How to Set Up Payroll for a New Business in the Philippines

Setting up payroll is one of the first and most critical tasks when starting a business in the Philippines. Get it wrong, and you face penalties from up to four government agencies — not to mention unhappy employees. Get it right from day one, and you build a solid compliance foundation that scales as your company grows.

This guide walks you through every step: from registering as an employer to running your first payroll and remitting contributions on time.

Step 1: Register as an Employer with Government Agencies

Before you can legally hire employees and process payroll, you must register as an employer with four government agencies. Each registration is independent — you will receive a separate employer ID from each.

SSS (Social Security System)

The Social Security System provides employees with social insurance coverage including sickness, maternity, disability, retirement, and death benefits.

How to register:

1. Accomplish SSS Form R-1 (Employer Registration) — available at any SSS branch or online via the SSS website
2. Submit the following documents:
   • SEC registration (for corporations) or DTI registration (for sole proprietors)
   • Mayor's permit or business permit
   • Articles of Incorporation / Partnership (if applicable)
   • List of employees with SSS numbers
3. SSS will issue your Employer SS Number within a few business days

Under RA 11199 (Social Security Act of 2018), employer registration is mandatory. Failure to register carries a 2% per month penalty on unremitted contributions and potential criminal liability for willful non-compliance.

PhilHealth (Philippine Health Insurance Corporation)

PhilHealth provides universal health insurance coverage to all Filipino workers.

How to register:

1. Accomplish PhilHealth Form ER-1 (Employer Data Record) for new employers
2. Prepare PhilHealth Form ER-2 (Report of Employee-Members) listing all your employees
3. Submit at any PhilHealth office with:
   • SEC/DTI registration
   • Business permit
   • List of employees with PhilHealth Identification Numbers (PINs)
4. You will receive your PhilHealth Employer Number (PEN)

Under RA 11223 (Universal Health Care Act), all employers must register and remit contributions for their employees.

Pag-IBIG / HDMF (Home Development Mutual Fund)

Pag-IBIG provides housing loans and savings programs for Filipino workers.

How to register:

1. Register online via the Pag-IBIG Virtual Hub or visit any Pag-IBIG branch
2. Submit:
   • SEC/DTI registration
   • Business permit
   • Employer Data Form (EDF)
   • Member Data Forms (MDF) for all employees
3. You will receive your Pag-IBIG Employer ID

Under RA 9679 (Home Development Mutual Fund Law of 2009), membership is mandatory for all employees earning at least ₱1,000 per month.

BIR (Bureau of Internal Revenue)

The BIR handles income tax withholding and employer tax obligations.

How to register:

1. If you do not yet have a TIN, accomplish BIR Form 1903 (for corporations/partnerships) or BIR Form 1901 (for sole proprietors)
2. Register as a withholding agent using BIR Form 1902 (registration update)
3. Obtain your Certificate of Registration (BIR Form 2303), which lists the taxes you are required to withhold and remit
4. Register your books of accounts and receipts/invoices at your Revenue District Office (RDO)
5. Ensure you are registered to withhold compensation income tax from employees

You will use your employer TIN for all BIR filings, including the monthly BIR Form 1601-C (withholding tax on compensation) and the annual BIR Form 1604-CF (Alphalist of Employees).

Step 2: Register Your Employees

Once you are registered as an employer, you must register each new employee with the same four agencies.

SSS Employee Registration

• New employees without an SSS number must accomplish SSS Form E-1 (Personal Record)
• Employees with existing SSS numbers need only to be reported via the SSS Employer Portal or Form R-1A (Employment Report)
• Report new employees within 30 days of hire

PhilHealth Employee Registration

• Submit PhilHealth Member Registration Form (PMRF) for employees without a PhilHealth Identification Number (PIN)
• Employees with existing PINs need to be added to your ER-2 report
• New members receive their PINs after processing

Pag-IBIG Employee Registration

• New members accomplish the Member Data Form (MDF) or register online
• Existing members are added through the Pag-IBIG employer portal
• Each employee will have a unique Pag-IBIG MID (Member ID) Number

BIR Employee Registration

• Employees without a TIN must accomplish BIR Form 1902 at your RDO
• Employees transferring from a previous employer must update their registration to reflect the new employer
• You must maintain BIR Form 2316 records for each employee annually

Pro tip: Collect government ID numbers (SSS, PhilHealth, Pag-IBIG, TIN) during onboarding. Missing IDs delay registration and contribution remittance — which leads to penalties.

Step 3: Choose Your Pay Frequency

Art. 103 of the Labor Code sets the legal baseline:

"Wages shall be paid at least once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days."

