I. Introduction

In the Philippines, probationary employees are generally treated the same as regular employees for purposes of withholding tax on compensation. The fact that an employee is still under probation does not, by itself, exempt the employee from income tax, withholding tax, payroll reporting, or other employer obligations.

A probationary employee earns compensation for services rendered. That compensation is taxable unless specifically excluded by law or regulation. Accordingly, an employer must determine whether the employee’s pay is subject to withholding tax, compute the proper amount, deduct it from the employee’s salary, remit it to the Bureau of Internal Revenue, and report it in the required tax returns and certificates.

The key principle is simple: probationary status affects labor tenure, not taxability.

II. Meaning of Probationary Employment

Under Philippine labor law, a probationary employee is one who is hired subject to a trial or evaluation period, usually not exceeding six months from the date of employment, unless a longer period is allowed by law, apprenticeship agreement, or the nature of the work. During this period, the employer evaluates whether the employee meets the reasonable standards made known at the time of engagement.

For tax purposes, however, the classification is not centered on whether the employee is probationary, regular, project-based, seasonal, or casual. The more important question is whether the person is an employee receiving compensation income.

Once an employer-employee relationship exists, payments made to the worker as salary, wage, allowance, bonus, commission, taxable benefit, or other remuneration are generally treated as compensation income.

III. Governing Tax Framework

Withholding tax on compensation in the Philippines is governed primarily by the National Internal Revenue Code, as amended, and BIR regulations implementing the withholding tax system.

The withholding tax system requires employers to act as withholding agents of the government. The employer deducts tax from the employee’s compensation and remits it to the BIR. The tax withheld is not an additional tax on top of income tax; rather, it is a method of collecting the employee’s income tax during the year.

For employees earning purely compensation income, the amount withheld by the employer is generally credited against the employee’s annual income tax liability. In many cases, if the employee has only one employer for the year and qualifies for substituted filing, the tax withheld may serve as the final settlement of the employee’s annual income tax obligation.

IV. Are Probationary Employees Subject to Withholding Tax?

Yes. A probationary employee is subject to withholding tax on compensation if the employee receives taxable compensation income.

The withholding obligation applies regardless of whether the employee is:

Probationary;
Regular;
Casual;
Seasonal;
Project-based;
Rank-and-file;
Supervisory; or
Managerial.

What matters is the existence of compensation income paid by an employer to an employee.

Therefore, a probationary employee who receives salary, wages, taxable allowances, taxable bonuses, or taxable benefits must generally have withholding tax deducted from compensation, unless the amount falls below taxable thresholds or is otherwise exempt.

V. Compensation Income: What Is Included

Compensation income generally includes all remuneration for services performed by an employee for an employer, whether paid in cash or in kind, unless specifically excluded.

For probationary employees, taxable compensation may include:

1. Basic Salary or Wage

The basic monthly salary, daily wage, or hourly wage paid to a probationary employee is compensation income.

2. Overtime Pay

Overtime pay is generally taxable compensation, except in specific cases involving minimum wage earners, where certain benefits may be exempt.

3. Holiday Pay

Holiday pay is generally part of compensation. For minimum wage earners, holiday pay may be exempt from income tax under applicable rules.

4. Night Shift Differential

Night shift differential is generally taxable compensation, subject to special treatment for minimum wage earners.

5. Hazard Pay

Hazard pay may be taxable or exempt depending on the employee’s status, amount, and applicable rules. For minimum wage earners, hazard pay may be exempt.

6. Commissions

If a probationary employee earns commissions in an employer-employee relationship, the commissions are compensation income subject to withholding tax on compensation.

7. Taxable Allowances

Allowances may be taxable unless they are properly treated as non-taxable reimbursements, de minimis benefits, or otherwise excluded by law or regulation. Examples include transportation allowance, meal allowance, representation allowance, communication allowance, and housing allowance.

8. Bonuses and Incentives

Bonuses, performance incentives, signing bonuses, productivity incentives, and similar payments are generally compensation income. Some may be covered by the statutory exclusion for 13th month pay and other benefits up to the applicable ceiling.

