Summary
- Correct payroll computation protects your business from DOLE complaints and costly back pay.
- 13th Month Pay, Overtime, Holiday Pay, and Night Differential follow strict DOLE formulas.
- SSS, PhilHealth, and Pag-IBIG contributions follow updated rates.
Whether you run a carinderia, a sari-sari store, a small retail shop, or a growing startup, understanding employee benefits is essential. Payroll mistakes — even small ones — can lead to DOLE complaints, penalties, and unhappy employees. This guide breaks down the formulas in simple, practical terms.
Understanding 13th month pay
The 13th Month Pay is a mandatory benefit for all rank-and-file employees who have worked at least one month during the year. It is not a bonus — it is required by law.
The formula
13th Month Pay = Total Basic Salary Earned Within the Year ÷ 12What to include
- Basic salary
- Paid leaves (SL/VL)
- Maternity leave (counted as earned salary)
What to exclude
- Overtime pay
- Night differential
- Holiday pay
- Allowances (unless part of basic salary)
Deadline: Must be paid on or before December 24.
Example: If an employee earned ₱180,000 in basic salary:
₱180,000 ÷ 12 = ₱15,000Computing overtime pay
Overtime (OT) is work performed beyond 8 hours in a day. The rate depends on the type of day.
Regular workday overtime (125%)
OT Pay = Hourly Rate × 1.25 × OT HoursRest day or special non-working holiday overtime (169%)
OT Pay = Hourly Rate × 1.30 × 1.30 × OT HoursExample: ₱75/hour × 1.25 × 2 hours = ₱187.50
Computing holiday pay
The Philippines recognizes two types of holidays:
- Regular Holidays
- Special Non-Working Holidays
| Holiday Type | If Unworked | If Worked (First 8 Hours) |
|---|---|---|
| Regular Holiday | 100% (Paid even if absent) | 200% (“Double Pay”) |
| Special Non-Working Holiday | 0% (“No work, no pay”) | 130% (Basic + 30% premium) |
Regular holiday formula (worked)
Holiday Pay = Daily Rate × 2.0Special holiday formula (worked)
Holiday Pay = Daily Rate × 1.3Example: ₱600/day × 2 = ₱1,200
Understanding night shift differential (NSD)
Employees working between 10:00 PM and 6:00 AM must receive an additional 10% premium.
NSD Pay = Hourly Rate × 1.10 × Hours Worked (10PM–6AM)Important: If the employee is doing OT during these hours, compute NSD based on the OT rate.
2026 statutory contributions
Employers must remit monthly contributions to SSS, PhilHealth, and Pag-IBIG.
SSS (2026)
Total contribution: 14% of MSC
- Employer: 9.5%
- Employee: 4.5%
PhilHealth (2026)
Premium rate: 5% of monthly basic salary
- Employer: 2.5%
- Employee: 2.5%
Pag-IBIG
Contribution rate: 2% of salary (capped at ₱5,000)
- Employer: ₱100
- Employee: ₱100
Summary table: payroll multipliers
| Scenario | Rate Multiplier |
|---|---|
| Ordinary Day Overtime | 1.25 |
| Rest Day / Special Holiday | 1.30 |
| Rest Day + Overtime | 1.69 |
| Regular Holiday | 2.00 |
| Regular Holiday + Overtime | 2.60 |
Conclusion and action plan
Accurate payroll computation is essential for protecting your business and keeping your employees motivated. When workers feel they are paid correctly and fairly, they stay longer, perform better, and help your business grow sustainably.
Action steps:
- Review your payroll formulas and update them to DOLE’s 2026 standards.
- Audit your 13th Month Pay computation to ensure only basic salary is included.
- Verify your SSS, PhilHealth, and Pag-IBIG remittances match the updated rates.
- Train your payroll assistant or cashier on OT, NSD, and holiday pay rules.
With the right formulas and consistent compliance, payroll becomes a strength — not a liability — for your business.
FAQ: How to Compute Employee Benefits in the Philippines
1. What benefits are mandatory for employees in the Philippines?
Mandatory benefits include 13th month pay, overtime pay, holiday pay, night shift differential, service incentive leave, SSS, PhilHealth, and Pag-IBIG contributions. These apply to most rank-and-file employees.
2. How do you compute 13th month pay?
The formula is: Total basic salary earned during the year ÷ 12. Only basic pay is included; allowances and overtime are excluded unless they form part of the basic salary.
3. How is overtime pay computed?
Overtime pay is 125% of the hourly rate for work beyond 8 hours. For overtime on a rest day or holiday, higher multipliers apply based on labor regulations.
4. How do you compute holiday pay?
For regular holidays, employees receive 100% of their daily wage even if they do not work. If they work on a regular holiday, they receive 200% of their daily wage.
5. How is night shift differential computed?
Night differential is 10% of the hourly rate for work performed between 10:00 PM and 6:00 AM. This is added on top of regular or overtime pay.
6. What is the formula for computing the daily rate from monthly salary?
The common formula is: Monthly salary ÷ 26 for monthly-paid employees. Some companies use 22 or 30 depending on their payroll policy, but 26 is widely accepted for compliance.
7. How do you compute Service Incentive Leave (SIL) pay?
SIL is computed based on the employee’s daily rate. Unused SIL at the end of the year must be converted to cash using the formula: Daily rate × unused leave days.
8. Are allowances included in benefit computations?
Allowances are generally excluded unless they are considered part of the basic salary. Non-taxable allowances do not affect computations for 13th month pay, overtime, or holiday pay.