7 Features of Staff Leasing in the Philippines

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By: Garry Pagaspas, CPA

Taking into account the advantages of Filipino talents (e.g. English speaking, attitude towards work, manpower cost, and work efficiency, among others) Philippines has become a top pick for back-office support operations of foreign accounting and consulting firms abroad and that of business process outsourcing (BPO) operations in Philippines dealing directly with foreign clients, if not with the parent entity for the delivery of quality services.

Approaches for Philippine set-up could vary depending on many factors such as a more long-term set-up or a short-term exploratory set-up. For a long-term set-up, setting up a local entity in the Philippines could be good, while for short-term exploratory set-up, some would resort to special arrangements with staffing or manpower agencies, Business Process Outsourcing (BPO) in Philippines, accounting firms or local consulting firms for staff leasing in Philippines, or sometime referred to under professional employer organization (PEO) or employer of record (EOR) in Philippines.

Notably, there seems no prescribed guidelines issued by government agencies specifically applicable to staff leasing in the Philippines or professional employer organization (PEO) or employer of record (EOR) in Philippines but it seems to simply adopt the labor laws, rules, and regulations related to it. Accordingly, let me share my personal views on some features of these staff leasing arrangements in Philippines that you may find useful for your Ph set-up:

1. Binding legal agreement for staff leasing in Philippines

For the purpose, legal agreement should be executed to formalize the staff leasing arrangement by and between your company abroad or using their parent entity abroad – e.g. Singapore or Hong Kong entity and the staff leasing entity in Philippines. Some would use a direct Staff Leasing Agreement setting forth the terms and conditions – staff leasing entity as employer housing employees on its office (unless under work from home arrangement) and your company abroad utilizing the team for your outputs and paying prescribed fees – e.g. set-up fees, monthly fees, and termination fees.

The rest would take the arrangement with the staff leasing entity as service provider for some defined output with the staff leasing employees handling delivery of the services under the supervision of your company representatives abroad.

2. Local entity as staff leasing employer in Philippines

Normally, under staff leasing agreement in Philippines, the staff leasing entity in Philippines acts as employer of your team in Philippines and for this, staff leasing is at times termed as “employer of record” (EOR) or “professional employer organization” (PEO) in Philippines. Employment status may vary under the rules – e.g. probationary employment, regular employment, contractual basis, or project-based employee depending on the terms agreed upon. Other terms and conditions of employment could likewise be imposed by the employer and could be arranged based on your preferences, to the extent that it is aligned with the local labor rules.

As an employer, they are under obligation to its employees as imposed by the Labor Code of the Philippines, as amended, such as on payment of wages and benefits mandated by law, dealing with mandatory contributions, and security of tenure, among others. On this scope, they take their risk relative to such obligations.

3. Compensation, fees and charges for staff leasing in Philippines

Under staff leasing arrangement, your company abroad utilizing staff leasing employees in Philippines would undertake to pay employee compensation – those owing to the employee for every payroll period; employer share on mandatory contributions for social security, housing and health insurance; and related employee benefits imposed by labor rules such as 13th month pay, leave credits, maternity benefits, among others. On top of that, some arrangements would impose a one-time set-up fee for each employee for hiring and other related works, a monthly administrative fee as a percentage of monthly compensation or a fixed amount that could cover their time charges for recurring works like payroll computations and government remittances, applicable local taxes, if any, and at times, a termination fee upon your decision to end the arrangement.

4. Staff Leasing employee’s disciplinary action under local entity

In Philippines, security of tenure is given much emphasis under our labor rules, and employees could only be terminated on justifiable reasons – e.g. just or authorized causes specifically provided by the rules along with prescribed due process and cannot simply be terminated at will of the employer like in other countries. If you intend to discipline staff leasing employees in Philippines, closely coordinate with the staff leasing employer in Philippines for proper handling – e.g. sending of memorandum to employees, hearing out employees’ side for the required opportunity to be heard under the rules, and sending management decision on the alleged violation of the staff leasing employees. Failure to comply with the rules could be a ground for staff leasing employees to file a case for illegal termination in Philippines or any appropriate case with the labor department.

5. Mandatory Philippine reporting compliance for staff leasing employees

Employers in the Philippines carries certain obligations such as withholding taxes on compensation every payroll period along with remitting them monthly to the tax authorities and filing related quarterly and annual reports; withholding employee welfare contributions for social security, housing mutual fund, and health insurance along with remitting them monthly and filing related quarterly reports with such respective government agencies; and such other reports required such as 13th month pay reporting to the labor department. These obligations are normally undertaken by the local staff leasing company in the Philippines and they would ensure compliance, otherwise, penalties would be imposed for failure to comply.

6. Doing business in Ph/ Permanent Establishment implications

One concern of the foreign company abroad entering into staff leasing arrangement is whether or not the same would create a permanent establishment in Philippines under the applicable tax treaty or would be tantamount to doing business in the Philippines that is required to register with the Securities and Exchange Commission (SEC) under the Revised Corporation Code (RCC) and applicable foreign investment laws. This could be a technical legal area, and such implication could depend on the terms and conditions of the staff leasing in the Philippines.

7. Setting-up own entity and employing your staff leasing team

As soon as you realize the long-term advantages of your Philippine team, you may then decide to set-up your own entity in the Philippines and take them out from the staff leasing arrangement so they become employees of your Ph entity taking into account the experience and familiarity that they have working on your account. Normally, staff leasing arrangement would have termination provisions which could vary from a simple notification to some monetary considerations to be allowed to convert them as your employees. For the purpose, please pay attention the termination provisions to avoid issues that could lead to legal battle and more headaches.

