Philippines payroll in 2023: Everything you need to know

Payroll is one of the most crucial aspects of your business. 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 in 2023, including new tax rates and updated government deductions tables.

Updated Income Tax Rates in the Philippines in 2023

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 in 2023

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 ContributionSSS Employee ContributionSSS 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 ContributionPHIC Employee ContributionPHIC 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 ContributionHDMF Employee ContributionHDMF 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 Net Pay computation in the Philippines in 2023

                  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.

                              Here are 5 reasons why using a payroll software can help you upgrade your payroll process:

                              1. 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.

                              2. Save Time: process monthly/semi-monthly payrolls and send payslips quickly, freeing up time for other tasks.

                              3. 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.

                              4. Increase Employee Satisfaction: allow employees to interact with the system and access important information and documents, improving employee satisfaction.

                              5. Improve Reporting: generate internal and tax/government reports automatically, as well as customized reports, improving reporting capabilities.


                              Proseso Consulting - The Finance expert for growing and international businesses


                              For more information on our Payroll Services or if you have any questions on how you can outsource your admin and accounting functions, contact me directly at ninoy@proseso-consulting.com.

                              Proseso Consulting provides business advisory and finances managed services (bookkeeping and accounting, outsourced and automated payroll, tax compliance, financial reporting, etc.). We are here to help you achieve your long-term business goals!

                              Ninoy Salmon is a seasoned business and finance professional with extensive experience working with both fast-growing startups and companies in the Philippines and around the world.

                              Get in touch with our team at contact@proseso-consulting.com or visit us at www.proseso-consulting.com for more information about our services.

                               

                              This blog article does not constitute professional or legal advice. It is only intended to provide general information on a subject.

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