How to hire and pay employees in The Philippines
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Before hiring
Before Hiring
You're considering expanding to the Philippines. Here's what you need to know before making a decision.
The Philippines consistently ranks among the top destinations for global talent, offering high English proficiency (third globally), cultural affinity with Western business practices, and timezone advantages for both US West Coast and APAC operations. But this isn't just about cost savings—it's about accessing specialized talent in high-growth sectors like customer support, software development, finance and accounting, and creative services.
Before you employ, you need to choose your employment model. Setting up a local entity (typically a Philippine corporation) costs $15,000-$30,000 and takes 4-6 months, but gives you full control and becomes cost-effective at scale (typically 15+ employees).
An EOR like Oyster lets you employ compliantly within days without entity setup, handling payroll, benefits, and compliance while you maintain day-to-day management.
Contractors may look simpler, but misclassification risk is high in the Philippines. Authorities scrutinize these relationships, and penalties can be severe. If the relationship is ongoing and employee-like, it’s usually safer to employ through a compliant structure from day one.
Engaging contractors may seem simpler, but misclassification risks are high in the Philippines. Authorities scrutinize these relationships, with official inquiries to the Department of Labor and Employment often concerning rules governing contracting and subcontracting, and penalties for misclassification can be severe.
Recent News
If you're planning to hire employees in the Philippines, staying current isn't "nice to have"—it's how you avoid payroll surprises, broken offer math, and compliance issues that show up months later as back pay or penalties.
A lot can change in a year: contribution tables, minimum wages by region, and even what compensation can be structured tax-efficiently. Here are the updates from 2025 through early 2026 that are most likely to affect how you hire and pay.
Statutory contributions: employer costs went up in 2025 (and your payroll tables need to match)
Effective January 2025, the SSS total contribution rate increased from 14% to 15% under the scheduled implementation of the Social Security Act (with the employer and employee shares applied through the SSS table).
If your payroll system hasn’t been updated, under-remittances can trigger penalties—and create messy employee conversations when net pay doesn’t match expectations. Build this into your Philippines hiring budget early: SSS is a real employer cost, not a rounding error.
PhilHealth confirmed the premium rate remains at 5% for 2025, which removes uncertainty but doesn't remove responsibility. You still need to apply the income floor and ceiling correctly and split contributions properly between employer and employee. This is one of those "it's stable until you misconfigure it" items that trips up fast-scaling teams.
Pag-IBIG (HDMF) increased the Maximum Fund Salary to ₱10,000 effective February 2024, and it continues to affect 2025 payroll operations and offer calculations. For employees at or above the cap, the maximum monthly contributions increase, which can change both take-home pay and employer cost. If your Philippines comp model hasn't been refreshed since 2024, it's likely outdated.
Minimum wage changes are regional—and some increases hit in 2025 tranches
Minimum wage compliance in the Philippines is location-based, and 2024 wage orders across multiple regions created ongoing pressure that carries into 2025. DOLE reported wage increases approved by 14 Regional Tripartite Wages and Productivity Boards in 2024, and some wage orders include 2025 effectivity dates or second tranches.
If you hire across regions (or allow employees to relocate), you need a process to track wage orders by work location—not just a single "Philippines minimum wage" line item.
For example, Northern Mindanao wage increases included a tranche effective January 12, 2025, with a second tranche effective July 1, 2025. Tranche-based changes are where teams get caught: payroll is correct in January, then quietly becomes non-compliant mid-year. Put wage order checkpoints on your payroll calendar the same way you track annual merit reviews.
In Metro Manila (NCR), Wage Order NCR-26 increased the minimum wage by ₱50/day effective July 18, 2025 (e.g., non-agriculture up to ₱695 from ₱645). Even if you pay above minimum, wage orders tend to push market baselines up, which can affect offer competitiveness and retention. Finance will ask why offers are rising—this is one of the concrete reasons.
Payroll and tax administration: "easier" filing doesn't mean lower compliance expectations
The Ease of Paying Taxes (EOPT) Act (RA 11976) introduced administrative changes like "file-and-pay anywhere," which can reduce friction for finance teams managing compliance across locations. But don't confuse simpler processes with lower audit risk—documentation and withholding discipline still matter, especially when you're scaling headcount quickly.
For companies hiring employees in the Philippines, this is a reminder to align HR and Finance on who owns withholding workflows and proof of remittance.
