Open any Philippine payslip and you'll see two numbers that rarely match: the gross salary promised in the job offer, and the smaller amount that actually lands in the bank account on payday. Between those two figures sits a chain of mandatory deductions — SSS, PhilHealth, Pag-IBIG, and withholding tax — each computed under its own rules, at its own rate, on its own slice of your pay. Most employees know these names but couldn't explain how the peso amounts are actually derived, which makes it hard to check whether a payslip is correct or to plan a household budget with confidence. This guide walks through the full gross-to-net journey step by step, in the order payroll systems actually apply it, and finishes with one complete worked example at a realistic mid-level salary so every computation can be traced from the first peso of gross pay to the final net amount deposited on payday.
The Big Picture: What "Gross to Net" Actually Means
Gross pay is the full compensation your employer has agreed to pay you for a given period — typically your monthly basic salary, before anything is subtracted. Net pay, sometimes called "take-home pay," is what's left after all mandatory government contributions and taxes have been deducted. In the Philippines, four deductions make up this journey for the overwhelming majority of rank-and-file employees: contributions to the Social Security System (SSS), PhilHealth, the Home Development Mutual Fund (Pag-IBIG or HDMF), and withholding tax computed under the Bureau of Internal Revenue's (BIR) TRAIN Law schedule. Some employees may also see deductions for salary loans, tardiness, or company-specific benefits, but those are optional or situational — the four government-mandated deductions are universal for anyone earning a regular salary under an employer-employee relationship.
The order in which these deductions are applied matters, because each one is computed on a slightly different base. SSS, PhilHealth, and Pag-IBIG are all computed on gross monthly compensation directly. Withholding tax, however, is computed on taxable income — which means gross pay minus the SSS, PhilHealth, and Pag-IBIG contributions already deducted, since these three are non-taxable government contributions that reduce your taxable base. In other words,the government contributions come out first, and withholding tax is calculated on what remains. Understanding this sequence is the key to reproducing any payslip's math by hand.
Step 1: SSS Contribution
The first deduction applied is the SSS contribution, which funds retirement pensions, disability benefits, sickness allowances, maternity benefits, and salary loan privileges. For 2026, SSS collects a total contribution rate of 15% of an employee's Monthly Salary Credit (MSC) — a standardized bracket value assigned based on actual gross compensation, not a flat 15% of the exact salary figure. Of that 15%, the employee shoulders 5% and the employer shoulders the remaining 10%. The MSC schedule runs from a floor of ₱5,000 up to a ceiling of ₱35,000, moving through defined brackets as gross pay rises.
There's an added layer for higher earners. Once an employee's MSC crosses ₱20,000, an additional Mandatory Provident Fund (MPF) contribution applies to the portion of the MSC above ₱20,000. This MPF portion is still split in the same 5%/10% employee-employer ratio as the base SSS contribution, and it feeds a separate provident fund — branded by SSS as the "MySSS Pension Booster" — that supplements the member's retirement benefit. For payroll purposes, this means an employee with an MSC of ₱30,000 pays 5% on the first ₱20,000 as regular SSS (₱1,000), plus 5% on the remaining ₱10,000 as MPF (₱500) — the two are calculated separately but deducted together as one line item.
In practice, payroll systems don't apply 5% to a raw salary figure — they look up the correct MSC bracket for the gross pay first, then apply the rate to that bracket value. For most rank-and-file employees earning between ₱10,000 and ₱25,000 monthly, the employee-side SSS deduction typically falls somewhere between ₱500 and ₱1,250 per month.
Step 2: PhilHealth Premium
After SSS, the next mandatory deduction is the PhilHealth premium, which funds the national health insurance program covering hospitalization and select outpatient benefits. For 2026, the PhilHealth premium rate is 5% of monthly basic salary, split evenly between employer and employee — 2.5% each. Unlike SSS, PhilHealth does not use a bracket-based salary credit system; it applies the percentage directly to monthly basic salary, subject to a floor and ceiling.