Author’s Profile:

Garry Pagaspas, CPA is a currently the Managing and Tax Partner of G. Pagaspas Partners & Co. CPAs (independent member firm of Allinial Global, 2^nd largest accounting association worldwide based on International Accounting Bulletin’s 2023 released survey) based in Makati City with Global Outsourcing offices in Kalibo, Aklan. He is likewise the President at Tax and Accounting Center, Inc., the training and consulting company he founded in relation to his passion for teaching and helping out Ph entrepreneurs and foreign investors to Philippines.

Views in this article is personal to the author, not equivalent to a professional opinion and does not represent that of the organizations he is connected with. For your feedback or related concerns on staff leasing or employer of record in Philippines, you may send mail at info(@)taxactgcenter.ph (please exclude open and close parenthesis on the @ sign.

December, it is that time of the year again. Parols hanging from the balcony, Jose Mari Chan on everyone’s car radio and the most anticipated 13^th month pays for employees in the Philippines. However, for employers with a large employee population, 13th-month pay can be complicated, strenuous, and sometimes even time-consuming. So, what is 13^th month pay in the Philippines? Let us unpack that.

Brief History of 13^th month pay in the Philippines 

Pursuant to Presidential Decree No. 851 (1975), employers in the private sector in the Philippines are required to pay 13th month pay to all employees receiving at least PhP1,000.00 a month basic salary, regardless of the nature of employment, who have rendered at least one month of service. The decree was originally imposed to “further protect the level of real wages from the ravage of worldwide inflation” and in the spirit of Christmas and New Year, employers are to show their concern and appreciation towards the working masses. In August 1896, the Malacañang released the Memorandum Order No. 28 modifying the existing decree requiring all employers (not just those receiving PhP1,000 basic pay a month) to pay their employees a 13^th month pay on or before the 24^th day of December. 13^th month pay in the Philippines is an important mandated benefit to grant as there is neither request nor application of exemption allowed for delay or non-issuance and employers who are found to be in violation of such may be subjected to sanctions. 

Who is eligible (and who is not)?

According to the DOLE’s guidelines under Labor Advisory no. 25 of 2023, 13^th month pay in the Philippines is given to rank-and-file employees regardless of their designation, position, or employment status. Resigned or separated employees who have rendered at least a month of work are also eligible to receive the compensation, given as part of their final pay.

Under the labor rules, rank-and-file employees entitled 13^th month pay in the Philippines are those employees who are not in managerial or supervisory positions. Supervisory employees as defined by Presidential Decree No. 442 are “those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgment” while managerial employees are those ” who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees”. In general, both supervisory and managerial employee classifications are not mandatorily covered by 13^th month pay in the Philippines since the purpose of 13^th month pay is to give an additional incentive for low-earning employees. Workers paid by results such as commission or task base, household helpers and contractual workers are also not eligible to receive the pay. However, it is within the employer’s prerogative to issue a bonus for their hard work and service. In cases in which the company accidentally issued the benefit to those non-eligible for 13^th month pay in the Philippines, the employer is entitled to retract it, unless covered by the non-diminution rule under the labor rules in the Philippines.

Coverage of 13^th month pay – how do we calculate it? 

The basic calculation for 13^th month pay is the total basic salary pay of the employee for a year divided by 12 (months). Basic pay refers to “all remunerations or earnings paid by an employer to an employee for services rendered” (P.D No. 851). It is important to emphasize that basic pay is the minimum requirement to cover in the computation and compensation from leaves, overtime pay, premium pay and company allowances may be included according to the employer’s discretion.  Furthermore, other year-end benefits such as 14^th month pay and bonuses such as Christmas and performance bonuses are not required by the law, and it is within the company’s discretion to issue one.

However, employees who have rendered less than a year of service, for instance, employees hired in the middle of the month or employees separated before the year ends are calculated and issued a prorated 13^th month pay. For instance, employee Z started a job as a Data Analyst with a basic salary of Php50,000.00 and started working on July 17. The employer may calculate their 13^th month pay as follows: 

You can calculate the daily rate based on the Estimated Equivalent Monthly Rate (EEMR), prescribed by DOLE (Department of Labor and Employment) in their Handbook. 

When to pay 13^th month pay in the Philippines 

Although establishments should issue their employees the benefit on or before December 14, DOLE encourages employers to release it early, ensuring that their workers have enough budget to prepare for the festivities.

“Although meron silang elbow room na hanggang December 24, sana magbigay sila nang mas maaga. Kung maaari nga, unang linggo pa lang ng Disyembre nang hindi naman magkumahog ang ating mga manggagawa at kanilang pamilya sa pagba-budget,” (Although there is an elbow room until December 24, we hope that employers released 13^th month pay early. If possible, release it in the first week of December so that employees would not struggle and their family with budgeting) DOLE Secretary Laguesma stated in an interview last November 8, 2023.  

DOLE Report Compliance for 13^th month pay in the Philippines

As stated in the 2023 Handbook on Workers’ Statutory Monetary Benefits provided by (DOLE) Bureau on Working Conditions, employers must submit a report to DOLE about the issuance of 13th-month pay in the company. This can be submitted to the nearest regional office or through their website DOLE ERS not later than January 15 of the following year. Although DOLE have not released a template, the report should include the name of the establishment and its address, its product and/or services, total employment and total employees benefitted from the pay, amount granted per employee and the name, position and telephone number of person disclosing the information. Non-compliance of the benefit and the submission report can be considered as a money claim case that should be forwarded to the court.  