Guidance also clarified the timing of the repeal of Tax Code Sec. 34(K), which historically linked deductibility of certain expenses to proof of remitted withholding. The practical takeaway: prior-period handling can still show up in audits, so keeping clean payroll and withholding records remains non-negotiable. If you're inheriting payroll history from a local provider or past entity setup, do a quick compliance health check before you scale.
Compensation design: higher de minimis ceilings take effect January 6, 2026
BIR Revenue Regulations No. 29-2025 increased the tax-exempt ceilings for several de minimis benefits, effective January 6, 2026. This can create room to rebalance total compensation (cash vs. qualifying benefits like rice subsidy, uniform/clothing allowance, certain medical assistance, and other items covered by the updated ceilings).
The catch is operational: payroll needs to apply the new thresholds correctly on the effective date, or you’ll accidentally tax what should be non-taxable (or the reverse).
If you're building Philippines offers for 2026 start dates, this is worth considering now, not after the first payroll run. Done well, it can improve employees' net-of-tax outcomes without playing games with compensation. Done poorly, it creates employee frustration and clean-up work that no one has time for.
Employment relations risk: restricting access to work can trigger illegal dismissal exposure
A Supreme Court decision reported September 30, 2025 highlighted that barring workers from entering the workplace without lawful cause can be treated as an act of illegal dismissal. This matters when managers "pause" someone by removing schedules, disabling access, or telling them to stay home without a properly documented process.
If you're hiring employees in the Philippines, make sure your suspension and access-revocation procedures are reviewed—this is not an area to improvise.
Want help turning these updates into a compliant hiring plan—contracts, payroll setup, statutory deductions, and cost modeling included? Start hiring globally with Oyster HR, and get both the platform and the human support to handle the moments when compliance gets real.
At a glance
CURRENCY
PHP
OFFICIAL LANGUAGE
FILIPINO, ENGLISH
PAYROLL FREQUENCY
BI-MONTHLY, MONTHLY
EMPLOYER TAXES
2.375%
13th / 14th SALARY
Employers pay 1/12 of employees' annual salary as 13th salary
Good to know
Good to know
- 13th month salary is mandatory. All employees must receive 1/12 of their annual basic salary by December 24 each year. This isn't a bonus—it's a legal requirement that affects your cash flow planning. Budget accordingly when calculating total compensation costs.
- Payroll runs twice monthly, not monthly. Employees must be paid at least twice per month, typically on the 15th and end of month. This bi-monthly frequency impacts your payroll operations and cash flow differently than monthly cycles common in other countries.
- Service incentive leave combines vacation and sick time. Employees earn a minimum 5 days of paid leave annually after one year of service, covering both vacation and illness. Many competitive employers exceed this minimum significantly. Unused leave must be converted to cash if not taken.
- Probationary periods offer strategic flexibility. The standard six-month probationary period allows you to assess fit before full employment protections apply. Clear performance standards and regular feedback during this window help you make confident employment decisions.
- Compliance requirements are detailed and enforced. From mandatory PhilHealth and SSS contributions to strict termination procedures, Philippine labor law is employee-protective. Getting it wrong can result in significant penalties, back pay claims, and reputational damage.
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Top countries hiring in
Philippines
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Labor laws in
Philippines
Working hours and overtime
Standard working hours are eight hours per day and 48 hours per week in the Philippines. Employees must receive at least one rest day per week, typically Sunday.
Overtime work requires premium pay:
- 125% of regular hourly rate for work beyond eight hours on regular days
- 130% for work on rest days
- Significantly higher rates (up to 260%) for work on special holidays or rest days that fall on holidays
Night differential pay of at least 10% applies for work performed between 10 PM and 6 AM. Managing teams across timezones? Make sure your scheduling practices account for rest day requirements and premium pay obligations to avoid unexpected payroll costs.
Minimum wage
Employment contracts
Employment contracts in the Philippines can be written or oral, and can be in English (English is standard for international employers).
Contracts should clearly specify:
- The position
- Compensation structure including basic salary and allowances
- Work schedule
- Probationary period terms if applicable
- Termination notice requirements
Clear contract language prevents disputes and establishes the foundation for the employment relationship.
IP protection clauses are enforceable, but non-compete provisions face strict scrutiny under Philippine law. Courts generally disfavor overly broad non-competes that restrict an employee's ability to earn a living. Focus on protecting legitimate business interests like confidential information and client relationships with reasonable scope and duration.
