Taxation Thresholds for Overtime Pay in the Philippines

A practitioner’s guide for employers, payroll teams, and workers

1) Executive overview

Overtime (OT) pay is generally taxable as part of compensation income.
Exception: If the worker is a Minimum Wage Earner (MWE), the following are exempt from income tax and withholding: (a) basic statutory minimum wage, and the related holiday pay, overtime pay, night-shift differential, and hazard pay.
No peso “threshold” makes OT nontaxable for non-MWEs. Once an employee earns above the statutory minimum wage, all OT pay is taxable (subject to regular withholding), save for separate de minimis items like a modest OT meal allowance.
De minimis OT meal allowance not exceeding ₱150 per overtime meal is excluded from taxable income (if it complies with BIR de minimis rules).
The ₱90,000 annual cap for “13th month pay and other benefits” does not cover overtime pay; OT never enters that exclusion.

2) Legal bases and framework

National Internal Revenue Code (NIRC), as amended (TRAIN Law and subsequent regulations): classifies compensation income and establishes exemptions and withholding rules.
Minimum Wage Earner (MWE) exemption (originating from R.A. No. 9504, carried forward and clarified under TRAIN-era regulations): exempts MWEs’ basic minimum wage and related pay items (holiday, OT, night differential, hazard) from income tax and withholding.
BIR regulations on de minimis benefits (e.g., RR No. 5-2011 and later amendments/issuances): enumerate non-taxable small-value benefits, including overtime meal allowance up to ₱150 per OT meal.
Labor Code and DOLE rules: define when OT is due and how much to pay (rates, hours). Tax treatment is separate: the BIR rules decide whether that OT is taxable.

Practical takeaway: Labor rules determine the amount of OT; tax rules determine whether that OT is taxed.

3) Who qualifies for the MWE exemption?

A worker is an MWE if all the following are true:

The employee’s basic pay does not exceed the statutory minimum wage for the applicable region/industry/sector and position classification; and
The employee receives compensation income only from employment (having other taxable income does not automatically forfeit MWE status for the wage items themselves, but that other income is taxed).

What’s exempt for MWEs?

Basic statutory minimum wage, holiday pay, overtime pay, night-shift differential, and hazard pay—all exempt from income tax and from withholding.

What remains taxable for MWEs?

Non-exempt allowances/benefits that are not de minimis, and compensation above the statutory minimum.
13th month and other benefits are separately covered by the ₱90,000 annual exclusion cap; any excess above ₱90,000 becomes taxable. (This cap does not convert taxable OT into nontaxable income.)

4) Non-MWEs: how overtime is taxed

For employees earning above the statutory minimum wage:

All OT pay is taxable compensation and subject to withholding under the applicable graduated withholding tax tables.
No peso threshold renders OT nontaxable for non-MWEs.
De minimis OT meal allowance up to ₱150 per OT meal may still be excluded from taxable income (if the employer’s policy complies with BIR rules and documentation).

5) The ₱90,000 “13th month and other benefits” exclusion—what it is (and isn’t)

The TRAIN-era rules allow a tax-exempt ceiling of ₱90,000 per year for 13th month pay and “other benefits.”
Overtime pay is not part of “13th month and other benefits.” It is regular compensation, so it does not enjoy the ₱90,000 exclusion.
Typical “other benefits” that count toward the ₱90,000 cap include 13th month pay, Christmas bonus, productivity incentives, etc.—not OT.

6) De minimis benefits related to overtime

The BIR’s de minimis list (non-taxable if within limits and properly substantiated) includes, among others:

Overtime meal allowance: up to ₱150 per OT meal (beyond this, the excess is taxable).

Key compliance points:

Provide a written policy identifying the benefit, eligibility, and limits.
Keep substantiation (e.g., OT records, timesheets, meal allowance logs/receipts).
Treat any excess over the prescribed limit as taxable wages subject to withholding.

7) Withholding tax mechanics

Taxable OT is aggregated with other taxable compensation for the payroll period and subjected to withholding tax using the BIR’s withholding tables (TRAIN-era schedules).
MWEs: Do not withhold on their exempt wage items (minimum wage, and related holiday/OT/NSD/hazard). Withhold only on non-exempt amounts, if any.
Year-end/Separation adjustments: Recompute to ensure correct annual tax; any under-withholding must be settled, and over-withholding refunded/credited per rules.

