6 Essential Things Philippine Businesses Need to Know About Wage Payment and Labor Code Compliance in 2026
Published Date: December 22, 2025
Published By: Jac Cantos, Upcloud Accounting
Managing payroll for startups and SMEs in the Philippines presents unique challenges, especially when it comes to accurate payroll computation and staying compliant with local regulations. From calculating wages to handling deductions, ensuring payroll accuracy is crucial for employee satisfaction and avoiding legal issues.
This guide simplifies the payroll process, helping businesses familiarize themselves with the rules and ensure timely, accurate payments. Whether you’re just starting or growing rapidly, mastering these basics will keep your payroll operations running smoothly in 2026.
Payroll in the Philippines: 6 Key Considerations
Below are six key items that all businesses, startups, or SMEs in the Philippines must consider when compensating employees.
1. Bi-Monthly Payroll Cycles
Unlike many countries where monthly payroll is standard, the Philippines typically processes wage payments twice a month, as per the Labor Code.
While specific dates aren't mandated, many companies opt for the 15th and 30th. Some employers may use alternative schedules (5th and 20th), depending on their preference.
Two payroll cycles double the workload for HR teams and payroll providers, increasing administrative tasks, compliance checks, and operational costs. Businesses may need to allocate more resources to manage accurate payroll computation, tax deductions, and benefit contributions.
Robust processes, controls, and support are essential. Many startups and SMEs turn to payroll outsourcing services like Upcloud Accounting to ease the administrative burden, streamline operations, ensure compliance, and reduce the likelihood of inaccurate or late payroll.
Timely payment is a legal requirement under Philippine labor laws, fostering trust and ensuring employee satisfaction. Delays can lead to employee dissatisfaction and legal consequences.
2. Withholding Taxes on Compensation
Employers must deduct and remit taxes based on an employee’s compensation every 15th and 30th pay period. BIR Form 1601-C is used for this recurring tax filing, including the compensation tax withheld from all employees across all payroll cycles during the month.
The amount withheld must be remitted to the BIR the following month. Employers must also file an annual tax return (BIR Form 1604-C) confirming the total tax withheld on employee compensation during the previous tax year (annualization of withholding taxes).
Monthly and annual filings must align to avoid discrepancies. Failure to file on time can result in a penalty of ₱1,000 per violation. Employers must stay updated with how withholding tax is computed and filed to ensure compliance and avoid financial penalties.
3. Mandatory Government Contributions
Employers must deduct and remit certain amounts of an employee’s salary to government agencies each month, providing a social security system to support employees during retirement, illness, loan applications, or home purchases.
These are the primary agencies:
Social Security System (SSS): A social insurance scheme for workers.
Home Development Mutual Fund (Pag-IBIG Fund): A fund to provide adequate housing through a savings scheme.
Philippine Health Insurance Corporation (PhilHealth): A government-run health insurance scheme.
Both employer and employee contribute to these payments.
4. 13th Month Pay
Employers must pay all covered employees an additional payment, based on their monthly salary, each year. Employees working the full calendar year are entitled to a full month of extra pay.
While employers must make this payment before December 24th, its computation needs to be considered throughout the year.
When recruiting, consider the total cost of the employee to the business, not just the gross salary. Total salary per annum should be considered as: Total Monthly Salary x 13 months.
Also, 13th Month Pay must be applied on a pro-rated basis for new joiners and leavers.
5. Overtime and Holiday Pay
Overtime pay ensures that employees working beyond the standard eight hours a day are fairly compensated, as mandated by the Labor Code.
Overtime rates vary depending on rest days or holidays.
Overtime on a Regular Workday: Employees receive an extra 25% of their hourly wage for overtime.
Overtime on Regular Holidays: Employees are entitled to 200% of their rate, plus 30% for overtime hours.
Overtime on Special Non-Working Holidays: Employees receive 130% of their rate and an extra 30% for overtime.
Overtime on Rest Days: Employees receive the same rates as special non-working holidays, including the additional 30% for overtime hours.
6. Back Pay
There are specific rules for the last payroll and final payment to employees ending their employment. Employers must process and compute back pay (final pay) within 30 days of the employee’s last day of work (or earlier if there is a company policy or agreement).
Final pay includes regular salary, 13th Month Pay (pro-rated), and other compensation/benefits (unused leave, bonuses, de-minimis benefits).
Computing payroll in the Philippines can be challenging. Upcloud Accounting performs payroll processing services for clients across a wide range of industries and business models.
Our specialist payroll team can explain how our outsourced payroll service can add real value to your business. By streamlining payroll processes, companies can minimize risks and stay focused on growth.
Upcloud Accounting: Virtual Outsourced Accounting and Bookkeeping Services in the Philippines
Upcloud Accounting offers accounting, bookkeeping, tax compliance, and business licensing services specializing with startups and SMEs in the Philippines.
Our goal is to increase efficiency, automation, and transparency across the accounting and finance functions of our clients with our cutting-edge technology. If you want to move your company’s finance function online, contact our Team of Expert Accountants and Bookkeepers directly via [email protected] or visit www.upcloudaccounting.comto learn more about how Upcloud Accounting accounting services can support your PH business!
Disclaimer: This article or blog is only for general knowledge and guidance and is not a substitute for an expert opinion. For technical advice, please consult your tax / legal advisor for your specific business concerns. For comments, suggestions, and feedback, feel free to email us at [email protected].
