How Is Tax On Overtime Calculated In the Philippines?

Tax Guides Reading Time: 3 minutes

The taxation of overtime pay in the Philippines is a critical aspect of the country’s labor and tax laws.

In 2025, understanding how overtime pay is taxed is essential for both employers and employees to ensure compliance with regulations and accurate financial planning.

An Overview of the Philippine Tax System

The Philippine tax system mandates that citizens pay taxes on income earned both domestically and internationally. Income is categorized into three types:

  • Compensation income
  • Passive income
  • Business income

Compensation and business incomes are subject to progressive tax rates that can reach up to 32%, while passive income incurs a flat tax rate of 7.5%.

Compensation income includes regular salaries and supplementary payments, such as overtime pay, which is considered an additional benefit beyond the fixed salary.

The Labor Code of the Philippines

The Department of Labor and Employment (DOLE) oversees employee rights in the Philippines through the Labor Code.

This code defines overtime work as any work exceeding the standard 8-hour shift. It stipulates overtime pay rates and requires employers to maintain accurate records of overtime hours worked.

Importantly, it has imposed a limit that employees cannot exceed 12 hours of total work per day, including overtime hours.

An Overview of the Philippine Overtime Pay

According to the Labor Code, overtime pay is calculated at:

  • 25% above the regular hourly rate for extra hours on a regular day
  • 30% above the regular hourly rate for work done on holidays or weekends

For example, if an employee earns ₱50 per hour, their overtime pay for one additional hour would be ₱62.50 on a regular day and ₱130 on a holiday.

How is Overtime Pay Taxable in the Philippines in 2025?

Under the National Internal Revenue Law, overtime pay is classified as taxable income. Both employers and employees are responsible for paying taxes on this income.

Overtime Pay Taxes for Employers

Employers must add any overtime pay exceeding ₱250 per month to employees’ basic salaries and apply a 10% tax on this combined amount.

If the overtime pay is less than ₱250 monthly, it remains non-taxable.

Overtime Pay Taxes for Workers

Employees must also consider their total employment income, which includes basic salary, overtime pay (if above ₱250), holiday pay, and night shift differential pay.

Mandatory government contributions, such as Social Security System (SSS), Health Insurance (PHIC), and Home Development Mutual Fund (HDMF), are deducted from this total to determine taxable income.

For instance, if an employee’s total monthly income amounts to ₱33,000 after including all forms of compensation, deductions from SSS, PHIC, and HDMF will yield a taxable employment monthly income of ₱30,625.

Using our example, if an employee’s taxable income is ₱30,625, they would owe approximately ₱1,468 in taxes. Check the below resources to understand in detail how it’s calculated.

Resources for Calculation:

Who is Exempt From the Overtime Pay Tax?

Workers earning minimum wage are exempt from paying taxes on both their basic salaries and additional pays unless they have other sources of income.

The minimum wage varies by region and industry as determined by Regional Tripartite Wages and Productivity Boards (RTWPBs).

The TRAIN Law stipulates that individuals earning below ₱20,833 per month or under ₱250,000 annually are not subject to taxation.

Importance of Calculating the Tax on Overtime Pay Correctly

Accurate calculation of taxes related to overtime work is crucial due to the varying tax rates and complex calculations involved.

Miscalculating can lead to receiving less than anticipated after-tax deductions. Employers must also account for their tax obligations related to employees’ earnings from overtime work.

Understanding these calculations ensures fair compensation for additional hours worked while remaining compliant with tax laws.