Last thoughts 
13^th month pay is a year-end mandatory benefit that motivates employees to finish the year strong. Though it may be complicated, DOLE released related advisories to guide establishments to properly comply. Furthermore, our company offers services that aim to guide and assist you in smooth and easy transactions that would ensure compliance with related labor rules so that you can celebrate the festive season without any hassle. 

“Happy Holidays!”, one of the most common expressions we heard every December in the Philippines as the Yuletide season is fast approaching. Employees in Philippines are inclined to expect to receive the 13th month pay, Christmas Bonus, and the likes. As they receive the last payslip during the year, the employees understand that employers withheld taxes as part of its obligation to the nation and to help to the coffers of the Philippine government. You might be wondering what are the tax implications of this benefits received from the employer, is it taxable and up to what extent?

Under the withholding tax rules, 13th-month pay and other benefits are exempted from income tax, and hereunder quoted:

“(B) Exemption from withholding tax on compensation. – The following income payments are exempted from the requirements of withholding tax on compensation but may be subject to income tax depending on the nature/sources of income earned by the individual recipient.
xxx xxx xxx
(11) Thirteenth-month pay and other benefits. –
(a) Thirteenth month pay equivalent to the mandatory one (1) month basic salary of official and employees of the government (whether national or local), including government-owned or controlled corporations, and/or private offices received after the twelfth-month pay.
(b) Other benefits such as Christmas bonus, productivity incentives, loyalty award, gift in cash or in kind, and other benefits of similar nature actually received by officials and employees of both government and private offices, including the Additional Compensation Allowance (ACA) granted and paid to all officials and employees of the National Government Agencies (NGAs) including State Universities and Colleges (SUCs), Government-Owned and/or Controlled Corporations (GOCCs), Government Financial Institutions (GFIs) and Local Government Units (LGUs)”

Based on the above, let me share the following basic features of the Tax Exempt benefits given by the employer in the Philippines.

Republic Act (R.A.) No. 10963 classified 13th month and other benefits with an amount not exceeding P90,000 as income tax exempt in the Philippines. Prior to this, in 1994, R.A. No. 7833 provides that tax exempt other benefits of not exceeding P12,000 is integrated with 13th month and other benefits which the aggregate should not exceed P30,000. In 1998, R.A. No. 8424 removed the limitation of P12,000 from other benefits and that the 13th month and other benefits of not exceeding P30,000 is considered tax exempt. The amount was later increased to P82,000 in R.A. No. 10653 in 2015 and currently to P90,000 by R.A. No. 10963.

1. Payment of 13th month pay is mandatory under the law

Presidential Decree (P.D.) No. 851, as amended by Memorandum Order No. 28, provides that all employers are required to pay their rank-and-file employees, thirteenth (13th) month pay regardless of the nature of their employment and irrespective of the methods by which their wages are paid, provided they worked for at least one (1) month during a calendar year and the same shall be paid not later than December 24 of each year. As this 13th month pay in Philippines is a mandatory imposition by law, failure of the employer to pay its employees is sanctioned by the Department of Labor and Employment (DOLE) in Philippines.

Notably, not every employee classification is entitled to 13th-month pay as managerial employees as defined by labor rules are excluded by law. Further, it is the actual work performed, and not the job title, that is controlling to determine whether the employee is holding a managerial position.

2. Coverage of tax-exempt 13th-month pay and other benefits

Under the rules, 13th-month pay is defined as equivalent to the mandatory one (1) month basic salary of officials and employees of the government (whether national or local), including government-owned or controlled corporations, and/or private offices received after the twelfth-month pay.”

“Basic salary” of an employee shall include all remunerations or earning paid by this employer for services rendered. Salary-related benefits should be included as part of the basis salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employee. However, it does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as:

• cash equivalent of unused vacation and sick leave credits,
• overtime,
• premium,
• night differential,
• holiday pay, and
• cost-of-living allowances.

On the other hand, other benefits seems a catch-all term and is defined as follows: “Other benefits” – such as Christmas bonuses, productivity incentives, loyalty award, gift in cash or in kind, and other benefits of similar nature actually received by officials and employees of both government and private offices, including the Additional Compensation Allowance (ACA) granted and paid to all officials and employees of the National Government Agencies (NGAs) including State Universities and Colleges (SUCs), Government-Owned and/or Controlled Corporations (GOCCs), Government Financial Institutions (GFIs) and Local Government Units (LGUs)

In one interpretation, the BIR ruled the caption of “Other benefits such as productivity incentives and Christmas bonus. . .” is not an exclusive enumeration but only provides examples of “other benefits” an employee may receive. Accordingly, other benefits other than the 13th month pay, such as annual Christmas bonus, the 14th month pay, the mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits, and referring to those benefits received by an official or employee for one (1) calendar year, the total amount of which, including the 13th month pay, does not exceed P82,000. (now P90,000).

Bonus and 14th month pay – Management Prerogative and Discretionary. In the case of Philippine Education Co., Inc. v. CIR, G.R. No. L-5103, December 24, 1952, a bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the success of the employer’s business and made possible the realization of profits. It is an act of generosity of the employer for which the employee ought to be thankful and grateful. It is also granted by an enlightened employer to spur the employee to greater efforts for the success of the business and the realization of bigger profits. And the occasion for it grant and payment is usually during the time of the year when people are more generous and inclined to give. This is the Christmas holiday. From the legal point of view, a bonus is not a demandable and enforceable obligation. It is so when it is made a part of the wage or salary or compensation. In such a case, the latter would be fixed and the former would be a contingent one dependent upon the realization of profits.