9. Taxable Fringe Benefits

For rank-and-file employees, benefits are generally treated as compensation unless excluded. For managerial and supervisory employees, certain fringe benefits may be subject to fringe benefits tax instead of ordinary withholding tax on compensation.

VI. Income Tax Exemption for Minimum Wage Earners

A major exception concerns minimum wage earners.

A minimum wage earner is generally exempt from income tax on statutory minimum wage. Certain related benefits may also be exempt, such as holiday pay, overtime pay, night shift differential pay, and hazard pay, subject to the conditions under tax rules.

If a probationary employee is paid only the statutory minimum wage and qualifies as a minimum wage earner, the employer may not be required to withhold income tax on that exempt compensation.

However, the exemption may not apply to all payments. If the employee receives taxable income beyond the exempt minimum wage and exempt statutory benefits, the excess or other taxable compensation may be subject to withholding tax.

For example, a minimum wage probationary employee who receives taxable bonuses, taxable allowances, or commissions may still have taxable compensation depending on the nature and amount of those payments.

VII. The ₱250,000 Annual Taxable Income Threshold

Under the TRAIN Law framework, individuals earning taxable income not exceeding ₱250,000 annually are generally not subject to income tax.

This does not mean every employee earning below ₱250,000 automatically has no payroll compliance obligations. Employers still need to determine compensation, exclusions, taxable income, withholding status, and reporting requirements.

For a probationary employee whose projected annual taxable compensation does not exceed ₱250,000, the withholding tax due may be zero. But the employee may still be included in payroll records, BIR reporting, and year-end certification.

VIII. Tax Treatment of 13th Month Pay and Other Benefits

Probationary employees may be entitled to 13th month pay if they meet the requirements under labor law. For tax purposes, 13th month pay and other benefits are excluded from gross income up to the statutory ceiling, which is commonly applied at ₱90,000.

This exclusion may cover items such as:

13th month pay;
Christmas bonus;
Productivity incentives;
Loyalty award;
Gifts in cash or in kind;
Other benefits of similar nature.

Amounts exceeding the tax-exempt ceiling are generally taxable compensation.

The employee’s probationary status does not disqualify the employee from the tax exclusion. What matters is whether the benefit falls within the category of 13th month pay and other benefits and whether the total amount remains within the statutory ceiling.

IX. De Minimis Benefits

Certain small-value employee benefits are treated as de minimis benefits and are generally excluded from taxable compensation if they fall within the limits provided by regulations.

Examples may include monetized unused vacation leave credits for private employees within allowable limits, medical cash allowance to dependents within limits, rice subsidy within limits, uniform and clothing allowance within limits, actual medical assistance within limits, laundry allowance within limits, employee achievement awards under conditions, gifts during Christmas and major anniversary celebrations within limits, and daily meal allowance for overtime or night/graveyard shift work within limits.

Probationary employees may receive de minimis benefits. These are not taxable merely because the employee is probationary. The tax treatment depends on the type of benefit, amount, and compliance with BIR rules.

If a benefit exceeds the de minimis threshold or does not qualify as de minimis, the excess or full amount may be treated as taxable compensation or as part of “other benefits,” depending on the applicable classification.

X. Allowances: Taxable or Non-Taxable?

Allowances require careful treatment.

An allowance given freely to an employee for personal use is generally taxable compensation. However, reimbursements made under an accountable plan may be non-taxable if the employee is required to liquidate or substantiate the expense and the expense is business-related.

Taxable Allowance Example

A probationary employee receives a fixed monthly transportation allowance of ₱5,000, with no requirement to submit receipts or liquidation. This is generally taxable compensation.

Non-Taxable Reimbursement Example

A probationary employee advances money for a client meeting and submits receipts for transportation and meals directly related to company business. The company reimburses the exact amount. This may be treated as a non-taxable reimbursement, provided it is properly documented.

The label used by the employer is not controlling. Calling a payment an “allowance” does not automatically make it non-taxable.

