How Philippine Payroll Compliance Works: 13th Month, SSS, PhilHealth and Pag-IBIG

If you are an Australian business hiring Filipino staff, understanding Philippine payroll compliance is not optional — it is the difference between a clean employment structure and a liability.

The good news: if you are using an employer of record Philippines service, your EOR carries every one of these obligations. You do not manage them directly. But understanding what they are helps you evaluate providers, ask the right questions, and know whether your current structure is genuinely compliant.

This is a plain-language breakdown of the four main Philippine payroll compliance obligations: 13th month pay, SSS, PhilHealth and Pag-IBIG.

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13th Month Pay

13th month pay is one of the most commonly misunderstood obligations in Philippine labour law — and one of the most commonly missed by foreign companies that hire Filipino contractors directly.

What it is

Under Presidential Decree No. 851, every Philippine employee who has been employed for at least one month during a calendar year is entitled to a 13th month payment. This is separate from any performance bonus, Christmas bonus or gratification payment your business might choose to pay. It is a statutory minimum — not a discretionary benefit.

How it is calculated

13th month pay = Total basic salary earned in the year / 12

An employee earning PHP 30,000 per month who has worked the full year is entitled to PHP 30,000 in 13th month pay, due on or before 24 December.

If the employee started mid-year, the calculation is pro-rated based on months worked.

What counts as “basic salary”

Only the basic salary is included in the calculation — not overtime, allowances, commissions or other variable pay. If your employment structure includes separate allowances, those are excluded from the 13th month computation.

When it is paid

On or before 24 December each year. Employers may pay in two tranches — a partial advance mid-year (common in the Philippines) with the balance paid before December.

Why contractors miss it

When Australian businesses hire Filipino workers as contractors rather than employees, 13th month pay is not legally triggered — because there is no employment relationship. But if the working arrangement looks like employment (fixed hours, exclusive engagement, direction and control by the client), Philippine labour law can reclassify it as employment regardless of the contract label. At which point, 13th month entitlements accrue from the start.

This is one of the core reasons offshore staffing Australia through a proper EOR is cleaner than direct contractor arrangements — the 13th month obligation is calculated, provisioned and paid monthly from day one.

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SSS (Social Security System)

SSS is the Philippines’ primary social insurance programme, covering sickness, maternity, disability, retirement and death benefits for private sector workers.

Who contributes

Both the employer and the employee contribute each month. The employer’s share is larger. Contributions are calculated based on the employee’s monthly salary credit — a bracketed system set by the SSS that maps salary ranges to fixed contribution amounts.

What happens if it is not remitted

Non-remittance of SSS contributions is a criminal offence under Philippine law. Penalties include fines and imprisonment for responsible officers. For Australian businesses operating without an EOR, this creates direct exposure if the relationship is ever reclassified as employment.

For EOR placements

Team Up Now calculates SSS contributions for every EOR placement based on the employee’s salary, registers them with the SSS as the employing entity, and remits contributions monthly. The cost is included in the monthly invoice.

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PhilHealth

PhilHealth (Philippine Health Insurance Corporation) provides mandatory health coverage for all formally employed Philippine workers.

How contributions are calculated

PhilHealth contributions are set as a percentage of monthly basic salary, split equally between employer and employee. The rate is revised periodically. As of recent years, the combined rate has been set at 5% of monthly basic salary, with a premium ceiling applicable at higher salary levels.

Why it matters

PhilHealth coverage is one of the benefits Filipino employees look for in a formal employment arrangement. Withholding it while labelling someone a contractor — and then being reclassified as an employer — creates significant arrears liability.

For EOR placements

Team Up Now registers all EOR-employed staff with PhilHealth and remits contributions monthly. Staff receive their PhilHealth ID and coverage as part of onboarding.

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Pag-IBIG (HDMF — Home Development Mutual Fund)

Pag-IBIG provides a mandatory provident savings programme and access to housing loans for formal sector employees in the Philippines.

How contributions work

Employer and employee each contribute a fixed monthly amount. At lower salary levels, contributions are set at specific fixed rates. The employee’s savings accumulate and can be withdrawn upon separation or used as collateral for a housing loan.

For EOR placements

Team Up Now registers all EOR placements with Pag-IBIG and remits contributions monthly. Staff receive their Pag-IBIG membership number as part of onboarding.

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BIR (Bureau of Internal Revenue) — Tax Withholding

Beyond the statutory contributions above, employers are required to withhold income tax from employee salaries each month and remit it to the BIR, along with annual tax filings.

Philippine personal income tax uses a graduated rate system. Tax withholding is calculated monthly based on the employee’s salary, with year-end reconciliation to ensure the correct total was withheld.

Team Up Now handles all BIR registration, monthly tax withholding, remittance and annual filing for EOR placements.

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What this means for Australian businesses

If you are engaging Filipino workers without an EOR, you are either:

1. Treating them as contractors — which is legally clean only if the arrangement genuinely lacks the hallmarks of employment (fixed hours, exclusivity, direction and control). If it looks like employment, it is employment — and all of the above obligations apply retroactively.

2. Running your own Philippine payroll — which requires a Philippine entity, BIR registration, SSS employer registration, PhilHealth employer registration and Pag-IBIG employer registration. See our guide to setting up a Philippine entity as a foreign company for what that actually involves.

3. Using an EOR — in which case your provider carries every obligation above. Verify that they operate their own Philippine entity (not a local partner network), that your staff are directly employed under it, and that the monthly invoice clearly accounts for contributions.

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What Team Up Now covers

As part of our employer of record Philippines service, Team Up Now:

• Processes monthly payroll for all placed staff
• Calculates and remits SSS, PhilHealth and Pag-IBIG contributions
• Provisions and pays 13th month pay (accrued monthly, paid December)
• Withholds and remits BIR income tax
• Manages year-end tax filings
• Provides Philippine-law-compliant employment contracts from day one

Your Australian business receives one monthly invoice. No government portals, no contribution schedules, no payroll runs.

If you want to understand the total cost before committing, our EOR cost calculator models salary, contributions and management fee for any role.

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For the broader question of whether hiring Filipino staff through an EOR is legal in Australia, see Is outsourcing to the Philippines legal in Australia?