Southeast Asia has become a source of growth in recent years, and one of the strongest emerging economies in the region is the Philippines. The nation possesses one of the highest English-literate workforces in the world, and despite being in the heart of Southeast Asia, the country is heavily influenced by Spain and the United States, making it a truly unique destination to expand business operations. The organizations that look to grow their business in the Philippines will find a work environment comprised of traditional Asian values and heavily influenced by western business practices.

While the Philippines offers a unique place to find qualified talent and conduct business, one thing it has in common with other countries in the APAC region is a complicated set of rules regarding payroll. To administer payroll correctly, one must have a deep knowledge of the country’s taxation and contribution regulations, and the various deductions and withholdings for which they are responsible. To help make sense of these policies, consider the following areas of most importance for conducting payroll operations in the Philippines:

Creditable and Final Withholding Tax

Employers must withhold taxes from their employers according to two different tax schemes. The first one, the Creditable Withholding Tax is the normal withholding tax scheme and is used mainly for individuals whose main source of income is their work compensation. On the other hand, the Final Withholding Tax is applicable to managers or supervisors of regional headquarters based in the Philippines and includes additional forms of income, such as fringe benefits and other special cases.

Both types of taxes are withheld during payroll disbursement and are remitted monthly to the Philippines’ Bureau of Internal Revenue (BIR). Employers are required to complete payment and filing 10 to 15 days after the end of the tax month, determined by the BIR’s withholding tax schedule.

Social Security System

The Philippines’ Social Security System (SSS) is designed to provide protection against the hazards of disability, sickness, maternity and old age. It is the responsibility of the employer to deduct SSS contributions from the employee’s salary and remit it monthly. Both the employee and employer are required to make contributions based on the employee’s salary, and employees can make voluntary contributions of an additional amount on top of the mandatory contribution.

Both mandatory and voluntary contributions are deductible from the employee’s salary and can be remitted by the employer through monthly remittance. All payment and filing activity needs to be completed at least 10 days after the end of the filing month until the last day of the month, depending on the final digit of the SSS registration number of the employer.

Pag-IBIG Fund

Since established by presidential decree in 1978, the Pag-IBIG Fund, or Home Development Mutual Fund (HDMF), has provided a national savings program and affordable shelter financing for Filipino workers. The fund provides savings, short term loans and access to housing programs for all members. Similar to SSS, contributions for HDMF are also mandatory, and employees can voluntarily contribute more if they choose. Payments and filing must be done 10 days after the end of the filing month up to the last day of the month, depending on the first letter of the employer’s business name.

PhilHealth

PhilHealth, a government-owned and operated corporation of the Philippines, was created to provide adequate access for every Filipino citizen to quality health care services. As with the above statutory requirements, employers must deduct mandatory contributions from their employees’ compensation. These deductions, which are calculated based on each employee’s monthly salary, must be paid to PhilHealth by the 15th of the month.

The Philippines and the other rapidly growing markets throughout the APAC region hold much promise for companies looking to grow and establish operations beyond their own borders. Integral to the success of these initiatives, though, is the ability to compensate employees in the new country accurately and in compliance with all regional and national regulations.

While this can be a huge challenge for companies that are unfamiliar with the complex payroll and taxation laws of the APAC countries, those who work with CloudPay can be confident that their payroll operations are in good hands. CloudPay’s team of experts keeps up with the numerous – and often changing – regulations in each country in the APAC region, working as a true partner to see that all employees are compensated appropriately, accurately and on time.