PAYE in the Philippines 🇵🇭 : The Hidden Risks for Employers
Emmanuel Amegah
August 2, 2025
If you’re hiring full-time employees in the Philippines, understanding how Pay As You Earn (PAYE) more formally called Withholding Tax on Compensation, works is essential for legal compliance. Here’s an updated and fact-checked guide with the current rules and tax brackets for 2025.
What Is PAYE in the Philippines?
The term "PAYE" isn’t typically used locally, but the equivalent is Withholding Tax on Compensation. Employers must deduct the correct amount of income tax from employees' salaries and remit it monthly to the Bureau of Internal Revenue (BIR). This system satisfies the employee’s tax obligation in “real time,” rather than later through end-of-year filings.
How PAYE Is Calculated in the Philippines
The BIR enforces a progressive tax system. For 2025 (under the TRAIN Law Schedule 2), the income tax table for resident employees is:
| Annual Taxable Income (PHP) | Tax Rate / Computation |
|---|---|
| 0 – 250,000 | 0% (exempt) |
| 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 |
Note: Employees with annual taxable income of PHP 250,000 or below are exempt from withholding tax.
Other deductions before tax include:
- Social Security System (SSS) contributions (with increased 15% rate in 2025, employers pay 10%, employees 5%)
- PhilHealth premiums
- Pag-IBIG Fund contributions
- 13th-month pay and certain other bonuses are tax-exempt up to PHP 90,000 annually
Employer Responsibilities Under PAYE
As of 2025, businesses must:
- Withhold the correct tax from employee pay each payroll period according to BIR tables.
- Remit taxes monthly to the BIR using the appropriate forms (notably BIR Form 1601-C, Monthly Remittance Return of Income Taxes Withheld on Compensation).
- Due by the 10th day of the following month for payments January to November.
- Payments for December are due by January 15.
- Electronic Filing and Payment System (EFPS) users get an additional 5-day extension.
- Issue employees BIR Form 2316 at year-end as proof of income and tax withheld. This form should be provided by January 31 of the following year.
- Maintain complete payroll and tax records for auditing and resolving any employee or regulatory issues.
Failure to comply can result in penalties, fines, and reputational harm.
Why Manual PAYE Processing Is Risky
Payroll processing in the Philippines involves constant updates to tax tables, mandatory contributions, and tax-exempt benefits. Handling these manually via spreadsheets risks:
- Miscalculations causing under- or over-withholding
- Late remittances triggering penalties
- Inconsistent or incomplete reports during audits
- Employee dissatisfaction due to payroll errors
The Smarter Way: Automate PAYE with Payroll Tax Software - Cadana
Modern payroll tax software automates calculations, keeps up with BIR rule changes, and ensures accurate tax remittances and reporting each cycle. This is critical if your business:
- Has employees across multiple Philippine regions
- Is expanding and needs scalable compliance solutions
- Wishes to maintain a reliable, centralized, and auditable payroll process
Understanding and staying compliant with PAYE (Withholding Tax on Compensation) in the Philippines isn’t just about legal obligation, it’s about building trust with your workforce and protecting your business from costly errors.
Cadana's Global Payroll Infrastructure makes it easy to stay compliant in the Philippines and beyond. Calculate taxes, generate payslips, and manage payroll across 100+ countries with ease.
Emmanuel Amegah