Are Corporation Owners Required to Pay Mandatory Contributions in the Philippines

Introduction

In the Philippine legal landscape, corporations are recognized as distinct juridical entities separate from their owners, as enshrined in the Revised Corporation Code of the Philippines (Republic Act No. 11232). This separation principle, often referred to as the corporate veil, generally shields shareholders from personal liability for corporate obligations. However, when it comes to mandatory contributions—primarily referring to social insurance premiums under the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), Home Development Mutual Fund (Pag-IBIG Fund), and related programs—the obligations can extend to corporation owners depending on their roles within the company. These contributions are designed to provide social protection, healthcare, housing benefits, and retirement security to workers and, in some cases, self-employed individuals.

This article explores the extent to which corporation owners are required to remit these mandatory contributions, examining the relevant laws, regulations, and interpretations by government agencies. It covers the nature of these obligations, distinctions based on ownership structure, exemptions, compliance mechanisms, and consequences of non-compliance. The discussion is grounded in Philippine statutes, including the Labor Code, Social Security Act, and specific implementing rules from agencies like the Department of Labor and Employment (DOLE), SSS, PhilHealth, and Pag-IBIG.

Legal Framework Governing Mandatory Contributions

Mandatory contributions in the Philippines stem from a social welfare framework aimed at protecting the workforce. Key laws include:

• Social Security Act of 2018 (Republic Act No. 11199): This amends the original Social Security Law (RA 1161, as amended by RA 8282) and mandates coverage for employees, self-employed persons, and certain voluntary members. It requires contributions to fund retirement, disability, sickness, maternity, and death benefits.

• Universal Health Care Act (Republic Act No. 11223): This governs PhilHealth contributions, ensuring universal health coverage through premium payments shared between employers and employees.

• Pag-IBIG Fund Law (Republic Act No. 9679): This mandates membership and contributions for housing loans, provident savings, and other benefits.

• Labor Code of the Philippines (Presidential Decree No. 442, as amended): Articles relevant to employee welfare, including provisions on social security and compensation.

• Employees' Compensation and State Insurance Fund (Presidential Decree No. 626, as amended): Integrated with SSS, this provides benefits for work-related injuries or illnesses.

Corporations, as employers, are primarily responsible for registering with these agencies and remitting contributions on behalf of their employees. The Bureau of Internal Revenue (BIR) also plays a role in tax-related aspects, such as withholding taxes on compensation, but this article focuses on non-tax social contributions.

Who Are Corporation Owners?

In Philippine corporate law, "owners" typically refer to shareholders or stockholders who hold equity in the corporation. They may or may not be involved in day-to-day operations. Distinctions are crucial:

• Shareholders: Passive owners who invest capital but do not necessarily work for the corporation.

• Directors and Officers: Shareholders who also serve as board members or executives (e.g., president, CEO), making them employees or self-employed for contribution purposes.

• Sole Proprietors vs. Corporate Owners: Note that sole proprietorships are not corporations; their owners are personally liable and treated as self-employed. This article focuses on corporations, including one-person corporations (OPCs) introduced under RA 11232.

For OPCs, the single shareholder is often the incorporator, director, and officer, blurring lines between ownership and employment.

Obligations of Corporations as Employers

Corporations must comply with contribution requirements for their employees:

• Registration: All corporations employing workers must register with SSS, PhilHealth, and Pag-IBIG within 30 days of hiring the first employee.

• Remittance: Employers deduct employee shares from salaries and add their own shares, remitting the total monthly or quarterly.

  • SSS: Employer contributes 8.5% (as of 2023 rates, subject to adjustments), employee 4.5%, on a monthly salary credit up to PHP 30,000.

  • PhilHealth: Shared equally, with rates based on income (e.g., 4% premium rate split 2% each as of 2021, with phased increases).

  • Pag-IBIG: Employer and employee each contribute 2% of monthly compensation, capped at PHP 5,000 per month.

• Employees' Compensation (EC): Employers pay a fixed PHP 10-30 per employee monthly, integrated with SSS.

Failure by the corporation to remit these can lead to corporate liability, but owners may face personal repercussions if the veil is pierced (e.g., due to fraud).