XI. Fringe Benefits and Probationary Employees

Fringe benefits granted to managerial or supervisory employees may be subject to fringe benefits tax. Rank-and-file employees are generally not subject to fringe benefits tax; instead, taxable benefits are usually treated as compensation subject to withholding tax.

A probationary employee can be managerial, supervisory, or rank-and-file. Therefore, probationary status alone does not determine whether fringe benefits tax applies.

Examples of possible fringe benefits include housing, expense accounts, vehicles, household personnel, interest on loans below market rate, club memberships, foreign travel expenses, holiday and vacation expenses, educational assistance, and insurance benefits, subject to applicable rules and exemptions.

If the probationary employee is managerial or supervisory and receives taxable fringe benefits, the employer may need to account for fringe benefits tax rather than ordinary withholding tax on compensation for those specific benefits.

XII. Employer’s Duty to Withhold

The employer is the withholding agent. Once it pays taxable compensation to an employee, including a probationary employee, it must withhold the proper amount of tax.

The employer’s duties generally include:

Registering properly as a withholding agent;
Determining whether compensation is taxable or exempt;
Computing withholding tax using the prescribed withholding tax tables;
Deducting the tax from payroll;
Remitting the tax to the BIR;
Filing monthly, quarterly, and annual withholding tax returns as required;
Issuing BIR Form 2316 to the employee;
Keeping payroll and tax records.

Failure to withhold can expose the employer to deficiency withholding tax, surcharges, interest, compromise penalties, and other consequences.

XIII. Employee’s Duty

A probationary employee is also a taxpayer. The employee must provide accurate information to the employer and ensure that income tax obligations are satisfied.

An employee should generally provide the employer with relevant tax information, including Taxpayer Identification Number, personal details, and information needed for payroll and year-end reporting.

If the employee had a previous employer during the same taxable year, the employee should provide the BIR Form 2316 from the prior employer to the new employer. This allows proper annualization of compensation and withholding tax.

If the employee has multiple employers during the year, concurrent employment, mixed income, or other taxable income, substituted filing may not apply, and the employee may need to file an annual income tax return.

XIV. BIR Form 2316

BIR Form 2316 is the Certificate of Compensation Payment/Tax Withheld. It is issued by the employer to the employee and reflects compensation paid and tax withheld during the year or during the period of employment.

Probationary employees are entitled to receive BIR Form 2316 if they were paid compensation by the employer. If the employee resigns, is terminated, or is not regularized before year-end, the employer should still issue the certificate covering the period of employment.

BIR Form 2316 is important because it shows:

Gross compensation income;
Non-taxable or exempt compensation;
Taxable compensation;
Tax withheld;
Employer information;
Employee information.

For employees qualified for substituted filing, BIR Form 2316 may serve as the equivalent of the annual income tax return.

XV. Annualization of Withholding Tax

Employers generally annualize compensation to determine the correct withholding tax. This means the employer estimates or computes the employee’s taxable compensation for the year and applies the graduated income tax rates.

For probationary employees, annualization can be important because their employment may start mid-year, end before year-end, or change status upon regularization.

Example: Mid-Year Hiring

An employee hired on July 1 as probationary earns ₱30,000 per month. The employer does not simply compute tax as if the employee earned ₱30,000 for the entire year unless the rules require projection for withholding purposes. Instead, the employer considers the applicable payroll period, taxable compensation, and year-to-date amounts under withholding rules.

Example: Prior Employer

An employee worked for Employer A from January to March, then joined Employer B in April as a probationary employee. Employer B should consider the prior BIR Form 2316 when annualizing compensation, so that withholding tax is not understated.

Example: Non-Regularization

An employee works from January to May as probationary and is not regularized. The employer must still properly withhold tax on compensation paid during that period and issue BIR Form 2316.

XVI. Graduated Income Tax Rates

Employees are subject to graduated income tax rates on taxable compensation income. Under the TRAIN Law structure, the first ₱250,000 of annual taxable income is generally taxed at 0%, with higher brackets applying progressively to income above that amount.

The withholding tax tables are designed to approximate the employee’s annual income tax liability based on compensation paid during payroll periods.