Probationary period
Probationary periods in the Philippines can last up to six months. Employers must communicate clear performance standards at the start of the probationary period and provide regular feedback.
Termination during probation is permitted if the employee fails to meet reasonable standards made known at hiring, but arbitrary or discriminatory termination can still result in legal claims.
After successful completion of probation, employees gain regular status and full protection under Philippine labor law. Use this period strategically to assess both technical performance and cultural fit before long-term commitment.
Pensions
IP protection and non-compete agreements
The legal validity of non-compete agreements is decided on a per-case basis. To be legally enforceable, they must be limited and reasonable in time, place and scope. Employers are not obligated to pay the employee during the non-competition period.
Estimate your savings when using Oyster
Use this calculator to get an estimate of employment costs using Oyster.
(Spoiler alert: It’s much cheaper than setting up entities around the world!)
Benefits and leave in
Philippines
Vacation time
The Philippines mandates service incentive leave (SIL) of at least five days annually for employees who have completed one year of service. This leave covers both vacation and sick time—it's a combined entitlement, not separate allocations. Competitive employers typically offer 15-20 days of paid leave annually to attract and retain talent.
Unused SIL must be converted to cash if not taken within the year. Many companies adopt more generous leave policies aligned with global standards to remain competitive in the talent market.
Sick leave
There is no separate mandatory paid sick leave in the Philippines beyond the five-day service incentive leave. The service incentive leave system combines vacation and illness coverage, leaving employees to allocate those days as needed. This differs significantly from countries with distinct sick leave entitlements.
Most competitive employers provide additional sick leave benefits beyond the legal minimum. The Philippine health system includes SSS sickness benefits that provide partial wage replacement for illness lasting more than three days, but this is separate from employer-provided paid leave.
Maternity and paternity leave
Parental leave
Female employees are entitled to 105 days of paid maternity leave, with an option to extend for an additional 30 days unpaid. This applies to all female employees regardless of civil status or legitimacy of the child. Solo parents are entitled to additional parental leave benefits of seven working days annually.
Paternity leave provides seven days of paid leave for married male employees for the birth or miscarriage of his legitimate child. Adopting parents may also be entitled to parental leave for newly adopted children under certain conditions.
These extended leave provisions require careful planning for small teams where absences have significant impact.
Holidays
View a list of recognized public holidays in the Philippines here.
Employer tax
Employer tax contributions in the Philippines total approximately 2.375% of gross salary, significantly lower than many other countries.
This breaks down to:
- 1.25% for PhilHealth (national health insurance)
- 0.04% for the Employees' Compensation Program
- Up to 1.085% for Home Development Mutual Fund (Pag-IBIG)
These contributions are capped at maximum monthly amounts based on salary levels.
Note that while the percentage appears low, total employment costs include the mandatory 13th month salary equivalent to 8.33% of annual compensation. When budgeting for Philippine employees, factor both statutory contributions and the 13th month obligation into your total cost calculations.
Individual tax
Employees in the Philippines face progressive income tax rates from 0% to 35% depending on income level. Those earning up to PHP 250,000 annually (approximately $4,500 USD) pay no income tax. Rates increase progressively, with the highest bracket of 35% applying to annual income exceeding PHP 8 million (approximately $143,000 USD).
The 13th month salary and other bonuses are exempt from tax up to PHP 90,000. Employees also contribute mandatory amounts to SSS (social security), PhilHealth, and Pag-IBIG, which are deducted from gross salary before tax calculation.
Termination in
Philippines
Termination in the Philippines requires either "just cause" or "authorized cause" and strict adherence to due process requirements.
Just causes include:
- Serious misconduct
- Willful disobedience
- Gross neglect of duty
- Fraud
- Commission of a crime against the employer
Authorized causes cover business-related reasons like:
- Redundancy
- Retrenchment to prevent losses
- Closure of business
- Disease where continued employment is prohibited by law
Due process is critical and varies by termination type. For just cause terminations, employers must provide two written notices: first, a notice to explain detailing the charges and giving the employee opportunity to respond; second, a notice of decision after considering the employee's defense.
For authorized cause terminations, employers must provide written notice 30 days in advance to both the employee and the Department of Labor and Employment (DOLE).
