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Hiring Employees in the Philippines: 13th Month Pay, SSS, PhilHealth
Summary:
- 13th month pay is mandatory under PD 851: 1/12 of the year’s basic salary, paid by 24 December, and tax-exempt with other benefits up to PHP 90,000.
- Statutory contributions: SSS 15% of salary credit (employer 10% / employee 5%), PhilHealth 5% (split 50/50), and Pag-IBIG (up to PHP 200 each per month).
- Income tax is withheld on the TRAIN graduated scale (0% up to PHP 250,000 a year, up to 35%), with the employer as withholding agent.
- Employees enjoy strong security of tenure after a 6-month probation, so dismissal needs a just or authorised cause.
Quick answer: Hiring in the Philippines means budgeting for mandatory 13th month pay (1/12 of annual basic salary, due by 24 December) and statutory contributions: SSS at 15% of the salary credit (10% employer / 5% employee), PhilHealth at 5% split equally, and Pag-IBIG. Income tax is withheld on the TRAIN graduated scale. Employees gain strong security of tenure after a six-month probation. A foreign company usually needs a local entity to employ — or an EOR, which becomes the legal employer.
13th month pay — the headline obligation
Under Presidential Decree 851, the 13th month pay is a mandatory statutory benefit, not a discretionary bonus. It equals 1/12 of the total basic salary an employee earns in the calendar year, and must be paid on or before 24 December. Overtime, allowances, night differential and similar add-ons are excluded from the base, and the amount is pro-rated for employees who worked less than a full year. All rank-and-file employees who worked at least one month are covered. For tax, 13th month pay together with other benefits is tax-exempt up to PHP 90,000 per year — anything above that is added to taxable compensation.
SSS — Social Security System (2025/2026)
The SSS contribution rate is 15% of the Monthly Salary Credit (MSC) — split 10% employer / 5% employee — which took effect in January 2025 and continues unchanged in 2026. The MSC ranges from PHP 5,000 to PHP 35,000. Two add-ons apply: a small employer-only Employees’ Compensation (EC) contribution (PHP 10–30/month), and, for salary credits above PHP 20,000, a mandatory provident-fund (MPF) tier on the portion up to PHP 35,000.
PhilHealth and Pag-IBIG
- PhilHealth: 5% of monthly basic salary, split 50/50 (2.5% each). The income floor is PHP 10,000 (minimum PHP 500/month) and the ceiling is PHP 100,000 (maximum PHP 5,000/month).
- Pag-IBIG (HDMF): 2% employer and up to 2% employee, on a fund-salary cap of PHP 10,000 — so the effective maximum mandatory contribution is PHP 200 each per month.
Income tax withholding
The employer is the withholding agent and must deduct income tax each pay period and remit it to the Bureau of Internal Revenue (BIR). Resident employees are taxed on the TRAIN graduated scale: 0% up to PHP 250,000 of annual taxable income, then 15% / 20% / 25% / 30% up to 35% above PHP 8,000,000. Mandatory SSS, PhilHealth and Pag-IBIG contributions are deducted pre-tax.
Security of tenure and key terms
The Philippines gives employees strong protection, which foreign employers must plan for:
- Probation: maximum 6 months, with regularization standards communicated at the start; otherwise the employee is deemed regular.
- Security of tenure: a regular employee can only be dismissed for a just cause (employee fault — due process, no separation pay) or an authorised cause (business reasons — 30 days’ notice to the employee and to DOLE, plus separation pay).
- Separation pay (authorised causes): typically one month per year of service for redundancy, or half a month per year for retrenchment/closure.
- Service Incentive Leave: 5 paid days a year after one year, convertible to cash.
- Working hours: 8/day, 48-hour 6-day week, with a +10% night-shift differential (10pm–6am) and overtime premiums.
- Minimum wage is regional — for example NCR (Metro Manila) non-agriculture is PHP 695/day from July 2025.
Hiring without a Philippine entity
Putting staff on a compliant local payroll normally requires a registered Philippine presence and employer registration with the BIR, SSS, PhilHealth and Pag-IBIG, and operating locally can create “doing business” and permanent-establishment exposure. An Employer of Record in the Philippines is an already-registered local entity that becomes the legal employer — handling contracts, payroll, statutory contributions and tax withholding — so you can hire in weeks without incorporating. If you already have an entity, our Philippines payroll service runs the monthly cycle. Read about the EOR model or get in touch.
Frequently asked questions
Is 13th month pay mandatory for foreign employers hiring in the Philippines?
Yes. Under Presidential Decree 851 all employers must pay rank-and-file employees a 13th month pay equal to 1/12 of their total basic salary earned in the calendar year, on or before 24 December. This applies to any employer of Philippine-based staff, including via an EOR.
How is 13th month pay calculated?
Divide the employee’s total basic salary earned during the calendar year by 12. Overtime, allowances, night differential and similar add-ons are excluded from the base, and the amount is pro-rated for employees who worked less than a full year.
Is the 13th month pay taxable?
It is tax-exempt when combined 13th month pay and other benefits stay at or below PHP 90,000 per year under the TRAIN law. Only the portion exceeding PHP 90,000 is added to taxable income and subject to withholding tax.
What are the total statutory employer contributions in the Philippines?
Employers fund roughly 10% of the salary credit for SSS (plus a small EC contribution), 2.5% of salary for PhilHealth, and up to PHP 200/month for Pag-IBIG. Employees separately contribute 5% (SSS), 2.5% (PhilHealth) and up to 2% (Pag-IBIG), all withheld by the employer.
What is the SSS contribution rate in 2025 and 2026?
The SSS rate is 15% of the Monthly Salary Credit, split 10% employer / 5% employee. This took effect in January 2025 and remains the same in 2026, with the salary credit ranging from PHP 5,000 to PHP 35,000.
Does a foreign company need a local entity to hire employees in the Philippines?
Generally yes — direct employment requires a registered local presence and employer registration with the BIR, SSS, PhilHealth and Pag-IBIG, and operating locally can trigger ‘doing business’ and permanent-establishment exposure. Most foreign companies instead use an Employer of Record, which employs the worker through its existing local entity.
How secure is employment after probation in the Philippines?
Very secure. Probation is capped at six months, after which the employee becomes regular with strong security of tenure. Regular employees can only be dismissed for just causes (with due process, no separation pay) or authorised causes (with notice to DOLE and statutory separation pay).
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