Semi-monthly or Monthly payroll computation brings multiple people or departments together to come up with accurate computations. Small mistakes can quickly turn into pressing issues related to employee morale, company’s reputation, tax liabilities, etc.
This is why keeping your computations aligned with the latest rules and regulations is essential.
In the article, you will have all the information you need to understand the recent updates for payroll computation in the Philippines, including new tax rates and updated government deductions tables.
Updated Income Tax Rates in the Philippines
Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, the following tax rates are taking effect on January 1, 2023:
Annual Tax Table:
| Compensation | Withholding tax |
| Not over ₱ 250,000.00 | 0% |
| Over ₱ 250,000.00 but not over ₱ 400,000.00 | 15% of the excess over ₱ 250,000.00 |
| Over ₱ 400,000.00 but not over ₱ 800,000.00 | ₱ 22,500.00 + 20% of the excess over ₱ 400,000.00 |
| Over ₱ 800,000.00 but not over ₱ 2,000,000.00 | 102,500.00 + 25% of the excess over ₱ 800,000.00 |
| Over ₱ 2,000,000.00 but not over ₱ 8,000,000.00 | ₱ 402,500.00 + 30% of the excess over ₱ 2,000,000.00 |
| Over ₱ 8,000,000.00 | ₱ 2,202,500.00 + 35% of the excess over ₱ 8,000,000.00 |
Monthly Tax Table:
| Compensation | Withholding tax |
| Not over ₱20,833 | 0% |
| Over ₱20,833 but not over ₱33,332 | 15% of the excess over ₱20,833 |
| Over ₱33,333 but not over ₱66,666 | ₱1,875.00 + 20% of the excess over ₱33,333 |
| Over ₱66,667 but not over ₱166,666 | ₱8,541.80 + 25% of the excess over ₱66,667 |
| Over ₱166,667 but not over ₱666,666 | ₱33,541.80 + 30% of the excess over ₱166,667 |
| Over ₱666,667 | ₱183,541.80 + 35% of the excess over ₱666,667 |
Summary of the changes compared to the previous rates:
- Employees earning up to ₱250,000 annually (or ₱20,833 monthly) are still exempt from paying income tax
- Employees earning over ₱250,000 but not over ₱8,000,000 annually (or over ₱20,833 but not over ₱666,666 monthly) have lower tax rates ranging from 15% to 30%, from 20% to 32% previously.
- Employees earning over ₱8,000,000 annually (or ₱666,667 monthly) have a higher tax rate of 35%, from 32% previously.
Updated Government Contributions Tables in the Philippines
Here are the latest tables for Social Security System (SSS), PhilHealth (PHIC), and Pag-IBIG Fund (HDMF) contributions:
Social Security System (SSS) Contribution
Republic Act No. 11199, known as the Social Security Act of 2018, includes an increase in the SSS contributions rate from 13% to 14% effective starting January 2023.
Here is the updated simplified table (see complete table here) for SSS contributions:
| Monthly Compensation Min-Max | SSS Employer Contribution | SSS Employee Contribution | SSS Total Contribution |
| ₱24,750 - 25,249 | ₱2,405.00 | ₱1,125.00 | ₱3,530.00 |
| ₱25,250 - 25,749 | ₱2,452.50 | ₱1,147.50 | ₱3,600.00 |
| ₱25,750 - 26,249 | ₱2,500.00 | ₱1,170.00 | ₱3,670.00 |
| ₱26,250 - 26,749 | ₱2,547.50 | ₱1,192.50 | ₱ 3,740.00 |
| ₱26,750 - 27,249 | ₱2,595.00 | ₱1,215.00 | ₱3,810.00 |
| ₱27,250 - 27,749 | ₱2,642.50 | ₱1,237.50 | ₱3,880.00 |
| ₱27,750 - 28,249 | ₱2,690.00 | ₱1,260.00 | ₱3,950.00 |
| ₱28,250 - 28,749 | ₱2,737.50 | ₱1,282.50 | ₱4,020.00 |
| ₱28,750 - 29,249 | ₱2,785.00 | ₱1,305.00 | ₱4,090.00 |
| ₱29,250 - 29,749 | ₱2,832.50 | ₱1,327.50 | ₱4,160.00 |
| ₱29,750.00 - Over | ₱2,880.00 | ₱1,350.00 | ₱4,230.00 |
Summary of the changes compared to the previous rates:
- The SSS contribution rate has increased from 13% to 14%. This increase mainly affects the Employer as the new Employer Share rate is increased from 8.5% to 9.5%, the Employee Share rate stays at 4.5%.