The salary floor for PhilHealth computation is ₱10,000, meaning anyone earning at or below this amount is treated as if they earn exactly ₱10,000 for premium purposes, resulting in a flat ₱250 employee share. The ceiling is ₱100,000, meaning any salary above this amount is capped at ₱100,000 for computation, capping the employee share at ₱2,500 per month regardless of how much higher the actual salary is. For salaries between the floor and ceiling, the computation is straightforward: take monthly basic salary, multiply by 5%, then divide by two to get the employee's half.
Step 3: Pag-IBIG (HDMF) Contribution
The third deduction funds the Pag-IBIG Fund, formally the Home Development Mutual Fund, which provides members access to affordable housing loans, calamity loans, and a mandatory savings program. Pag-IBIG's contribution structure is the smallest of the four deductions in absolute peso terms, but it follows its own distinct rule set. The employee's contribution rate depends on their monthly compensation: employees earning ₱1,500 or below contribute 1% of their compensation, while employees earning above ₱1,500 contribute 2%. The employer, regardless of the employee's salary level, always contributes a flat 2%.
Crucially, Pag-IBIG applies a statutory cap on the compensation figure used for this computation: the maximum monthly compensation considered is ₱10,000, even if actual gross salary is far higher. This means the maximum possible employee-side Pag-IBIG deduction is 2% of ₱10,000, or ₱200 per month, no matter whether the employee earns ₱15,000 or ₱150,000. This flat cap is one reason Pag-IBIG deductions look identical across a wide range of payslips for mid-to-high income earners — everyone above the ₱10,000 threshold pays the same ₱200.
It's worth distinguishing this mandatory contribution from Pag-IBIG's MP2 (Modified Pag-IBIG II) program, which is a separate, entirely voluntary savings vehicle with no compensation cap. Employees can contribute any amount they choose to MP2 for a higher potential dividend, but this does not appear as a standard, mandatory payslip deduction the way the base 1%/2% contribution does, and is not part of the standard gross-to-net computation.
Step 4: Withholding Tax (BIR TRAIN Law)
With SSS, PhilHealth, and Pag-IBIG contributions subtracted from gross pay, what remains is the employee's taxable compensation for the period. This is the base on which withholding tax is computed, following the progressive tax brackets established under the TRAIN Law (Republic Act No. 10963). Employers are required to withhold income tax from every payroll run based on an annualized or projected estimate of the employee's taxable income for the year, applying the BIR's official tax brackets on a pro-rated basis per pay period, with any discrepancy corrected through a year-end adjustment (often reflected in a slightly different final December payslip or during year-end tax reconciliation).
The 2026 annual taxable income brackets under TRAIN Law are as follows:
| Annual Taxable Income | Tax Rate |
|---|---|
| ₱0 – ₱250,000 | 0% (no tax) |
| ₱250,001 – ₱400,000 | 15% of the excess over ₱250,000 |
| ₱400,001 – ₱800,000 | ₱22,500 + 20% of the excess over ₱400,000 |
| ₱800,001 – ₱2,000,000 | ₱102,500 + 25% of the excess over ₱800,000 |
| ₱2,000,001 – ₱8,000,000 | ₱402,500 + 30% of the excess over ₱2,000,000 |
| Over ₱8,000,000 | ₱2,202,500 + 35% of the excess over ₱8,000,000 |
Because this schedule is annual, employers convert it into a per-period equivalent (monthly, semi-monthly, weekly, or daily) so that tax can be withheld consistently from every payroll run rather than in one lump sum at year-end. This is why two employees with the same monthly salary but different pay frequencies will still end up owing the same total annual tax — the annualized bracket structure is designed to be frequency-neutral once the full year is accounted for.
A Full Worked Example: ₱35,000 Monthly Gross Salary
To see how all four deductions interact in sequence, consider a mid-level employee earning a gross monthly basic salary of ₱35,000 — a realistic salary for an experienced professional or junior manager in Metro Manila. Here is the complete step-by-step computation, in the exact order payroll applies it.