In practice, Philippine companies typically choose one of these frequencies:

Semi-Monthly (Most Common)

• Pay dates: 15th and 30th (or last day of the month)
• 24 pay periods per year
• Aligns well with government contribution remittance schedules
• Recommended for most SMEs — balances employee cash flow needs with payroll processing effort

Bi-Weekly

• Pay dates: Every two weeks (26 pay periods per year)
• Less common in the Philippines
• Can cause confusion with monthly contribution computations

Monthly

• Pay dates: End of month (12 pay periods per year)
• Simpler to administer but may strain employees' budgets
• Must still comply with the "not exceeding 16 days" rule — some interpretations suggest monthly pay may not comply with Art. 103 unless paired with a mid-month advance

Weekly

• Pay dates: Every week (52 pay periods per year)
• Common in construction and manufacturing
• Higher administrative overhead

For most Philippine SMEs, semi-monthly payroll on the 15th and 30th is the standard and recommended approach.

Step 4: Set Up Contribution Computation

Each government agency has its own contribution rates and computation methods. Here is a summary of current rates as of 2026:

SSS Contributions (RA 11199)

• Total rate: 15% of Monthly Salary Credit (MSC)
• Split: 10% employer + 5% employee
• MSC range: ₱5,000 to ₱35,000
• EC (Employees' Compensation): Flat ₱10 (MSC below ₱15,000) or ₱30 (MSC ₱15,000 and above) — employer-only
• MPF (Mandatory Provident Fund): Additional contributions for MSC above ₱20,000 (5% employee + 10% employer on excess)

For the complete bracket table, see our SSS Contribution Table Guide.

PhilHealth Contributions (RA 11223)

• Total rate: 5% of monthly basic salary
• Split: 2.5% employer + 2.5% employee
• Salary floor: ₱10,000 (minimum contribution: ₱500/month)
• Salary ceiling: ₱100,000 (maximum contribution: ₱5,000/month)

For full details, see our PhilHealth Contribution Guide.

Pag-IBIG Contributions (RA 9679)

• Employee earning ₱1,500 and below: 1% employee + 2% employer
• Employee earning over ₱1,500: 2% employee + 2% employer
• Maximum MSC: ₱5,000 (maximum contribution: ₱200/month total)

For full details, see our Pag-IBIG Contribution Guide.

BIR Withholding Tax (TRAIN Law, RA 10963)

Withholding tax is computed using the TRAIN Law graduated tax brackets:

Taxable Income (Annual)	Tax Rate
Up to ₱250,000	0%
₱250,001 – ₱400,000	15% of excess over ₱250,000
₱400,001 – ₱800,000	₱22,500 + 20% of excess over ₱400,000
₱800,001 – ₱2,000,000	₱102,500 + 25% of excess over ₱800,000
₱2,000,001 – ₱8,000,000	₱402,500 + 30% of excess over ₱2,000,000
Over ₱8,000,000	₱2,202,500 + 35% of excess over ₱8,000,000

Employees earning ₱250,000 or less annually (approximately ₱20,833/month) are exempt from withholding tax. For more details, see our Withholding Tax Guide.

Step 5: Run Your First Payroll

With registrations complete and contribution rates configured, here is how a typical payroll run works:

1. Compute Gross Pay

For monthly employees on a semi-monthly schedule:

Semi-monthly gross = Monthly basic salary / 2

For daily-rated employees:

Semi-monthly gross = Daily rate x number of days worked in the period

Include any applicable additional pay: overtime (Art. 87), night shift differential (Art. 86), holiday premium (Art. 93-94), and allowances.

2. Compute Mandatory Deductions

From the monthly basic salary, compute each employee's share:

• SSS employee share — based on the MSC bracket (see SSS table)
• PhilHealth employee share — 2.5% of basic salary (floor ₱250, cap ₱2,500)
• Pag-IBIG employee share — 2% of basic salary (cap ₱200, based on ₱10,000 ceiling)
• Withholding tax — based on taxable income after deducting total contributions

For semi-monthly payroll, deductions are typically split: SSS and Pag-IBIG on the first cutoff, PhilHealth on the second cutoff (or however your company policy dictates, as long as the full monthly amount is remitted).

3. Compute Net Pay

Net pay = Gross pay - SSS employee share - PhilHealth employee share - Pag-IBIG employee share - Withholding tax - Other deductions (loans, advances, etc.)

4. Generate Payslips

Under Art. 105 of the Labor Code and DOLE Department Order No. 183, Series of 2017, employers must provide payslips showing:

• Gross pay and all components (basic, overtime, premiums, allowances)
• Itemized deductions (contributions, tax, loans)
• Net pay
• Pay period covered

Example: First Payroll for an Employee Earning ₱25,000/Month

Component	Amount
Monthly basic salary	₱25,000.00
SSS employee share	₱1,250.00
PhilHealth employee share	₱625.00
Pag-IBIG employee share	₱200.00
Total mandatory deductions	₱2,075.00
Taxable income (monthly)	₱22,925.00
Withholding tax (approx.)	₱313.80
Net pay	₱22,611.20

Note: SSS amount is based on the MSC bracket for ₱25,000. Actual withholding tax depends on annualized taxable income and applicable deductions.

