Understanding how to compute employee payroll correctly is essential for every employer in the Philippines. In 2025, with updated contribution rates and digital tools available, payroll computation has become simpler — but accuracy and compliance are still key.
This guide will help you calculate salaries, deductions, and benefits efficiently while following the latest government regulations.
📋 What Is Payroll Computation?
Payroll computation is the process of calculating an employee’s total earnings and mandatory deductions for a specific pay period. It ensures every worker receives their correct net pay, including overtime, leave, and government contributions.
🧮 Payroll Formula
Here’s the basic payroll computation formula used by most employers in the Philippines:
Net Pay = Basic Salary + Allowances + Overtime – Deductions (SSS, PhilHealth, Pag-IBIG, Withholding Tax, Late/Absences)
📅 Payroll Components Explained
- Basic Salary – The employee’s fixed pay based on monthly or daily rates.
- Overtime Pay – Extra pay for work rendered beyond 8 hours or on rest days/holidays.
- Allowances – Non-taxable benefits like transportation, meal, or communication allowance (within limits).
- Government Contributions – Mandatory deductions for SSS, PhilHealth, and Pag-IBIG.
- Withholding Tax – Based on the BIR income tax table (as updated for 2025).
- Other Deductions – Includes late or absent penalties, cash advances, or company loans.
💰 Step-by-Step Payroll Computation (Example)
Scenario:
- Basic Monthly Salary: ₱25,000
- Overtime Pay: ₱1,500
- SSS Contribution: ₱1,125
- PhilHealth Contribution: ₱450
- Pag-IBIG Contribution: ₱100
- Tax Withheld: ₱1,200
Computation:
Total Pay = ₱25,000 + ₱1,500 = ₱26,500
Total Deductions = ₱1,125 + ₱450 + ₱100 + ₱1,200 = ₱2,875
Net Pay = ₱26,500 – ₱2,875 = ₱23,625
🧠 Payroll Computation Tips for 2025
- ✅ Use updated SSS, PhilHealth, and Pag-IBIG rates. Check for new government circulars every January.
- ✅ Automate your payroll system. Try free calculators or HR software to avoid errors.
- ✅ Keep accurate attendance and leave records. This ensures fair computation of pay and deductions.
- ✅ Always issue payslips. Employees must receive a breakdown of their gross and net pay.
📥 Free Payroll Computation Tool
You can simplify this process using our free Payroll Calculator Philippines 2025.
It automatically computes net pay, deductions, and take-home salary — perfect for small businesses and HR teams.
📑 Common Payroll Mistakes to Avoid
- ❌ Forgetting to update contribution tables annually
- ❌ Miscomputing prorated salaries for new hires or resignations
- ❌ Not including overtime or holiday pay
- ❌ Incorrect tax bracket application
🏁 Key Takeaway
Payroll computation is not just about numbers — it’s about compliance, transparency, and trust. With the right tools and knowledge, you can ensure your employees are paid correctly and your business stays compliant with DOLE and BIR rules.
👉 Try our Salary and Payroll Calculator today and make payroll processing effortless in 2025.