Hiring your first employee: what the BIR expects from you as an employer
When you hire your first employee, you become a withholding agent for the BIR. Here is what that means in practice, from registration to year-end reconciliation.
You are now a withholding agent
When you add your first employee to your payroll, you take on a new role in the eyes of the BIR: you become a withholding agent. That means it is your job, not your employee's, to compute the income tax on their salary, deduct it before they receive their pay, and send it to the BIR on their behalf.
This might sound like extra paperwork, but the logic is straightforward. The BIR wants tax collected at the source, which is the employer. Your employee does not worry about paying income tax separately for their compensation; you handle it through the payroll process.
Updating your BIR registration
Before your employee's first payday, make sure your Certificate of Registration (called the COR, or BIR Form 2303) already reflects that you have employer obligations. If it does not, you need to file an update with your Revenue District Office (your RDO).
You will also need to register each new employee's TIN (Tax Identification Number) with your records. If they already have a TIN from a previous job, you use that same one. If they are a first-time worker, they can apply for a TIN through you as their employer. A person must only ever have one TIN for life, so never apply for a new TIN for someone who already has one, even if they cannot remember their old number.
Computing and withholding the tax each payroll
Every time you run payroll, you compute the income tax due on each employee's gross compensation. The official BIR rules include a graduated tax table that tells you how much to withhold based on the employee's taxable income for each pay period.
Taxable income is not simply the raw salary. You subtract non-taxable items first: the employee's mandatory contributions to SSS, PhilHealth, and Pag-IBIG, along with any other tax-exempt components allowed under the official rules.
The exact figures and brackets in the tax table can change when the BIR updates its rules. Always use the current version rather than relying on old copies you saved years ago. The AskOnward chat can show you how to apply the current withholding table step by step.
Remitting what you withheld
After each payroll, you are holding tax money that belongs to the BIR. You must remit it using the correct monthly return, filed and paid within the deadline set by the official BIR rules. Remitting late attracts surcharges and interest on top of the tax itself, so staying on the calendar is essential.
The BIR accepts remittance through its online channels: eFPS (Electronic Filing and Payment System) for businesses required to enroll, and eBIRForms plus an authorized payment partner for others. Your RDO can tell you which channel applies to your business size and type.
The year-end reconciliation
At the end of every calendar year, you reconcile each employee's total compensation against the total tax you withheld throughout the year. This process is called the year-end tax adjustment.
If the running withholding was slightly too high or too low due to changes in income across the year, you correct it in the last payslip of December. The employee either receives a small refund in their final pay or has a small shortfall deducted.
Once the adjustment is done, you issue each employee a BIR Form 2316, which is their certificate showing their total compensation and the total tax withheld. They may need this for a loan, a visa application, or their own income tax return if they have other sources of income outside your payroll.
You also submit the annual alphalist: a consolidated report listing every employee, their full-year compensation, and their total withheld tax. This is how the BIR cross-checks that your monthly remittances over the year match your annual report.
Where to get the current details
The obligations described above are evergreen. They apply whenever you have employees, regardless of the year. What changes are the specific tax tables, thresholds, remittance deadlines, and form numbers written in the official BIR rules at any given time.
Before processing your first payroll, ask AskOnward for the current withholding tax table and the applicable deadlines. You will get an answer grounded in the official BIR rules, so you can set up your payroll process correctly from day one rather than correcting mistakes later.
This article is for general information and is not affiliated with the government. For official forms and the latest rules, see the Bureau of Internal Revenue at bir.gov.ph.