Step 1 — SSS Contribution
At a gross salary of ₱35,000, the employee's Monthly Salary Credit sits at the top of the SSS schedule, ₱35,000. The base SSS contribution (5% employee share) applies to the first ₱20,000 of MSC, and the MPF contribution (also 5% employee share) applies to the remaining ₱15,000 portion above ₱20,000.
- Base SSS employee share: 5% × ₱20,000 = ₱1,000.00
- MPF employee share: 5% × ₱15,000 = ₱750.00
- Total employee-side SSS deduction: ₱1,750.00
Step 2 — PhilHealth Premium
₱35,000 falls comfortably between the PhilHealth floor of ₱10,000 and ceiling of ₱100,000, so the premium is computed directly on actual salary.
- Total PhilHealth premium: 5% × ₱35,000 = ₱1,750.00
- Employee share (half): ₱875.00
Step 3 — Pag-IBIG Contribution
Since ₱35,000 exceeds the ₱1,500 threshold, the employee rate is 2% — but Pag-IBIG's statutory compensation cap of ₱10,000 applies, so the computation uses ₱10,000 rather than the full ₱35,000 salary.
- Employee share: 2% × ₱10,000 (capped) = ₱200.00
Step 4 — Compute Taxable Income
Taxable monthly compensation is gross salary minus the three non-taxable government contributions just computed:
- Gross monthly salary: ₱35,000.00
- Less SSS employee share: −₱1,750.00
- Less PhilHealth employee share: −₱875.00
- Less Pag-IBIG employee share: −₱200.00
- Taxable monthly compensation: ₱32,175.00
Step 5 — Withholding Tax
Annualizing this taxable monthly compensation gives ₱32,175.00 × 12 = ₱386,100.00 in projected annual taxable income. This falls within the ₱250,001–₱400,000 bracket, taxed at 15% of the excess over ₱250,000.
- Excess over ₱250,000: ₱386,100.00 − ₱250,000.00 = ₱136,100.00
- Annual tax due: 15% × ₱136,100.00 = ₱20,415.00
- Equivalent monthly withholding tax: ₱20,415.00 ÷ 12 = ₱1,701.25
Putting It All Together
| Item | Amount |
|---|---|
| Gross monthly salary | ₱35,000.00 |
| Less: SSS employee share | −₱1,750.00 |
| Less: PhilHealth employee share | −₱875.00 |
| Less: Pag-IBIG employee share | −₱200.00 |
| Less: Withholding tax | −₱1,701.25 |
| Net take-home pay | ₱30,473.75 |
From a gross salary of ₱35,000, this employee takes home ₱30,473.75 — a total deduction of ₱4,526.25, or roughly 12.9% of gross pay, spread across four separate line items. Note that the employer, meanwhile, shoulders additional contributions on top of this — 10% SSS employer share on the base MSC plus 10% on the MPF portion, 2.5% PhilHealth, and 2% Pag-IBIG — none of which touch the employee's payslip but represent a real cost of employment that HR and finance teams must budget for separately.
Where 13th Month Pay and Overtime Fit In
The computation above covers a standard month with no additional pay elements, but real payslips often include 13th month pay, overtime, or holiday premiums, each of which interacts with the gross-to-net chain differently. Mandatory under Presidential Decree 851 for rank-and-file employees who have worked at least one month during the calendar year, 13th month pay is computed as total basic salary earned during the year divided by 12. Importantly, 13th month pay is not subject to SSS, PhilHealth, or Pag-IBIG deductions, since those are based on regular monthly compensation, not year-end bonuses. For tax purposes, the first ₱90,000 of 13th month pay combined with other bonuses received during the year is tax-exempt; only the amount exceeding ₱90,000 is added to taxable income and subjected to withholding tax. Employers must release 13th month pay on or before December 24 each year.