Probationary employees use the same tax rates as other employees. There is no separate withholding table for probationary employment.

XVII. Common Payroll Scenarios

Scenario 1: Probationary Employee Earning Below Taxable Threshold

A probationary employee earns ₱18,000 per month and receives no taxable allowances or bonuses beyond exempt benefits. Annual taxable compensation may not exceed ₱250,000. The withholding tax may be zero, but payroll reporting and issuance of BIR Form 2316 still apply.

Scenario 2: Probationary Employee Earning Above Threshold

A probationary employee earns ₱40,000 per month. The employee’s annualized taxable compensation exceeds ₱250,000. The employer must withhold tax on compensation according to the withholding tax table.

Scenario 3: Minimum Wage Probationary Employee

A probationary employee earns the statutory minimum wage and receives only exempt statutory benefits. The compensation may be exempt from income tax. The employer should still document the employee’s status and compensation.

Scenario 4: Probationary Employee with Taxable Allowance

A probationary employee earns ₱25,000 monthly salary and receives ₱10,000 monthly housing allowance. The housing allowance may be taxable compensation unless properly excluded under applicable rules. The employer must include it in the withholding tax computation if taxable.

Scenario 5: Probationary Employee Not Regularized

A probationary employee is terminated after five months for failure to meet reasonable standards. The tax obligation does not disappear. The employer must withhold tax on taxable compensation already paid and issue the relevant tax certificate.

Scenario 6: Probationary Employee Later Regularized

An employee hired as probationary in January is regularized in July. The tax treatment does not change merely because of regularization. The employer continues to withhold tax based on compensation income.

XVIII. Separation Pay, Final Pay, and Tax

If a probationary employee leaves employment, the employer may pay final compensation. This may include unpaid salary, prorated 13th month pay, unused leave conversion, commissions, incentives, and other amounts.

The tax treatment depends on the nature of each item.

Taxable Final Pay Items

Generally taxable items may include:

Unpaid salary;
Taxable allowances;
Commissions;
Taxable bonuses;
Taxable leave conversion beyond exempt limits;
Other taxable compensation.

Potentially Exempt Items

Some payments may be exempt depending on legal basis and circumstances, such as certain separation benefits received because of death, sickness, physical disability, or causes beyond the employee’s control. However, voluntary resignation payments, ordinary final salary, and routine taxable benefits are generally not automatically exempt.

A probationary employee who is not regularized does not automatically receive tax-exempt separation pay. The reason for separation, legal basis of payment, and classification of the amount must be examined.

XIX. Probationary Employees and Substituted Filing

Substituted filing allows qualified employees earning purely compensation income from one employer in the Philippines during the taxable year, with correct withholding, to avoid filing a separate annual income tax return. The employer’s annual information return and the employee’s BIR Form 2316 serve as substitute filing.

A probationary employee may qualify for substituted filing if the requirements are met.

However, substituted filing may not apply if the employee:

Had two or more employers during the year;
Had concurrent employers;
Earned mixed income, such as business or professional income;
Received income not subject to final tax or proper withholding;
Was not correctly withheld;
Is otherwise required to file an annual income tax return.

Probationary status is not the deciding factor. The employee’s income profile is.

XX. Employer Registration and Payroll Compliance

An employer hiring probationary employees must comply with the same payroll tax obligations applicable to regular employees.

This includes:

Including the employee in the payroll system;
Securing or recording the employee’s TIN;
Computing taxable and non-taxable compensation;
Withholding the correct tax;
Remitting withheld tax;
Filing withholding tax returns;
Preparing alphalists when required;
Issuing BIR Form 2316;
Keeping employment and payroll records.

The employer should not wait for regularization before including the employee in payroll tax reporting.

XXI. Timing of Withholding

Withholding tax is generally deducted at the time compensation is paid or becomes payable, depending on applicable rules. In ordinary payroll practice, withholding is deducted during each payroll period.

Probationary employees paid monthly, semi-monthly, weekly, or daily may be subject to withholding according to the applicable payroll period and withholding tax table.

The employer should not defer withholding until the employee becomes regular. Tax should be withheld when taxable compensation is paid.