Christmas Bonus in the CBA is not equivalent to 13th month pay. In the case of Universal Corn Products v. NLRC, G.R. No. L-60337, August 21, 1987, it was held that the provision in the Collective Bargaining Agreement (CBA) for the payment of Christmas bonuses to all regular employees in the bargaining unit with at least one (1) year of continuous services is not equivalent to 13th-month pay but is regarded as an addition to the legal requirement that accords a reward for loyalty to certain employees.

To sum up, the tax-exempt 13th-month pay and other benefits of up to PhP90,000.00 covers those 13th-month pay mandated by law and catch all other benefits to the extent of PhP90,000.00 a year. Any excess of the P90,000 will be subject to graduated income tax at a rate of 15%-35% depending on their taxable compensation income.

3. 13th month pay and other benefits exemption is separate from de minimis benefits and other exemptions

The PhP90,000 tax exempt 13th month and other benefits in the Philippines does not include de minimis benefits within the threshold. De minimis benefits are provided by generous employers for facilities or privileges that are relatively small value and are offered or furnished merely as a means of promoting the health, goodwill, contentment, or efficiency of its employees commonly known as de minimis benefits. You may check this link for the list of de minimis benefits.

In COURAGE v. CIR, G.R. Nos. 213446 & 213658, July 3, 2018, it was explained that all other benefits given by the employer which are not included in the said list, although of relatively small value, shall not be considered as de minimis benefits, hence, shall be subject to income tax as well as withholding tax on compensation income, for rank and file employees, or fringe benefits tax for managerial and supervisory employees, as the case may be.

In BIR Ruling No. 001-07 dated January 10, 2007, the BIR clarified that “other benefits” and “de minimis” are not the same. For purposes of determining the P30,000.00 (now P90,000) ceiling in “other benefits”, the two are treated in that the amount of “de minimis” benefits conforming to the limits prescribed shall not be considered in determining the P30,000.00 (now P90,000) ceiling of “other benefits” and does not provide for a ceiling with regard to “de minimis” benefits. However, it provides for a limit in the amount of each “de minimis” benefit such that if the employer gives more than the limit prescribed, the excess of the P30,000 (now P90,000) ceiling/limit shall be taxable to the employee receiving the benefits. Both “other benefits” and “de minimis” benefits do not form part of the employees’ taxable compensation income and are, therefore, not subject to withholding tax on wages.

Further, under Revenue Regulation (RR) No. 2-98, as amended by RR No. 11-2018 and as clarified in Revenue Memorandum Circular No. 50-2018, de minimis benefits in excess of the limit (e.g., rice allowance of P3,000 per month which is P1,000 is the excess over the limit of P2,000), 13th month and other benefits (e.g., Christmas Bonus, 14th month pay, performance bonus) is tax exempt up to P90,000. Any excess of the P90,000 shall form part of taxable compensation income that will be subject to income tax, and consequently, to the withholding tax on compensation.

Fringe Benefits Treatment. Fringe Benefit means good, service, or other benefit furnished or granted in cash or in kind by an employer to an individual employee. Under the rules, fringe benefits received by managerial and supervisory employees are subject to Fringe Benefits Tax of 35% (for employee citizen/resident alien/non-resident alien engaged in trade or business in the Philippines) or 25% (for employee non-resident alien not engaged in trade or business within the Philippines) based on gross-up monetary value of fringe benefits granted or furnished by the employer unless required by the nature of or necessary to the trade, business or profession of the employer, or where such fringe benefit is for the convenience and advantage of the employer which shall not be subject to fringe benefits tax; while fringe benefits given to rank and file employees are subject to withholding tax on compensation.

In BIR Ruling No. 041-02 dated November 14, 2002, the BIR clarified that Section 2.78.1(A) of Revenue Regulation No. 2-98, as amended, includes fringe benefits as part of compensation income “except those which are subject to fringe benefit tax under Section 33 of the Code,” which means that if the recipient of the fringe benefits is a managerial or supervisory employee, then the provisions of Section 33 of the Tax Code shall apply with respect to the imposition of a final tax on fringe benefits. But if the recipient is a rank-and-file employee, the fringe benefit will still be subject to withholding tax on compensation and consequently, to income tax, but not to final tax on fringe benefits.

4. Tax compliance related to 13th month pay and Other Benefits

• Reported in Annual Alphalist of Employees

The amount of the 13th-month and other benefits of each employee is to be reported by the employer in the Annual Alphalist List (Alphalist) of Employees to be submitted through es*********@*****ov.ph on or before January 31 of the succeeding calendar year. Exempt 13th-month pay and other benefits of up to P90,000 shall be properly reported under the exemptions while the excess or the taxable amount shall be reported under taxable 13th-month pay.

• Reflected in the BIR Form No. 2316

In general, the annualized compensation income including the 13th month and other benefits are reflected in the Certificate of Compensation Payment and Tax Withheld (BIR Form No. 2316) furnished by every employer to the employee on or before January 31 of the succeeding calendar year, or if terminated, on the day on which the last payment of compensation is made. Exempt 13th-month pay and other benefits of up to P90,000 shall be properly reported under the exemptions while the excess or the taxable amount shall be reported under taxable 13th-month pay.

Employees who are disqualified for substituted filing (e.g., two or more employers during the year, tax due and tax withheld are not the same) are required to file their own separate Annual Income Tax Return (AITR) on or before April 15 of the succeeding calendar year and claim the tax withheld in the BIR Form No. 2316 as tax credit in the AITR.