8) Interaction with other common pay items

Night-shift differential (NSD):
- MWE: NSD is exempt.
- Non-MWE: NSD is taxable.
Hazard pay:
- MWE: Exempt (as part of related pay items).
- Non-MWE: Generally taxable, unless a specific law or special exemption applies (sector-specific).
Holiday premium/rest day premium:
- MWE: Exempt (as related pay).
- Non-MWE: Taxable.
Allowances/reimbursements:
- Proper reimbursements of business expenses are not compensation (if supported and under an accountable plan).
- Fixed allowances (transportation, representation, etc.) are generally taxable, unless they qualify as de minimis.

9) Documentation & payroll controls

Employers should maintain:

OT authorization and time records (showing hours worked beyond the standard).
Payroll registers clearly breaking out basic pay, OT, and related pay.
MWE status validation per employee (region, sector, position; prevailing wage orders).
De minimis policy (written), with supporting logs/receipts for OT meal allowances.
Withholding computations and annualization worksheets.
Certificates of Compensation (BIR Form 2316) issued to employees.

10) Common pitfalls (and how to avoid them)

Treating OT as part of the ₱90,000 exclusion.
- Fix: Remember OT ≠ “other benefits.” Always tax OT for non-MWEs.
Ignoring MWE status changes mid-year (e.g., wage increases, reclassification, region transfer).
- Fix: Re-assess each payroll period; adjust withholding accordingly.
No cap control on OT meal allowances.
- Fix: Enforce the ₱150 per OT meal ceiling and keep records; tax any excess.
Assuming all allowances are de minimis.
- Fix: Only those explicitly listed and within limits are non-taxable; otherwise, withhold.
Commingling exempt and taxable items in payroll.
- Fix: Itemize payslips and payroll files to segregate exempt (for MWEs) from taxable components.

11) Worked examples

A) MWE with overtime

Facts: Regional statutory minimum wage = ₱610/day. Employee earns exactly that, plus 10 hours OT in the period; receives a ₱150 OT meal allowance for each of two OT days.
Tax: Basic wage, OT pay, and the two ₱150 OT meal allowances are exempt. No withholding on those items. (Any other non-de minimis allowance would be taxable.)

B) Non-MWE with overtime

Facts: Monthly basic pay = ₱30,000 (above minimum). OT pay this month = ₱3,200. Employer grants ₱150 per OT meal (two instances).
Tax: The ₱3,200 OT is fully taxable (subject to withholding). The ₱300 OT meals are non-taxable (within de minimis); any excess over ₱150 per meal would be taxable.

C) Mixed: MWE receives a taxable allowance

Facts: Employee earns the statutory minimum wage, works OT, and also gets a fixed ₱2,000 monthly transportation allowance (not de minimis).
Tax: Minimum wage, OT, NSD, hazard/holiday pay remain exempt. The ₱2,000 allowance is taxable and subject to withholding. MWE status for wage items is not lost merely because of this other taxable income.

12) Quick compliance checklist

Confirm MWE status each payroll cut-off.
Segregate exempt vs taxable pay components in payroll.
Enforce ₱150/OT meal policy; capture supporting OT logs.
Exclude OT from the ₱90,000 “other benefits” cap calculations.
Apply the correct withholding tables to taxable compensation.
Reflect all amounts correctly in BIR Form 2316 and annualization.

13) Frequently asked questions

Q1: Is there any general peso threshold that makes OT non-taxable for non-MWEs? No. OT is taxable from the first peso for non-MWEs.

Q2: If an MWE’s wage is exactly the minimum, but a small merit increase pushes them slightly above, what happens to OT? Once above the statutory minimum, the employee is no longer an MWE for the affected period; OT becomes taxable (and so does the excess wage) for that period.

Q3: Can we give a bigger OT meal allowance tax-free if supported by receipts? No. The de minimis tax-free cap is ₱150 per OT meal. Any excess is taxable, even with receipts (unless treated under a strict, receipt-based reimbursement for actual necessary business meals that are not compensatory in nature; consult your tax advisor on accountable-plan documentation).

Q4: Does the ₱90,000 “13th month and other benefits” cap help reduce tax on OT? No. OT never counts toward that exclusion.

14) Bottom line

Only MWEs enjoy overtime tax exemption (together with their minimum wage and related pay).
For everyone else, overtime is fully taxable, with no threshold, except for narrow de minimis items such as the ₱150 OT meal allowance.
The ₱90,000 “other benefits” exclusion is separate and does not apply to OT.
Accurate classification, documentation, and payroll segregation are the keys to compliance.