Overtime and premium pay, by contrast, are treated as part of regular taxable compensation for the period in which they're earned, and they do factor into that period's SSS, PhilHealth, and Pag-IBIG computations since they increase gross pay for the month. Under the Labor Code, regular overtime is paid at 125% of the hourly rate; work on a rest day is paid at 130% of the daily rate, with overtime on a rest day at 169% of the hourly rate; a special (non-working) holiday is paid at 130% of the daily rate, rising to 150% if it coincides with a rest day; and a regular holiday, if worked, is paid at 200% of the daily rate, or 260% if it coincides with a rest day. Night shift differential adds a further 10% of the hourly rate for hours worked between 10:00 PM and 6:00 AM. Any of these premiums simply increase the gross figure that flows into Step 1 of the computation above — the deduction mechanics themselves don't change, only the base amount they're calculated on.
Minimum wage earners deserve a special note here too: minimum wage in the Philippines is not a single national figure but is set per region by the Regional Tripartite Wages and Productivity Boards (RTWPBs), ranging roughly from ₱436 to ₱755 per day across regions as of 2026, with the National Capital Region ordered to the top of that range following a ₱60/day wage order (NCR-27) increase that was set to take effect in July 2026. That NCR increase is currently tied up in litigation, though: a Pasig City regional trial court issued a temporary restraining order in late July 2026 blocking the Metro Manila wage board from implementing NCR-27, and as of early August 2026 that TRO remains in force with no ruling yet on whether it will be lifted or made permanent — in the interim, employers in the region have reportedly reverted to the pre-hike rate of ₱695 per day for non-agriculture workers pending the court's decision, so payroll teams in NCR should confirm the currently enforced rate rather than assume the ₱755 figure automatically applies. Employees earning strictly at the applicable regional minimum wage remain fully covered by SSS, PhilHealth, and Pag-IBIG at the appropriate bracket or floor, but are generally exempt from withholding tax altogether, since minimum wage earners are classified as tax-exempt under the TRAIN Law regardless of the computed bracket.
Frequently Asked Questions
Why is withholding tax calculated after SSS, PhilHealth, and Pag-IBIG, and not on the full gross salary?
Because SSS, PhilHealth, and Pag-IBIG contributions are considered mandatory, non-taxable deductions under Philippine tax law. The BIR only taxes the portion of compensation left over after these three contributions are subtracted, which is why every gross-to-net computation must apply SSS, PhilHealth, and Pag-IBIG first before arriving at the taxable income figure used for withholding tax.
Will my net pay change every month even if my gross salary stays the same?
For most employees with a stable monthly salary and no MSC bracket changes, net pay should stay consistent month to month, since SSS, PhilHealth, Pag-IBIG, and the withholding tax bracket are all computed from the same gross figure each period. Net pay can shift, however, when overtime, holiday premiums, or night differential change the gross amount for a given period, or during the year-end tax adjustment when your employer reconciles actual annual tax due against what was withheld throughout the year.
Does 13th month pay reduce my net pay the same way regular salary does?
No. 13th month pay skips the SSS, PhilHealth, and Pag-IBIG deductions entirely, since those apply only to regular monthly compensation. It is only subject to withholding tax, and only on the portion — combined with other bonuses received in the same year — that exceeds the ₱90,000 tax-exempt threshold. Most rank-and-file employees receive their full 13th month pay with no tax withheld at all, since their total bonus amount typically stays under that threshold.
Why does my Pag-IBIG deduction look the same as a coworker who earns much more than me?
Pag-IBIG applies a statutory cap of ₱10,000 on the monthly compensation used for computation, regardless of actual salary. Once monthly compensation exceeds ₱10,000, the employee contribution rate of 2% is applied to that ₱10,000 cap rather than to the full salary, capping the maximum employee-side deduction at ₱200 per month. This is why employees earning ₱15,000 and employees earning ₱150,000 can see an identical ₱200 Pag-IBIG line item on their payslips.
Is my employer paying anything toward these deductions besides what's taken from my payslip?
Yes. Each of the three government contributions has an employer-side share paid entirely by the employer, on top of what's deducted from your salary. SSS employer share is 10% (compared to the employee's 5%), PhilHealth is split evenly at 2.5% each, and Pag-IBIG employer share is a flat 2% regardless of salary level. These employer contributions never appear as deductions on your payslip since they don't reduce your take-home pay, but they represent a real, additional cost your employer bears for every peso of your gross salary.