 x 125% x number of overtime hours
Retail Service Establishment500500/8 x 125% x number of overtime hours

2. For work in excess of eight (8) hours performed on a scheduled rest
day or a special day – plus 30% of the hourly rate on said days.

Sector/IndustryRateAmount
Non-agriculture₱537₱537/8 x 130% x number of overtime hours
Retail Service Establishment500500/8 x 130% x number of overtime hours

4. For work in excess of eight (8) hours performed on a special day which falls on a scheduled rest day – plus 30% of the hourly rate on said days

Sector/IndustryRateAmount
Non-agriculture₱537₱537/8 x 150% x 130% x number of overtime hours
Retail Service Establishment500500/8 x 150% x 130% x number of overtime hours

5. For work in excess of eight (8) hours performed on a regular holiday which falls on a scheduled rest day – plus 30% of the hourly rate on said days.

Sector/IndustryRateAmount
Non-agriculture₱537₱537/8 x 260% x 130% x number of overtime hours
Retail/Service Establishment not employing more than 10 workers500Not covered by the rule on holiday pay

Stipulated Overtime Rates

The employer and employees may stipulate a higher overtime rates in their collective agreement than those provided by law.

e. Night Shift Differential

Night Shift Differential (NSD) refers to the additional remuneration of
at least ten percent (10%) of an employee’s regular wage for each hours of work performed between 10 p.m. and 6 a.m.

Coverage of Night Shift Differential

Night shift differential does not apply to:

  1. Government employees,
  2. Those of retail and service establishments regularly employing not
    more than five (5) workers,
  3. Kasambahay and persons in the personal service of another,
  4. Managerial employees
  5. Officers or members of a managerial staff
  6. Field personnel and those whose time and performance are
    unsupervised by the employer

Computation of Night Shift Differential

COLA is not included in the computation of night shift differential. Please refer to the table below for the guide in computing your employees night shift differential.

Work onPay Equals
Ordinary day100% or 1
Sunday or rest day130% or 1.3
Special day130% or 1.3
Special day falling on rest day150% or 1.5
Regular holiday200% or 2
Regular holiday falling on rest day260% or 2.6
Double holiday300% or 3
Double holiday falling on rest day390% or 3.9
Ordinary day, night shift1 x 1.1 = 1.1 or 110%
Rest day, night shift1.3 x 1.1 = 1.43 or 143%
Special day, night shift1.3 x 1.1 = 1.43 or 143%
Special day, rest day, night shift1.5 x 1.1 = 1.65 or 165%
Regular holiday, night shift2 x 1.1 = 2.2 or 220%
Regular holiday, rest day, night shift2.6 x 1.1 = 2.86 or 286%
Double holiday, night shift3 x 1.1 = 3.3 or 330%
Double holiday, rest day, night shift3.9 x 1.1 = 4.29 or 429%
Ordinary day, overtime (OT)1 x 1.25 = 1.25 or 125%
Rest day, overtime1.3 x 1.3 = 1.69 or 169%
Special day, overtime1.3 x 1.3 = 1.69 or 169%
Special day, rest day, overtime1.5 x 1.3 = 1.95 or 195%
Regular holiday, overtime2 x 1.3 = 2.6 or 260%
Regular holiday, rest day, overtime2.6 x 1.3 = 3.38 or 338%
Double holiday, overtime3 x 1.3 = 3.9 or 390%
Double holiday, rest day, overtime3.9 x 1.3 = 5.07 or 507%
Ordinary day, night shift, OT1 x 1.1 x 1.25 = 1.375 or 137.5%
Rest day, night shift, OT1.3 x 1.1 x 1.3 = 1.859 or 189.5%
Special day, night shift, OT1.3 x 1.1 x 1.3 = 1.859 or 189.5%
Special day, rest day, OT1.5 x 1.3 = 1.95 or 195%
Special day, rest day, night shift, OT1.5 x 1.1 x 1.3 = 2.145 or 214.5%
Regular holiday, night shift, OT2 x 1.1 x 1.3 = 2.86 or 286%
Regular holiday, rest day, night shift, OT2.6 x 1.1 x 1.3 = 3.718 or 371.8%
Double holiday, night shift, OT3 x 1.1 x 1.3 = 4.29 or 429%
Double holiday, rest day, night shift, OT3.9 x 1.1 x 1.3 = 5.577 or 557.7%

Sample computations for the night differential pay:

Sector/IndustryRateAmount
Non-agriculture₱537₱537/8 x 110%* x number of hours worked
Retail/Service Establishment not employing more than 10 workers500530/8 x 110%* x number of hours worked
*The values can be substituted based on the rates on the table above depending on the day the night shift is done.

f. Service Incentive Leave

Five (5) days of paid Service Incentive Leave (SIL) is given to employees who have rendered at least one (1) year of service.

g. Maternity Leave

Maternal leave refers to the benefits applicable to female employees regardless of civil and employment status, and the legitimacy of her child.