Summary:

Employees should be aware of the existing tax laws, rules, and regulations to secure that their rights as a taxpayer are protected. Compensation is to be regarded as hard-earned money and fruits of labor. After all, what we want is to have a take-home pay in this coming Yuletide season while contributing to society by means of paying the correct taxes.

Registered companies in the Philippines are required to register and submit their employees to 3 government agencies, namely, the Social Security System (SSS), Home Development Mutual Funds (HDMF), and the Philippines Health Insurance Corporation (PHIC). These government agencies handle the status of private company’s employees’ contributions and their benefits. These benefits are administered by the respective government agencies through their monthly salary basis to avoid penalties due to delay of monthly contributions.

Social Security System (SSS)

All private companies must apply to SSS to ensure the protection of the employees and their families as well.

Companies in the Philippines must register first in order to register their employees to SSS

What are the documentary requirements?

• SSS R1 Form (Employer Registration Form) – This form includes the company data such as Company name, office address, start of operation, contact details (telephone number and email address), and original signed by the Authorized signatories.
• SSS R1A Form (Employment Report Form)- This form contains the list of hired employees alongside their registered SSS number, date of hiring, and their monthly compensation.
• SSS L-501 Form (Specimen Signature Card)- This form needs to be signed by the appointed signatories and approved by the Authorized Signatories.
• SSS Web Registration for Employer – This form is provided after the registration of the company in SSS containing the details like company name, address, and name of the signatories with the original sign of the Authorized Signatories.
• Other Documents are as follows:
  • SEC registration documents, such as but not limited to SEC Certificate of Incorporation, Articles of Incorporation and By-Laws, etc.
  • Secretary’s Certificate or any equivalent document authorizing a third party to process the registration, if applicable
  • Original and Photocopy of valid IDs of Authorized Signatory/ies
  • Original and Photocopy of valid IDs of Authorized Representative.

Home Development Mutual Fund (HDMF)

The Government Agencies are responsible for collecting contributions used for funding salary loans, housing loans, and other benefits to ensure the protection of employees and their families as well.

What are the documentary requirements?

• Employer’s Data Form – This form is needed in order to register in Home Development Mutual Funds also known as Pag-IBIG funds, In this form, you need to fill out the important details referring to the company such as Company name, Address, Tax Identification Number (TIN), Company SSS number and Date of Operation, Originally signed by the Authorized.
• Specimen Signature Form – This form needs to be signed by three (3) appointed signatories and approved and authorized by the Authorized Signatories (President, Chairman, Corporate Secretary).
• eSRS Employer Enrollment Form: This form is needed in order to access the online status and updates of the company contributions and loans, Fill out the form with these details: Company name and address, authorized signatories contact and email address, and signature of the authorized signatories.

Note: The Home Development Mutual Fund (HDMF) must be registered second to the Social Security System (SSS) after registration.

Philippine Health Insurance Corporation (PHIC)

Philippine Health Insurance Corporation also known as PhilHealth with the assistance of the Department of Health (DOH) is a government corporation that provides health insurance assistance and affordable health care to the beneficiaries that may occur during their employment.

The Company is required to register with the PHIC, register their employee, and remit the monthly contribution based on their monthly salary.

What are the documentary requirements?

• PHIC ER1 Employer Data Record- Fill up this form with complete details: Company Name, Office Address, contact number/Email Address, Number of employees, and Signed by the Authorized Signatories.
• PHIC Er2 Report of Employee-Members – In this form, the company must declare the list of employees alongside the SSS/PhilHealth number, monthly salary, and date of employment in the company, signed by the authorized signatories
• PhilHealth Online Access Form (POAF) – This form is processed in order to access the online status of contributions and update, Fill out this form with the company name and contact details of the authorized signatories with its original sign.

Remember:

• All the documents must be printed at least (3) three copies and originally signed by the Authorized Signatories.
• Contact details and Email Addresses must be active and updated for receiving emails from these government agencies.

List of Valid Identification Card (ID)

PRIMARY IDs	SECONDARY IDs
1. Passport	PhilHealth ID
2. UMID IDs (SSS)	BIR ID
3. Driver’s Licensed	Pag-IBIG ID
4. Voter’s ID	Company ID

To align with the Philippines’ Bureau of Internal Revenue’s digital transformation roadmap, there is a need to replace the outmoded and obsolete processing of payroll with a more contemporary and progressive payroll system. The Revenue Memorandum Order (RMO) no. 25-2023 issued on July 4, 2023, prescribes the policies, guidelines, and procedures for the preparation and processing of payroll in the National Office and Regional Offices using the new Nationwide BIR Payroll System (NBPS). 

The new NBPS has a full integration module that can accurately capture personnel information necessary for the processing of payroll and the generation of reports. It can generate the weekly or semi-monthly General Office Payroll (GOP) for the salaries, Personnel Economic Relief Allowance (PERA), Representation Allowance and Transportation Allowance (RATA), including other monetary bonuses and incentives. NBPS has the following modules: 

Encoding and updating of personnel information, which includes adding, editing, and viewing it in the Personnel Module in the NBPS, shall be the responsibility of the concerned sections of the Personnel Division (PD) for the National Office and the Administrative Human Resource Management Division (AHRMD) for the Regional Offices. The updates shall be based on the documentary requirements received by PD/AHRMD on or before the 12th day of the month. As soon as the concerned Section Chiefs recommend it for approval by the Division Chief or Assistant Division Chief of PD/AHRMD, it shall be immediately encoded in the NBPS. Documents received after the cut-off date shall be included in the succeeding GOP. If the 12th day of the month falls on a weekend or holiday, the new cut-off date is the next working day. 