- The Minimum Monthly Salary Credit (MSC) has increased from ₱3,000 to ₱4,000 which results in the increase of the minimum contributions: from ₱255 to ₱380 for Employer Share and from ₱135 to ₱180 for Employee Share.
- The Maximum Monthly Salary Credit (MSC) has increased from ₱25,000 to ₱30,000 which results in the increase of the maximum contributions: from ₱2,155 to ₱2,880 for Employer Share and from ₱1,125 to ₱1,350 for Employee Share.
PhilHealth (PHIC) Contribution
Following the suspension of the increase of rates (from 4% to 4.5%) and income ceiling (from ₱80,000 to ₱90,000) for the calendar year 2023, PhilHealth contribution remains unchanged at the following rates:
| Monthly Compensation | PHIC Employer Contribution | PHIC Employee Contribution | PHIC Total Contribution |
| ₱10,000.00 and below | ₱200 | ₱200 | ₱400 |
| between ₱10,000.01 and 79,999.99 | 2.00% | 2.00% | 4.00% |
| ₱80,000.00 and above | ₱1,600.00 | ₱1,600.00 | ₱3,200.00 |
Pag-IBIG Fund (HDMF) Contribution
Pag-IBIG Fund (HDMF) contribution remains unchanged at the following rates:
| Monthly Compensation | HDMF Employer Contribution | HDMF Employee Contribution | HDMF Total Contribution |
| ₱1,500 and below | 2.00% | 1.00% | 3.00% |
| between ₱1,500.01 and ₱4,999.99 | 2.00% | 2.00% | 4.00% |
| ₱5,000 and over | ₱100.00 | ₱100.00 | ₱200.00 |
Example of a Monthly Pay computation in the Philippines
Here is an example of payroll computation for an Employee earning ₱85,000.00 per month:
| Old | New | Difference | |
| Monthly Salary | ₱85,000.00 | ₱85,000.00 | - |
| SSS | ₱1,125.00 | ₱1,350.00 | +225.00 |
| PHIC | ₱1,600.00 | ₱1,600.00 | - |
| HDMF | ₱100.00 | ₱100.00 | - |
| Total Employee Deductions | ₱2,825.00 | ₱3,050.00 | +225.00 |
| Taxable Compensation | ₱82,175.00 | ₱81,950.00 | (250.00) |
| Withholding Tax | ₱15,485.73 | ₱12,362.55 | (3,123.18) |
| Net Pay | ₱66,689.27 | ₱69,587.45 | +2,898.18 |
| Employer Contributions | |||
| SSS | ₱2,155.00 | ₱2,880.00 | +725.00 |
| PHIC | ₱1,600.00 | ₱1,600.00 | - |
| HDMF | ₱100.00 | ₱100.00 | - |
| Total | ₱3,855.00 | ₱4,580.00 | +725.00 |
In this specific case:
- The increase in deductions from SSS Employee Contribution of ₱225.00 is lower than the decrease in Withholding Taxes of ₱3,123.18, resulting in an increase of ₱2,898.18 in the Net Pay of the employee.
- Employer contribution is increased by ₱725.00 due to the increase of SSS Employer Contribution (+₱725.00)
5 Reasons Why you Should us a Payroll Software
The use of spreadsheets (online templates or self-made spreadsheets) for payroll computation is a common practice for SMEs in the Philippines.
But due to the complexity and fast-changing nature of the labor and tax rules in the country, many companies fail to compute payroll accurately, leaving the employees frustrated and the companies with high risks of labor cases and/or tax exposures.
5 reasons why payroll software can help upgrade payroll processes:
- Avoid Errors: accurately compute payroll and bullet-proof all computations for attendance, monthly/semi-monthly payroll, taxes, and government contributions, reducing the risk of labor cases and tax exposures.
- Save Time: process monthly/semi-monthly payrolls and send payslips quickly, freeing up time for other tasks.
- Upgrade Data Security and Privacy: improved data security and privacy protection, including multi-level access and approval, protection against external and insider threats, and proper system and data backups.
- Increase Employee Satisfaction: allow employees to interact with the system and access important information and documents, improving employee satisfaction.
- Improve Reporting: generate internal and tax/government reports automatically, as well as customized reports, improving reporting capabilities.
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This blog article does not constitute professional or legal advice. It is only intended to provide general information on a subject.