XXII. Daily-Paid and Hourly-Paid Probationary Employees

Some probationary employees are daily-paid or hourly-paid. They are still employees if an employer-employee relationship exists.

Their compensation may be subject to withholding tax depending on income level, minimum wage status, taxable benefits, and other income. The payroll frequency does not remove the withholding obligation.

Daily-paid minimum wage earners may be exempt on statutory minimum wage and qualified benefits. Daily-paid employees earning above minimum wage or receiving taxable compensation may be subject to withholding.

XXIII. Part-Time Probationary Employees

Part-time probationary employees are likewise subject to the same tax principles. Part-time employment does not automatically exempt compensation from income tax.

A part-time employee earning low compensation may have zero withholding if annual taxable income does not exceed the tax threshold. But if the employee has multiple employers, the employee may have separate filing obligations, and withholding computations may differ.

Employers of part-time workers must still determine whether an employer-employee relationship exists and comply with withholding obligations.

XXIV. Probationary Employees with Multiple Employers

An employee may have more than one employer during a year or even at the same time. This has important tax consequences.

If a probationary employee joins a new employer after leaving another employer, the new employer should consider the employee’s prior BIR Form 2316 for annualized withholding.

If a probationary employee has concurrent employers, each employer may withhold based on compensation paid by that employer. However, the employee may be required to file an annual income tax return because substituted filing generally does not apply to employees with multiple concurrent employers.

Multiple employment may result in under-withholding if each employer computes tax independently without full-year income visibility.

XXV. Probationary Employees Misclassified as Independent Contractors

A common issue is the misclassification of employees as independent contractors, consultants, freelancers, or service providers.

If the working relationship is truly employment, the employer should treat payments as compensation and withhold tax on compensation. Merely labeling a probationary worker as a “consultant” does not necessarily avoid employment classification.

The distinction matters because:

Employees are subject to withholding tax on compensation;
Independent contractors are generally subject to expanded withholding tax or percentage/VAT rules, depending on registration and circumstances;
Employees are covered by labor standards and social legislation;
Misclassification may expose the company to tax, labor, and social security liabilities.

The existence of an employer-employee relationship is usually assessed using factors such as selection and engagement, payment of wages, power of dismissal, and control over the means and methods of work.

If those elements are present, the worker may be treated as an employee for tax and labor purposes even if called probationary, trainee, consultant, or project associate.

XXVI. Trainees, Interns, Apprentices, and Probationary Employees

Not all persons undergoing training are employees. However, if the person performs work under the control of the company and receives compensation in an employment relationship, the payments may be treated as compensation income.

A probationary employee differs from a student intern, apprentice, learner, or trainee under special arrangements. However, labels are not conclusive.

If the person is hired for a position, placed on payroll, subject to company rules, supervised like an employee, and paid wages or salary, withholding tax on compensation generally applies.

XXVII. Probationary Employees in Startups and Small Businesses

Startups and small businesses sometimes delay payroll tax compliance until employees become regular. This is risky.

The employer’s duty to withhold begins when taxable compensation is paid to an employee. Probationary employment is still employment.

Small businesses should ensure that even probationary hires are properly onboarded for tax purposes. This includes TIN collection, payroll setup, withholding computation, and BIR reporting.

Failure to comply may create liabilities that grow over time, especially if multiple employees are affected.

XXVIII. Treatment of Signing Bonuses and Hiring Incentives

A signing bonus paid to a probationary employee is generally compensation income. It may be taxable unless it falls within an exclusion, which is uncommon for signing bonuses.

If the signing bonus is paid before the first payroll period but in connection with employment, the employer should consider it compensation and withhold accordingly.

If the employee later fails probation or resigns and must return the signing bonus, tax treatment may require adjustment depending on timing, payroll reporting, and whether the amount was actually returned.

XXIX. Tax Gross-Up Arrangements

Some employers agree to shoulder the employee’s tax, resulting in a tax gross-up. This means the employee receives a net amount, while the employer pays or absorbs the tax cost.