Updates on mandatory government deductions and other loans that are authorized to be deducted by the BIR shall be the responsibility of the concerned section of the Accounting Division or Finance Division (AD/FD). The updates shall be done prior to the processing of the monthly GOP and must be supported with the following documents:  

a. Letter requests from employees 

b. Billing from GSIS/PAG-IBIG  

c. Other billing deductions/loans 

All documentary requirements received by the AD/FD on or before the 18th day of the month shall be encoded or uploaded in the NBPS for approval of the Division Chief or Assistant Division Chief as recommended by the concerned Section Chief of the AD/FD in the NBPS. Documents received after the cut-off date shall be included in the succeeding GOP. If the 18th day of the month falls on a Weekend or Holiday, the new cut-off date is the next working day. Other details are specified in the Order. 

The Order defines the roles and responsibilities of the following: 

1. Employee concern 

2. Head of Office 

3. The sections under the Personnel Divisions which are the following: 

1. Manpower and Management Section (MMS) 

2. Information and Records Section (IRS) 

3. Compensation and Benefits Section (CBS) 

4. Performance Evaluation and Management Section (PEMS) 

5. Payroll Section (PS) 

4. The PS-PD/HRMS/AHRMD 

5. BD/FD-Budget Section (FD-BS) 

6. Accounting Division or Finance Division (AD/FD) 

7. FS/Office of the Assistant Regional Director (OARD) 

8. GSD/General Services Section (GSS)-AHRMD 

9. Administrative Services 

10. Human Resource Development Service/Office of the Assistant Regional Director 

The Order defines documentary requirements for new employees, transferred employees from other Government offices, promotions, transfers of employees in compliance with the Revenue Travel Assignment Order (RTAO), employee information changes or updates, salary increments, separated employees, suspension/resumption of salaries of employees, and supplemental payroll. 

The Order shall take effect immediately. The full implementation of the New BIR Payroll System shall be operational for the National and Regional Offices from 2023 onwards.

The Regional Tripartite Wages and Productivity Board (RTWPB) in the National Capital Region (NCR) received several petitions filed by various labor groups seeking a minimum wage increase for all workers in the private sector. After due notice to all concerned stakeholders, the Board conducted consultations and a public hearing. 

In settling the minimum wage, the Board considers the various criteria under Republic Act 6727, otherwise known as “The Wage Rationalization Act”, to periodically assess wage rates and conduct continuing studies in the determination of the minimum wage applicable to the region or industry. Compliance with the procedures laid down in the Omnibus Rules on Minimum Wage Determination to protect vulnerable workers from undue low wages was also considered. After a thorough review and evaluation of the existing socio-economic conditions in the region as well as the positions of the labor management, the following findings were established: 

1. The Consumer Price Index (CPI) in the region was at 112.2 in June 2022 and at 118.1 in May 2023; 

2. Based on the abovementioned CPI figures in the region, the average inflation rate from the effectivity of the last wage increase to the present is 7.03%; 

3. The poverty threshold based on the preliminary data for 2021 provided by the Philippine Statistics Authority is PHP 452.00; and 

4. Other relevant findings of the Board. 

Based on the findings enumerated, the Regional Tripartite Wages and Productivity Board (RTWPB) in the National Capital Region (NCR) issued Wage Order No. NCR-24 on June 26, 2023. 

Effective July 16, 2023, the minimum wage earners in the private sector in the Philippines’ National Capital Region shall receive a forty peso (PHP 40.00) increase in the basic wage per day. 

Sectors/Industry	Current Minimum Wage Rates	New Wage Increase	New Minimum Wage Rates
Non-Agriculture	PHP 570.00	PHP 40.00	PHP 610.00
Agriculture  (Plantation and Non-Plantation)	PHP 533.00	PHP 40.00	PHP 573.00
Service/Retail Establishments employing 15 workers or less
Manufacturing regularly employs less than 10 workers

The National Capital Region (NCR) covers the cities of Caloocan, Las Pinas, Makati, Malabon, Mandaluyong, Manila, Marikina, Muntinlupa, Paranaque, Pasay, Pasig, Quezon, San Juan, Taguig, and Valenzuela, as well as the Municipalities of Navotas and Pateros. The minimum wage rates prescribed under this Order shall be for normal working hours, which shall not exceed eight (8) hours of work a day. The wage increase prescribed herein shall apply to all minimum wage earners in the private sector within the region, regardless of their position, designation, or status, and irrespective of the method by which their wages are paid. Any person, corporation, trust, firm, partnership, association, or entity who refuses or fails to pay the prescribed increase shall be dealt with pursuant to the provisions of Section 12 of the Republic Act (RA) No. 6727, as amended by RA No. 8188. 

Under the Social Security Act of 1997, Republic Act No. 8282, it is the policy of the State to establish, develop, promote, and perfect a sound and viable tax-exempt social security system suitable to the needs of the people throughout the Philippines, which shall promote social justice and provide meaningful protection to members and their beneficiaries against the hazards of disability, sickness, maternity, old age, death, and other contingencies resulting in loss of income or financial burden. 

To carry out the purposes of this Act, the Social Security System (SSS) was born. The Social Security System is a social insurance program in the Philippines for compulsory and voluntary members. Compulsory members are those that are employed, self-employed, household helpers, and Overseas Filipino Workers (OFW), while voluntary members are the separated employees and the non-working spouse. SSS gives its members protection against the economic and social distress caused by contingencies such as sickness, maternity, disability, retirement, death, funerals, and unemployment. 

The employer is mandated to remit contributions to SSS from both employer and employee every month from the start of operation with at least one employee. The employees’ membership will be effective on the first day of employment. 

