What it really costs to hire your first employee

You found someone good. You agreed on ₱18,000 a month. In your head, that hire costs ₱18,000 a month.

It does not. The wage is the first line of the cost, not the whole cost. On top of it sit your employer share of SSS, your employer share of PhilHealth, your employer share of Pag-IBIG, and a 13th month pay that lands every December whether business is good or not. Budget only the wage and you get hit twice: once every month, quietly, and once in December, loudly.

Here is the full stack, with the rule and the agency behind each part.

SSS: 15% of the salary credit, and two thirds of that is yours

SSS coverage is compulsory for all employees not over 60 years old and for their employers. There is no exemption for small businesses (RA 11199, Sec. 9 (opens in a new tab)). One helper in a sari-sari store counts.

The contribution rate is 15% of the Monthly Salary Credit. The employer pays 10% and the employee pays 5%. The minimum salary credit is ₱5,000 and the maximum is ₱35,000. This took effect in January 2025 and is written into the law itself, not just a circular (RA 11199, Sec. 4(a)(9)), and repeated in SSS Circular No. 2024-006 (opens in a new tab).

The Social Security Commission can adjust contributions, so treat this as the current rate, not a permanent one. Check the SSS circulars page before each year's budget.

The small extra line that is easy to miss

The SSS table has a separate Employees' Compensation contribution that only the employer pays. It is ₱10 a month where the salary credit is below ₱15,000, and ₱30 a month where the salary credit is ₱15,000 or more. There is no employee column for it. It is small, but it is yours alone.

You cannot take your share out of their pay

This is the part that gets argued with. The law says plainly that no contract, whatever it says, lets an employer deduct or recover its own SSS share from the worker's pay (RA 11199, Sec. 19). Pag-IBIG's law says almost the same words (RA 9679, Sec. 7).

So the employer share is a real cost. It is not an accounting shuffle you can push down the line.

Deadlines and what late costs

Contributions are due in the month after the month they cover. SSS sets the exact deadline, and it sets it by circular. The law gives the Social Security Commission that power (RA 11199, Sec. 22). Your own due date can depend on your employer number, so do not copy someone else's. Check it in your My.SSS account or ask your SSS branch before your first remittance.

Being late is expensive on its own. A delinquent employer pays a penalty of 2% per month on the unpaid amount, from the date it falls due until it is paid (RA 11199, Sec. 22).

You must also report a new employee to SSS immediately. If an unreported employee dies, gets sick or becomes disabled, the employer pays SSS damages equal to the benefits that employee would have received, unless the contingency happens within 30 days of the date of employment (RA 11199, Sec. 24). That is the most expensive paperwork you will ever skip.

PhilHealth: 5% of basic salary, split down the middle

The PhilHealth premium is 5% of monthly basic salary, with an income floor of ₱10,000 and an income ceiling of ₱100,000 (PhilHealth Circular No. 2020-0005 Rev. 1 (opens in a new tab)). For employed members the premium is shared equally, so the employer pays 2.5% and the employee pays 2.5%. PhilHealth confirmed the 5% rate again in an advisory signed 21 July 2026 (opens in a new tab).

Two details that are easy to get wrong:

• Compute on basic salary, not gross pay. PhilHealth defines monthly basic salary as the fixed basic rate only. It excludes sales commission, overtime pay, allowances, 13th month pay, bonuses and other gratuity payments.
• The floor applies even to low wages. If the basic salary is below ₱10,000, the premium is still computed on ₱10,000. That is ₱500 total, ₱250 of it yours.

Pag-IBIG: mandatory, but confirm the amount yourself

Pag-IBIG coverage is mandatory for all employees covered by SSS and for their employers, and a waiver does not remove the obligation (RA 9679, Sec. 6 (opens in a new tab)). Late payments carry a penalty of 3% per month.