Severance pay requirements depend on the cause. Just cause terminations generally don't require severance, while authorized cause terminations require separation pay ranging from half-month to one month's salary per year of service, depending on the specific reason. Failure to follow proper procedures can result in findings of illegal dismissal, requiring reinstatement and back pay. In fact, issues like the delayed release of final pay are common subjects of official inquiries, demonstrating the importance of adhering to process even after valid grounds for termination exist.
When terminations are necessary, documentation and process adherence are essential to minimize legal risk.
Employees who resign must provide at least 30 days' written notice to their employer. Employers terminating for authorized causes must provide 30 days' notice to the employee and DOLE. Notice periods can be waived by mutual agreement, and payment in lieu of notice is permitted in resignation scenarios.
For just cause terminations, notice periods follow the two-notice rule described above rather than a standard timeline. The gap between the first notice (to explain) and the notice of decision must provide reasonable time for the employee to prepare and submit a defense—typically at least five calendar days.
Ensure your termination procedures build in adequate time for proper process.
Start hiring employees in
Philippines
Ready to start hiring? Here's how to choose the right approach.
Setting up a business entity everywhere you want to employ someone isn't scalable—it takes 4-6 months, costs $15,000-$30,000 in legal fees, and requires ongoing accounting, tax compliance, and corporate governance. At the same time, understanding and adhering to local labor laws, managing bi-monthly payroll, calculating the 13th month salary, and staying current on regulatory changes can be complex and time-consuming. An Employer of Record (EOR) like Oyster lets you employ compliantly without entity setup. We become the legal employer, handling payroll, tax withholding, benefits administration, and compliance while you maintain full operational control of your team member's work.
This makes sense when you're testing a new market, need to employ quickly, or have fewer than 15 employees in-country where entity setup costs don't yet justify the investment. The trade-off: you pay a service fee rather than bearing entity overhead, but you gain speed, compliance confidence, and human support when questions arise. Contractors offer flexibility but carry serious misclassification risk in the Philippines. Authorities examine the nature of the relationship—if it looks like employment (exclusive engagement, ongoing relationship, employer control over how work is performed), it will be treated as employment regardless of what your contract says.
Misclassification penalties include back payment of employment benefits, taxes, and fines. When the relationship is truly project-based and non-exclusive, contractors work well; when it's ongoing and exclusive, an EOR provides compliant employment without the entity setup burden. With Oyster, you can employ in the Philippines in as fast as 48 hours, managing HR and payroll across 180+ countries in one platform.
Disclaimer: The information provided in this resource is for general educational purposes only and shall not be construed as legal advice. While Oyster strives to provide current and accurate information, Oyster makes no warranties or representations as to the correctness of the content provided and accepts no liability or responsibility for any errors or omissions in the content provided. By using this resource you acknowledge and agree that you do so at your own risk. The content of this resource is subject to change without notice.
FAQs
What is the minimum wage in the Philippines?
The Philippines uses a regional minimum wage system that varies by location, sector, and company size. As of 2024, daily minimum wages range from approximately PHP 450-610 ($8-11 USD) depending on the region. Metro Manila has the highest rates.
These are daily rates, not hourly, based on an eight-hour workday. Minimum wages are set by Regional Tripartite Wages and Productivity Boards and adjust periodically, so check current rates for your employee's specific location.
How long does it take to hire an employee in the Philippines?
With an EOR like Oyster, you can employ compliantly in as fast as 48 hours once you've selected your candidate. Setting up a local entity takes 4-6 months plus registration with tax authorities, social security systems, and labor departments.
The employment process itself—background checks, contract execution, onboarding—typically takes 2-4 weeks regardless of your employment method.
Can I hire contractors instead of employees in the Philippines?
You can engage contractors, but misclassification risk is significant. Philippine labor law examines the substance of the relationship, not just the contract label. If the person works exclusively for you, follows your schedule and processes, uses your equipment, and has an ongoing relationship, authorities will likely deem them an employee regardless of your contractor agreement.
Penalties for misclassification include back payment of benefits, taxes, and fines. When the relationship is truly independent and project-based, contractors work well; for ongoing, exclusive relationships, use an EOR for compliant employment.
How does the 13th month salary work in practice?
The 13th month salary equals 1/12 of the total basic salary earned during the calendar year. It must be paid by December 24 each year. If an employee works only part of the year, the 13th month is prorated based on months worked.
This is calculated on basic salary only—allowances, bonuses, and overtime are excluded. The first PHP 90,000 of the 13th month and other bonuses are tax-exempt. Budget for this as part of total annual compensation costs, not a year-end surprise expense.
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