The maternity leave benefit shall be paid in full for one hundred five (105) days and an additional fifteen (15) days for those female employee qualified as a solo parent under RA 8972, or the “solo Parents’ Welfare Act of 2000”. Paid Sixty (60) days shall be given to those with miscarriage or emergency termination of pregnancy.

Another thirty (30) days without pay may be provided by the employer if provided a due notice by the employee.

Eligibility

The female employee must have at least three monthly contributions to the SSS in the twelve-month period immediately preceding the childbirth, miscarriage, or emergency termination of pregnancy. In addition, she shall have notified her employer of her pregnancy and the probable date of her childbirth. This notice shall then be transmitted to SSS in accordance with the rules and regulations of the latter.

h. Paternity Leave

Paternity Leave refers to the benefit of married male employees regardless of their employment status (e.g., probationary, regular, contractual, project basis).

Paternity leave benefit is applicable to the first four (4) deliveries of the
employee’s lawful wife with whom he is cohabiting. The paternity leave shall be for seven (7) calendar days, with full pay, consisting of basic salary and mandatory allowances, if any.

i. 13th-Month Pay

The 13th-month pay is a government-mandated benefit provided to rank-and-file employees pursuant to Presidential Decree No. 851. It is defined as one-twelfth (1/12) of the basic salary of an employee wthin a calendar year.

Minimum Amount of 13th-Month Pay

The thirteenth-month pay shall not be less than one-twelfth (1/12) of
the total of the earned basic salary of an mployee in a calendar year.
For the purpose of computing the 13th month pay, the basic salary does not include allowances and other monetary benefits such as unused vacation and sick leaves, overtime, premium, night shift differential, holiday pay, and cost of living allowance (COLA), unless there is a different collective agreement, company practice or policy.

Computation of 13th Month Pay

Total basic salary earned during the year= Proportionate 13th month pay
12 months

Example: How to calculate payroll – 13th month pay

MonthDescriptionPay
JanuaryNo absence₱16,000
FebruaryOn leave without pay
MarchOn leave without pay
AprilOn leave without pay
MayNo absence16,000
JuneNo absence16,000
JulyNo absence16,000
AugustNo absence16,000
SeptemberNo absence16,000
OctoberNo absence16,000
NovemberNo absence16,000
DecemberNo absence16,000
Total basic salary earned during the year₱144,000

₱144,000= ₱12,000
12 months

Timing of Payment of 13th-Month Pay

The 13th-month pay shall be given to employees not later than 24th of December.

j. Less Absences, Undertime and Tardiness

The applicable tardiness, absences, and undertime are deducted as applicable in the computation of payroll. Tardiness refers to the employees failure to report to work on time. Meanwhile, undertime refers to working in a time less than the required minimum time. Absences are those unplanned days and are not approved on time.

2. Deduct the Government Mandated Statutory contributions (SSS, HDMF, Philhealth)

Employee’s contributions are deducted by the employers from the employees’ salaries and withheld by their respective employers on a monthly basis. The following are the latest table for mandated government contributions:

Social Security System (SSS) 

New SSS Contribution table
Source: SSS FB page

Home Development Mutual Fund (HDMF) 

HDMF Contribution Table
New HDMF Contribution table

Philippine Health Insurance Corporation (PhilHealth)

New Philhealth contribution table - how to calculate payroll in the Philippines

3. Deduct Tax

Every payroll, the employer computes and withhold the related tax on compensation of employees. The table below are effective income tax rate as of 2020.

Income tax rate table 2020
Source: National Tax Research Center’s website

About the Author: Ed Lamadrid

I'm Ed, a CPA and the owner of this site. I like to write my professional work and other interesting things worth sharing.

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