The statute sets the employer contribution at 2% of the covered employee's monthly compensation. But the same section caps the monthly compensation used in that computation at ₱5,000, then adds that the Board of Trustees may reset that maximum from time to time. So whether the cap still sits at ₱5,000 is for Pag-IBIG's Board to say, not for the statute. I could not verify the current figure from Pag-IBIG itself, so I am not going to quote you one.

Do this instead: call a Pag-IBIG branch or their hotline and ask for the current employer contribution and the current maximum fund salary before you finalise your budget. Leave a line for it in your costing and fill in the number they give you.

13th month pay: the December line you must save for

Presidential Decree No. 851 requires 13th month pay. The original 1975 text only covered employees earning up to ₱1,000 a month. That ceiling is gone. The Supreme Court states the rule directly: all employers must pay all their rank-and-file employees a 13th month pay not later than December 24 of every year (Dynamiq Multi-Resources v. Genon, G.R. No. 239349, 2021 (opens in a new tab)).

Rank-and-file employees are entitled regardless of position, designation or employment status, and regardless of how wages are paid, as long as they worked at least one month during the calendar year. So a helper you hired in October still earns a partial 13th month that December.

The amount is not less than 1/12 of the total basic salary earned within the calendar year. "Basic salary" means pay for services rendered. It does not include allowances and benefits that are not integrated into the regular salary, such as the cash value of unused leave, overtime, premium pay, night differential, holiday pay and cost-of-living allowance. Those items do count if your own company practice, policy or agreement treats them as part of basic salary (Letran Calamba v. NLRC, G.R. No. 156225 (opens in a new tab)).

A narrow set of employers is exempt under the implementing guidelines. If you believe you fall inside one, confirm it with your DOLE Regional Office before deciding. Do not assume.

The January 15 report that is easy to forget

Every covered employer must file a report of 13th month pay compliance with the nearest DOLE Regional Office not later than January 15 each year. DOLE Department Advisory No. 4, s. 2008 (opens in a new tab) lists the eight items it must contain: name of establishment, address, principal product or business, total employment, total number of workers benefitted, amount granted per employee, total amount of benefits granted, and the name, position and telephone number of the person giving the information.

It is free to file and takes one page. Put it in your January calendar now.

A worked example — illustrative only

Say Aling Nena runs a carinderia and hires one kitchen helper at a basic wage of ₱18,000 a month. These are invented figures used only to show the arithmetic. They are not anyone's actual result.

| Item | Nena's monthly cost | |---|---| | Basic wage | ₱18,000.00 | | SSS employer share (10% of ₱18,000 MSC) | ₱1,800.00 | | SSS Employees' Compensation (employer only) | ₱30.00 | | PhilHealth employer share (2.5% of ₱18,000) | ₱450.00 | | Pag-IBIG employer share | confirm with Pag-IBIG | | 13th month set aside (₱18,000 ÷ 12) | ₱1,500.00 | | Total on top of the wage | ₱3,780.00 |

₱3,780 is about 21% of the ₱18,000 wage, and that is before Pag-IBIG. The helper's own ₱900 SSS and ₱450 PhilHealth come out of the helper's pay, not Nena's pocket, so they are not in this column.

The working rule: budget roughly a fifth again on top of the wage, plus Pag-IBIG. Then confirm your own numbers against the current SSS table and the current PhilHealth rate.

The floors bite hardest on the smallest wages

It is easy to assume a part-time or low-wage hire scales down proportionally. It does not.

If an employee earns less than the minimum salary credit, you and the employee still pay SSS based on the ₱5,000 minimum, not on the lower actual wage (RA 11199, Sec. 4(a)(9)). PhilHealth works the same way with its ₱10,000 income floor.

Say Nena instead pays a part-time dishwasher ₱5,000 a month. Her employer cost is ₱500 SSS plus ₱10 EC, ₱250 PhilHealth on the floor, and ₱416.67 a month set aside for 13th month. That is ₱1,176.67, or about 23.5% on top of the wage — a higher percentage than the ₱18,000 hire. Again, Pag-IBIG is on top.