The table below shows the regular contributions for the SS, the Employees’ Compensation (EC) that is paid only by the employer, and the Workers’ Investment and Savings Program (WISP) that are administered by the SSS. The 2023 SSS contribution rate is 14%. The 14% is composed of a 9.5% Employer share and a 4.5% Employee share, while the minimum Monthly Salary Credit (MSC) increased from P3,000 to P4,000 and the maximum MSC from P25,000 to P30,000. The WISP contribution is only required for employees who have a monthly salary credit of PHP 20,500 and above.

Reference for the image: SSS

The basis for the computation of the SSS contribution is gross compensation. Compensation is defined as all actual remuneration for employment, except the part of the remuneration received during the month that is more than the maximum MSC as provided under the Social Security Act of 2018 and this IRR [Sec. 8, (f)], including but not limited to the following: 

To give a better understanding of how SSS contributions are identified and computed, let us have an example: 
A, an employee of XYZ Company, has a monthly basic salary of P30,000, transportation, communication, and meal allowances of P5,000, and a performance incentive of P5,000. The total gross compensation is P40,000. This will be used to identify the contributions of the employer and employee by selecting the appropriate range of compensation. For the 40,000, the range will be P29,750 and above, which would result in an SSS ER Contribution of P2,880, which is composed of Regular SS of P1,900, EC of P30, and WISP of 950, while for the EE’s SSS Contribution, it is P1,350, which is composed of Regular SS of P900 and WISP of P450. 

The deadline for the regular employer to remit and pay the contributions is on the last day of the month following the applicable month. The employer is liable to his or her employees and must pay their benefits on the employee’s behalf. If there are unpaid contributions, employers are bound to pay for all unpaid contributions and penalties and be held liable for a criminal offense punishable by a fine or imprisonment. 

 

Contribution payments that are past due not only incur penalties but may also affect members’ benefits claims in the future. Employers must always make sure that the remittance of members’ contributions is timely and intact. However, there may be situations where payments are not remitted because of other unforeseen circumstances. To help employers address this kind of issue, we will discuss in this article the processes for the late remittance of HDMF contributions. 

The first step is to fill out the latest Membership Savings Remittance Form (MSRF, HQP-TMF-381) and consolidate in one (1) MSRF all unpaid premiums of all employees, whether in months or in years. 

Below is a sample, filled-out MSRF. 

Below will be your guide to completing the Membership Savings Remittance Form (MSRF): 

1. Employer ID Number refers to the unique 12-digit number series assigned to a registered employer. It starts with the number ’2’. Ensure to remove the hyphen and spaces between the numbers. 

2. Employer/Business Name refers to the name of the employer. 

3. Employer/business address refers to the business address of the employer. 

4. Contact Number refers to the employer’s contact number. 

5. Email Address refers to the employer’s email address. 

6. Pag-IBIG MID Number refers to the unique 12-digit number series assigned to a registered member. It starts with the number ’1’.  

7. MP2 Account Number refers to the unique 12-digit number series assigned to registered members with Modified Pag-IBIG II (MP2) Savings. It starts with the number ‘5’. 

8. Membership program refers to the type of Pag-IBIG program that the payment remittance is intended for. 

• For membership savings, indicate ‘F1’.  
• For MP2 savings, indicate ‘M2’.  

9. Last name refers to the family name or surname of the member. 

10. First Name refers to the given name of the member. 

11. Name extensions refer to Jr., II, III, and the like. Do not put ‘period’ at the end of the name extension. 

12. Middle name refers to a member’s mother’s maiden last name. For married women, it refers to their father’s last name. Indicate the complete middle name of the member. Do not indicate the nickname, second name, or middle initial in this column. 

13. Replace ‘Ñ’ with ‘N’. 

14. PerCov refers to the period covered. It starts with a year and a month. 

Examples:  

Indicate ‘202301’ for MS remittances covering January 2022. 

Indicate ‘202302’ for MS remittances covering February 2022. 

15. EE Share refers to the savings or contributions of the employee.  

16. ER Share refers to the counterpart savings or contributions of the employer.  

17. Remarks refer to the employment status of the employees within the company.  

• For the deceased, indicate ‘D’ 
• For leave without pay or AWOL, indicate ’L’ 
• For newly hired, indicate ‘N’ 
• For retired, indicate ‘RT’ 

18. Below the table, add one space or row prior to the total remittance. 

Second, request the computation of penalties. Bring the Membership Savings Remittance Form to the nearest branch or send the form via email to the designated branch. Kindly state your preferred date of payment for their reference in computing the penalties. 

Then, once you have the estimated penalty computation, submit the MSRF in Excel format to the nearest branch or concerned branch on or before your preferred payment date stated in the second step. Save the softcopy on a Universal Flash Bus (USB) or flash drive. Portable Document Format (PDF) or Word format shall not be accepted. 

Finally, pay the premiums stated in the MSRF together with the penalties computed in the second step. Secure proof of payment. 

Employers may also apply for the penalty condonation offered by the Pag-IBIG agency. However, this is still subject to HDMF assessment as to whether the requesting company will be granted penalty condonation. The procedure for applying for a penalty condonation will be covered in more detail in the following article. Stay tuned!

PhilHealth no longer receives manual payment in their branches despite presenting the Certificate of Exemption (COE) from online payment to the cashier. PhilHealth recommends using the online payment facilities available in the Electronic Premium Remittance System (EPRS) portal. MyEG Philippines, Inc., effective October 14, 2022, a PhilHealth-accredited collecting agent for PhilHealth premium contributions, is now accepting online payments through the well-known e-Wallet giants, GCASH and Maya. Employers can also pay the contribution through a debit or credit card. 