Specific Obligations of Corporation Owners

The key question is whether owners, qua owners, must pay these contributions personally. The answer depends on their status:

1. If the Owner is Not an Employee:

   • Pure shareholders without employment contracts or active roles are not required to pay personal contributions. The corporation handles obligations for its actual employees.
   • However, if shareholders receive dividends or other non-salary income, this is not subject to social contributions (though subject to income tax).

2. If the Owner is an Employee or Officer:

   • Owners who serve as employees (e.g., salaried directors) are treated like regular employees. The corporation must withhold and remit their employee shares, plus the employer share.
   • For example, a corporate president who is also a major shareholder must have SSS, PhilHealth, and Pag-IBIG deductions from their compensation income.

3. Self-Employed Status for Owners:

   • Under RA 11199, self-employed persons—including professionals, business owners, and partners in partnerships—must register and pay contributions personally if their net income exceeds PHP 3,000 monthly.
   • For corporation owners: If they derive income from the business without a formal employment setup (e.g., in small family corporations), they may be classified as self-employed. SSS requires self-employed registration for those earning at least PHP 1,000 monthly from trade or business.
   • In OPCs, the single shareholder is mandatorily covered as a self-employed person unless they opt for voluntary membership as an employee of their own corporation.

4. Partners in Professional Corporations:

   • In professional corporations (e.g., law firms under RA 11232), partners are treated as self-employed and must pay individual contributions based on their share of income.

5. Voluntary Membership:

   • Non-working shareholders can voluntarily join SSS or Pag-IBIG for benefits, paying the full contribution themselves (e.g., 13% for SSS voluntary members).

6. Special Cases:

   • Foreign Owners: Non-resident aliens are exempt unless they are employees in the Philippines.
   • Retired Owners: Those over 60 may continue voluntary contributions.
   • Multiple Corporations: Owners with stakes in several companies must ensure compliance per entity, but personal contributions are consolidated under one SSS number.

Agencies like SSS have issued circulars (e.g., SSS Circular No. 2019-013) clarifying that corporate officers receiving compensation are compulsory members.

Exemptions and Special Provisions

Certain scenarios exempt or modify obligations:

• Micro Enterprises: Under the Barangay Micro Business Enterprises Act (RA 9178), enterprises with assets below PHP 3 million may have simplified compliance, but contributions remain mandatory for employees.

• Household Employers: Not applicable to corporations.

• Overseas Filipino Workers (OFWs): Owners who are OFWs may have dual coverage.

• Pandemic-Related Relief: During events like COVID-19, temporary moratoriums on penalties were granted (e.g., via Bayanihan Acts), but core obligations persist.

• Religious or Charitable Corporations: Exempt from some taxes, but not necessarily contributions if they have employees.

Compliance and Reporting

Corporations must:

• File annual reports with the Securities and Exchange Commission (SEC), which may reference compliance with labor laws.

• Use online portals (e.g., SSS My.SSS, PhilHealth EPRS) for remittances.

• Maintain records for audits by DOLE or agencies.

Owners should ensure corporate bylaws include provisions for compliance to avoid personal liability.

Penalties for Non-Compliance

Violations can result in:

• Fines: SSS imposes penalties of 2% per month on unpaid contributions, plus criminal charges under RA 11199 (imprisonment up to 12 years and fines up to PHP 20,000).

• PhilHealth: Fines from PHP 500 to PHP 50,000 per violation.

• Pag-IBIG: 1/10 of 1% per day delay, with potential foreclosure on housing loans.

• Criminal Liability: Officers and directors can be held personally liable if non-remittance is willful (e.g., under the doctrine of corporate officer liability).

• Civil Actions: Employees can sue for benefits denied due to non-remittance.

The Supreme Court has upheld personal liability in cases like Carag v. NLRC (G.R. No. 147590, 2006), where officers were liable for labor obligations.

Conclusion

Corporation owners in the Philippines are not automatically required to pay mandatory contributions solely by virtue of ownership. However, if they assume employee or self-employed roles within the corporation, compliance becomes obligatory to ensure social protection. The framework emphasizes shared responsibility between employers and workers, with corporations bearing the primary burden. Owners should consult legal experts or agencies for tailored advice, as rates and rules evolve (e.g., SSS contribution hikes phased until 2025). Adherence not only avoids penalties but also fosters ethical business practices in line with the country's social justice principles under the 1987 Constitution.