Step 6: Remit Contributions on Time

Missing deadlines results in penalties. Here are the remittance schedules:

SSS

• Deadline: Based on the last digit of your employer SS number (5th to 20th of the following month)
• How: Online via SSS website, or over-the-counter at accredited banks
• Form: SSS R-3 (Monthly Collection List) or electronic filing via SSS portal
• Penalty: 2% per month on late or unremitted contributions (RA 11199, Sec. 22)

PhilHealth

• Deadline: By the 25th of the month following the applicable period
• How: Online via PhilHealth Electronic Premium Remittance System (EPRS)
• Form: PhilHealth RF-1 (Remittance Form)
• Penalty: 2% per month interest on delayed remittances (RA 11223, Sec. 14)

Pag-IBIG

• Deadline: On or before the 15th of the month following the applicable period
• How: Online via Virtual Pag-IBIG or over-the-counter
• Form: Pag-IBIG MCRF (Monthly Collection Remittance Form)
• Penalty: 1/10 of 1% per day of delay (RA 9679, Sec. 6)

BIR

• Deadline: On or before the 10th of the following month for monthly withholding tax (BIR Form 1601-C)
• How: eFPS (Electronic Filing and Payment System) for large taxpayers; eBIRForms for others
• Annual: BIR Form 1604-CF (Alphalist of employees) due on or before January 31 of the following year

Common Mistakes to Avoid

1. Late or Missed Registration

Some new businesses delay registration, thinking they can "catch up later." Government agencies can impose penalties retroactively, and employees may lose benefits coverage for unregistered periods.

2. Using Outdated Contribution Tables

SSS, PhilHealth, and Pag-IBIG rates change periodically. The SSS increased to 15% in January 2025 under RA 11199. Always verify you are using the current year's tables.

3. Forgetting 13th Month Pay

Under Presidential Decree No. 851, all rank-and-file employees are entitled to 13th month pay, due on or before December 24. The first ₱90,000 is tax-exempt. This applies even to employees who have worked less than one year (computed pro-rata). See our 13th Month Pay Guide.

4. Not Keeping Payroll Records

Art. 112 of the Labor Code requires employers to keep employment records, including payroll, for at least three years. These records must be available for DOLE inspection at any time.

5. Incorrect Tax Computation

Employers must perform tax annualization in December (or upon employee separation) to reconcile the total tax withheld with the actual annual tax due. Skipping this step leads to over- or under-withholding.

6. Manual Computation Errors

Payroll involves multiple interdependent calculations — contribution brackets, taxable income, pro-rations, overtime rates. Manual spreadsheets are error-prone. Consider using a dedicated payroll system like TalinoHR, which automates all Philippine compliance computations.

Related Guides

• SSS Contribution Table Guide 2026 — Complete 61-bracket reference with MPF computation
• PhilHealth Contribution Guide 2026 — 5% rate computation, salary floor and ceiling
• Pag-IBIG Contribution Guide 2026 — Employer remittance deadlines and penalties
• Withholding Tax & TRAIN Law Guide — TRAIN Law brackets and annualization
• 13th Month Pay Guide — PD 851 requirements and computation
• Philippine Payroll Compliance Guide 2026 — Comprehensive compliance overview
• Net Pay Calculator — Compute take-home pay instantly

Legal References

• Labor Code of the Philippines (Presidential Decree No. 442, as amended) — Art. 83 (Hours of Work), Art. 86 (Night Shift Differential), Art. 87 (Overtime Pay), Art. 93-94 (Holiday Pay), Art. 103 (Time of Payment), Art. 105 (Payslip), Art. 112 (Record-Keeping)
• RA 11199 (Social Security Act of 2018) — SSS contribution rates, employer registration, penalties
• RA 11223 (Universal Health Care Act) — PhilHealth premium rates and employer obligations
• RA 9679 (Home Development Mutual Fund Law of 2009) — Pag-IBIG contribution rates and registration
• RA 10963 (TRAIN Law) — Graduated income tax brackets effective 2023 onwards
• Presidential Decree No. 851 — 13th Month Pay
• DOLE Department Order No. 183, Series of 2017 — Payslip requirements
• Revenue Regulations No. 11-2018 — Revised withholding tax tables under TRAIN Law

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This guide is for informational purposes only and does not constitute legal, tax, or financial advice. While we strive for accuracy by citing official Philippine laws and government circulars, regulations change. Consult a qualified professional or the relevant government agency for advice specific to your situation.