Why a ₱20,000 Salary Can Actually Cost Your Business More Than ₱24,000 a Month
Hiring your first employee is an exciting milestone.
It means your business is growing. You're finally getting help, and you no longer have to do everything yourself.
You agree on a monthly salary of ₱20,000. Everything seems straightforward. Until payroll day arrives.
Suddenly, there are SSS, PhilHealth, Pag-IBIG, and other employment obligations to consider.
And that's when many first-time employers realize:
The salary you offer isn’t the total cost of hiring someone. Let’s Break Down a ₱20,000 Monthly Salary
In the Philippines, employers are generally required to contribute to their employees' SSS, PhilHealth, and Pag-IBIG accounts.
Part of the contribution comes from the employee's salary, while the employer pays a separate share.
Here's an example based on applicable 2026 contribution rates:
Government Contribution Employee Share Employer Share
SSS ₱1,000 ₱2,000 Employees’ Compensation — ₱30
PhilHealth Pag-IBIG Total
₱500 ₱500 ₱200 ₱200 ₱1,700 ₱2,730
For a ₱20,000 monthly salary, the employee’s take-home pay would be approximately ₱18,300 after mandatory contributions, assuming no withholding tax or other deductions.
But as the employer, your monthly cost is already ₱22,730.
And we're not finished yet.
Don’t Forget the 13th-Month Pay
Under Philippine labor rules, covered rank-and-file employees are entitled to 13th-month pay.
It's generally calculated as one-twelfth of the total basic salary earned during the calendar year.
For an employee earning ₱20,000 monthly throughout the entire year, that means another ₱20,000 in 13th-month pay.
That’s approximately ₱1,667 you should be setting aside every month.
Because while the payment is usually associated with December, the obligation
builds up throughout the year.
Good payroll management means preparing for expenses before they become due. So, How Much Does Your First Employee Really Cost?
Monthly Cost Amount
Basic Salary ₱20,000.00 Employer Government Contributions ₱2,730.00 13th-Month Pay Provision ₱1,666.67 Estimated Total Monthly Cost ₱24,396.67
That’s almost ₱4,400 more than the salary you originally agreed on. Or approximately 22% in additional employment costs.
And remember, this estimate doesn't yet include other applicable costs such as overtime, certain holiday premiums, leave-related costs, training, equipment, and other employee benefits.
What About Withholding Tax?
Not every employee will have income tax deducted from their salary.
For example, an employee earning only ₱20,000 monthly basic salary throughout the year, without additional taxable compensation, would generally have no compensation withholding tax under the applicable tax table.
But this doesn't mean you can ignore payroll tax compliance.
Employers must still maintain proper payroll records and comply with applicable BIR registration, reporting, and filing requirements.
And when an employee's taxable compensation increases, the withholding tax computation may change.
Five Things to Do Before Hiring
1. Budget for the Full Employment Cost
Don't base your hiring decision on salary alone. Consider government contributions, mandatory benefits, and the actual resources needed for the position.
2. Complete Your Employer Registrations
Make sure your business is properly registered with SSS, PhilHealth, and Pag- IBIG and that your employees are appropriately reported for coverage.
3. Set Aside Money for the 13th-Month Pay
Treat it as a regular payroll obligation, not an unexpected December expense.
4. Keep Accurate Payroll Records
Maintain payslips, attendance records, contribution schedules, and proof of remittances.
5. Classify Your Workers Correctly
Calling someone a freelancer or independent contractor doesn't automatically remove your obligations as an employer.
The actual working relationship matters more than the title written in the contract.
Hiring Should Help Your Business Grow, Not Create Financial Surprises
Your first employee should be an investment in your business's growth.
But like any investment, it requires proper planning.
Before making that job offer, ask yourself:
“Can my business afford the full cost of this position not just the monthly salary?”
Because hiring isn't just about finding someone who can do the job.
It's also about making sure your business can sustainably support that position.
Planning to Hire? Let ML CPA Help.
At ML CPA Tax and Accounting Services, we help growing businesses manage payroll, government contributions, HR compliance, and related financial responsibilities.
From employer registration to payroll processing and statutory remittances, we help business owners develop practical systems that support their growing teams.
Build your team with confidence. We’ll help you take care of the numbers behind it.
ML CPA Tax and Accounting Services
We Care Beyond the Numbers.
Disclaimer: Figures are illustrative and based on applicable contribution rates reviewed as of November 2026. Actual payroll costs and employee entitlements may vary depending on compensation, employment arrangements, applicable exemptions, and other circumstances.
References:
- ▪ SSS — Contribution Rates and Schedules
- ▪ PhilHealth — Employer Requirements
- ▪ Pag-IBIG Fund — Mandatory Savings Updates
- ▪ DOLE — Workers’ Statutory Monetary Benefits