For probationary employees, tax gross-up arrangements are possible but must be properly computed. The tax paid on behalf of the employee may itself be treated as additional compensation, requiring gross-up computation.

This is common in executive hiring, relocation packages, special bonuses, or expatriate arrangements, though it can apply to any employee.

XXX. Probationary Employees and Expatriates

Foreign nationals employed in the Philippines on probationary status may also be subject to Philippine income tax and withholding tax on compensation, depending on residency, source of income, treaty considerations, and employment arrangement.

If the compensation is for services performed in the Philippines, it is generally Philippine-sourced compensation income.

Employers hiring foreign probationary employees must also consider immigration, work permit, tax registration, and payroll compliance requirements.

XXXI. Remote Work and Probationary Employees

A probationary employee working remotely in the Philippines for a Philippine employer is generally treated like any other employee for withholding tax on compensation.

If the employee works remotely from the Philippines for a foreign employer, tax treatment becomes more complex. If there is no Philippine withholding agent, the employee may need to handle tax filing and payment directly, depending on the arrangement.

If the employer is Philippine-based and pays compensation through Philippine payroll, ordinary withholding rules generally apply.

XXXII. Payroll Deductions Compared with Withholding Tax

Withholding tax is different from other payroll deductions.

A probationary employee may see deductions for:

Withholding tax;
SSS contributions;
PhilHealth contributions;
Pag-IBIG contributions;
Salary loans;
Advances;
Other authorized deductions.

Only withholding tax relates to income tax collected for the BIR. Mandatory social contributions are not the same as withholding tax, though they may affect payroll computation and employee net pay.

XXXIII. Non-Taxable Compensation

Certain compensation items may be excluded from taxable income. For probationary employees, common non-taxable items may include:

Statutory minimum wage of qualified minimum wage earners;
Qualified holiday pay, overtime pay, night shift differential, and hazard pay of minimum wage earners;
13th month pay and other benefits up to the statutory ceiling;
Qualified de minimis benefits within prescribed limits;
Properly documented business expense reimbursements;
Certain retirement or separation benefits meeting legal requirements;
Employer contributions required under law, subject to applicable rules.

The burden is on the employer to classify and document these items correctly.

XXXIV. Taxable Compensation

Common taxable items for probationary employees include:

Basic salary above exempt thresholds;
Taxable allowances;
Commissions;
Performance bonuses;
Signing bonuses;
Taxable incentives;
Taxable leave conversion;
Taxable benefits not qualifying as de minimis or exempt benefits;
Excess over the 13th month pay and other benefits ceiling;
Employer-paid tax treated as additional compensation.

XXXV. Consequences of Failure to Withhold

If an employer fails to withhold tax from a probationary employee’s taxable compensation, the BIR may assess the employer for deficiency withholding tax.

Possible consequences include:

Deficiency tax assessment;
Surcharge;
Interest;
Compromise penalties;
Disallowance issues in some cases;
Administrative compliance problems;
Exposure during BIR audit.

The employer may remain liable even if the employee was already paid in full and the employer failed to deduct the tax.

From the employee’s perspective, failure of the employer to withhold correctly may lead to annual tax filing issues, especially if the employee is not qualified for substituted filing or has other income.

XXXVI. Labor Law Status Does Not Control Taxability

Probationary employment is primarily a labor law concept. It determines the employee’s security of tenure during the probationary period and the standards for regularization or termination.

Tax law asks a different question: whether income was earned and whether it is taxable.

Thus, the following are incorrect assumptions:

“No withholding is required because the employee is not regular yet.”
“Tax starts only after six months.”
“Probationary employees are treated like contractors.”
“Final pay of a non-regularized employee is automatically tax-free.”
“A probationary employee does not need BIR Form 2316.”
“Low salary means no reporting is required.”

The correct view is that a probationary employee is still an employee, and taxable compensation paid to an employee is subject to withholding rules.