Know this before you split one job into two small ones to save money. It costs more per peso of wage, not less.

Minimum wage is set by your region, not by Manila

There is no single national minimum wage. RA 6727 created the National Wages and Productivity Commission and a Regional Tripartite Wages and Productivity Board in every region, and those regional boards set minimum wage rates by region, province and industry (NWPC (opens in a new tab)).

In NCR, Wage Order No. NCR-27 (effective 25 July 2026) sets ₱755.00 a day for non-agriculture and ₱718.00 a day for service and retail establishments employing 15 workers or less and manufacturing regularly employing fewer than 10 workers. A second tranche on 20 January 2027 raises these to ₱780.00 and ₱743.00. If you employ 15 workers or fewer in a retail or service business, that smaller tier is the one to check against — confirm your own classification with your regional wage board.

If you are outside NCR, those figures do not apply to you. Every region has its own wage order with its own rates and dates. Find your board's page at nwpc.dole.gov.ph and read your own region's order.

Employee or contractor: the label is not the decision

You may be tempted to avoid the whole stack by writing "independent contractor" on a piece of paper. The Supreme Court has already answered that.

In Ditiangkin v. Lazada E-Services Philippines (opens in a new tab) (G.R. No. 246892, 2022), riders had signed contracts expressly saying no employer-employee relationship existed. The Court held the label irrelevant, found them regular employees, and ordered reinstatement plus full backwages, overtime pay, 13th month pay and the return of their cash bond. Labour law is read into every employment contract, and parties cannot contract out of it.

The test the Court applies is the four-fold test: who selected and engaged the worker, who pays the wages, who can dismiss, and who controls the work. Control is the deciding factor. It covers the means and methods of the work, not just the result, and it does not even have to be used — it is enough that you have the right to use it.

If you set the hours, the method, the uniform, the counter, and can send them home, you have an employee. Calling them a contractor does not change that. And note the cost of getting it wrong: it is not the contributions you skipped. It is back pay, benefits and reinstatement, decided years later.

Even a genuine contractor does not fully insulate you. A business that engages an independent contractor is subsidiarily liable with that contractor for civil liability under the SSS law, and must require the contractor to post a surety bond guaranteeing payment of the worker's benefits (RA 11199, Sec. 24).

I am not going to tell you how to structure an arrangement to sit outside employee status, and you should be wary of anyone who does. If you are unsure which side of the line your arrangement falls on, ask your DOLE Regional Office.

Two tax notes, then go and check

13th month pay and other benefits are excluded from taxable compensation up to a total of ₱90,000 a year. Anything above that is subject to withholding tax. The employee's own mandatory SSS, PhilHealth and Pag-IBIG contributions are also excluded from taxable compensation (BIR Revenue Regulations No. 11-2018 (opens in a new tab)).

Registering as a withholding agent and filing the right BIR forms for a first hire is a separate process. Ask your BIR Revenue District Office what applies to you before your first payroll run, not after.

Hiring a kasambahay is also a different set of rules. Under RA 10361 (opens in a new tab), a domestic worker with at least one month of service must be covered by SSS, PhilHealth and Pag-IBIG, and the employer shoulders the whole premium unless the kasambahay earns ₱5,000 a month or more, in which case the kasambahay pays a proportionate share. NCR's minimum wage for domestic workers is ₱7,800 a month under Wage Order No. NCR-DW-06, effective 7 February 2026. If you are hiring household help rather than staff for a business, ask DOLE which of the rules above apply to you.

Your next step, this week: open a sheet with six lines — wage, SSS employer share, SSS EC, PhilHealth employer share, Pag-IBIG employer share, 13th month set aside. Fill in lines two to four from the current SSS table and 2.5% of basic salary. Call Pag-IBIG for the fifth. Divide the monthly wage by twelve for the sixth. Then look at the bottom number and decide whether you can carry it every month for a year, including the slow months. That is the number that tells you whether you can afford this hire — not the wage you agreed on.