With this, the collecting agent no longer spends long hours in the queue. Individuals or companies can quickly and easily pay for a PhilHealth contribution online at any time using a smartphone or computer that is connected to the internet, and transactions will be done in no time with just a few clicks. There is no need to be a techie to perform the transaction, as the process is simple and the instructions are easy to understand. 

Save yourself the hassle of going to the PhilHealth office. This service allows you to pay your contributions whenever and wherever you want, using e-wallets (GCash and Maya) or credit or debit cards. 

Privacy and protection are of the utmost priority. PhilHealth follows the International Payment Gateway Standards that have been tried and tested in the Philippines and Malaysia. The system has an additional layer of protection to ensure that transactions and payment data are encrypted and secured. 

Below are the simple steps for paying the PHIC contribution through Gcash, Maya, or a debit or credit card: 

First, log in to the EPRS portal.

Next, prepare the remittance list of employees. Make sure to post the correct basic pay to report the correct contribution based on what has been reported in the payroll register.

After preparing the remittance list, you can now proceed with posting for payment by selecting the online payment option using MyEG. 

You will only be able to pay for premium contributions using a GCash or Maya wallet via the PhilHealth website. Premium payments are acknowledged in real-time and will be immediately posted to your account. 

A convenience fee is added based on your selected payment channel. Mastercard, Visa, JCB, and credit or debit cards that are issued in the Philippines can be used to pay for PhilHealth premium contributions. 

This online payment facility will serve employers more conveniently by allowing them to pay the PhilHealth contributions on time and in real-time. This will help employers avoid delays in settling the remittances and bearing the cost of any fines and interest. PhilHealth also aims to utilize these online payment facilities to avoid cash payments in the branch, lessen transactions in the payment section, and accommodate other transactions for more productive services to their clients. 

Every payday, employees are elated to receive their monthly compensation. Once employees check their payslips, some wonder if their deductions are correctly calculated and properly deducted from their salary. To help employees and companies be informed of the associated rules and regulations, non-taxable compensation in the Philippines is briefly discussed in this article.

As a general rule, all forms of compensation are taxable, except for those specifically provided under the laws, rules, and regulations in the Philippines. The following are the non-taxable compensations:

• MINIMUM WAGE EARNERS

No withholding tax shall be required for those employees who are identified as minimum wage earners in the private or public sectors as defined in RR 2-98, as amended by RR 11-2018. There’s no effect on the net taxable compensation unless it exceeds the PHP 90, 000 annual limit of the 13th-month pay and other benefits and unless the annual net taxable income exceeds PHP 250, 000.00 during the year. Statutory minimum wages that are non-taxable are the following:

1. Basic Minimum Wage
2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay

• 13th MONTH PAY AND OTHER BENEFITS (MAXIMUM OF P90,000)

13th-month pay is required by law to provide additional compensation to low-income earners to protect the level of real wages from the ravages of global inflation. This is to show concern for the masses so that they can properly celebrate Christmas and the New Year. Employers are required to pay their rank-and-file employees their 13th month’s pay, regardless of the nature of their employment and irrespective of the methods by which their wages are paid. An employee at the management level is not entitled to the 13th month’s pay unless it is provided and granted by the company. The employee should work for at least one month during a calendar year to be entitled to a 13th-month pay benefit, and the computation will be further discussed in another article.

13th-month pay and other benefits will be treated as non-taxable as long as they do not exceed the PHP 90,000 annual limit. Other benefits may include those that are not expressly stated in the non-taxable deduction in BIR Form 2316. Examples of other benefits include communication allowance, transportation allowance, birthday bonus, performance incentive, loyalty award, referral incentive, and other related employee benefits.

• DE MINIMIS BENEFITS NOT SUBJECT TO WITHHOLDING TAX

De minimis benefits are facilities and privileges of relatively small value. This is not subject to income tax as well as withholding tax on the compensation income of both managerial and rank-and-file employees. De minimis benefits up to the maximum amount do not require an official receipt or sales invoice unless expressly stated in the regulation. The enumeration of the tax-exempt de minimis benefits under Train RA 10963 will be discussed in another article.

• SSS, GSIS, PHIC, and PAG-IBIG CONTRIBUTIONS AND UNION DUES (EMPLOYEE SHARE ONLY)

One of the exclusions from gross compensation and exemption from taxation is the mandatory employee share of the SSS, GSIS, PHIC, and Pag-IBIG contributions. Non-taxable compensation is up to the prescribed maximum amount of contributions; contributions in excess of those declared to government agencies will be treated as taxable compensation. SSS provides benefits and social security in the event of unemployment, maternity, sickness, disability, retirement, funeral, and death benefits. PHIC, otherwise known as PhilHealth, provides health insurance coverage and ensures affordable, acceptable, available, and accessible healthcare services for its members. HDMF, popularly known as Pag-IBIG, offers its members a savings program, short-term loans, and access to housing programs.

• SALARIES AND OTHER FORMS OF COMPENSATION

These are other non-taxable salaries and compensation that do not fit the definition of de minimis benefits and non-taxable other benefits. Some are still questioning whether dependents are still personal and whether additional exemptions for employees are deductible in compensation. Under the TRAIN Law, the PHP25,000 exemption per dependent up to 4 dependents, or a maximum of PHP100,000 per taxpayer, was removed. However, the threshold amount for personal tax exemption was raised to PHP250,000 of annual income from PHP50,000 under the previous regulation.

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