XXXVII. Practical Payroll Checklist for Employers

Employers hiring probationary employees should observe the following:

Confirm that the worker is an employee, not an independent contractor.
Obtain the employee’s TIN and personal information.
Ask for prior BIR Form 2316 if the employee had a previous employer during the year.
Identify taxable and non-taxable compensation components.
Determine minimum wage earner status, if applicable.
Apply the correct withholding tax table.
Withhold tax every payroll period when required.
Include the employee in BIR payroll reporting.
Track 13th month pay and other benefits against the tax-exempt ceiling.
Track de minimis benefits against prescribed limits.
Document reimbursements and accountable allowances.
Issue BIR Form 2316 upon year-end or separation.
Keep payroll records for audit support.
Review final pay tax treatment upon resignation, termination, or non-regularization.

XXXVIII. Practical Checklist for Probationary Employees

Probationary employees should:

Provide a valid TIN to the employer.
Submit prior BIR Form 2316 if previously employed during the year.
Review payslips to understand tax deductions.
Distinguish withholding tax from SSS, PhilHealth, and Pag-IBIG deductions.
Ask for BIR Form 2316 upon separation or year-end.
Monitor taxable allowances, bonuses, and incentives.
Determine whether annual income tax filing is required, especially if there are multiple employers or other income.
Keep copies of employment contracts, payslips, and tax certificates.

XXXIX. Illustrative Computation Framework

A basic withholding tax computation usually follows this structure:

Gross compensation less non-taxable compensation equals taxable compensation then apply withholding tax table equals tax to be withheld

For example:

A probationary employee receives:

Basic salary: ₱35,000 per month
Taxable allowance: ₱5,000 per month
Total monthly compensation: ₱40,000

If the allowance is taxable, the employer generally treats ₱40,000 as monthly compensation for withholding purposes, subject to applicable exemptions, annualization, and withholding table rules.

If the employee also receives a 13th month pay of ₱35,000, that amount may be excluded from taxable income if it falls within the ceiling for 13th month pay and other benefits.

XL. Special Note on Probationary Period Ending Mid-Year

When an employee becomes regular after probation, there is no separate tax event merely because of regularization. The employee remains on payroll, and withholding continues.

If salary increases upon regularization, the employer should update the withholding computation prospectively and annualize as required.

For example:

January to June: probationary salary of ₱25,000 per month
July to December: regularized salary of ₱35,000 per month

The employer should consider the total annual taxable compensation in determining the correct tax withheld for the year.

XLI. Non-Regularization and Tax Treatment

If a probationary employee is not regularized, the employer must still settle payroll tax obligations.

The employer should:

Compute final taxable compensation;
Withhold tax on taxable final pay;
Include the employee in required BIR reports;
Issue BIR Form 2316;
Maintain payroll and employment records.

Non-regularization does not cancel tax already due on compensation earned.

XLII. Common Mistakes

1. Waiting Until Regularization Before Withholding

This is incorrect. Tax withholding applies to taxable compensation paid during probation.

2. Treating Probationary Employees as Contractors

This is incorrect if an employer-employee relationship exists.

3. Not Issuing BIR Form 2316 to Separated Probationary Employees

An employee who received compensation should receive the relevant tax certificate.

4. Treating All Allowances as Non-Taxable

Allowances are taxable unless properly excluded or substantiated.

5. Ignoring Prior Employment

Failure to consider prior compensation may result in under-withholding.

6. Assuming Minimum Wage Earners Are Always Completely Tax-Free

The minimum wage exemption has limits. Other taxable compensation may still be subject to tax.

7. Misclassifying Benefits

Benefits must be classified correctly as taxable compensation, de minimis benefits, 13th month and other benefits, fringe benefits, reimbursements, or exempt payments.

XLIII. Relationship with Social Security Contributions

Probationary employees are generally covered by SSS, PhilHealth, and Pag-IBIG requirements if they are employees. These obligations are separate from withholding tax.

The presence or absence of withholding tax does not determine whether social contributions apply. For example, a minimum wage employee may have no income tax withholding but may still be subject to social contribution deductions.

XLIV. Recordkeeping

Employers should maintain adequate records for probationary employees, including:

Employment contract or appointment letter;
Payroll register;
Payslips;
TIN records;
BIR Form 2316;
Prior employer certificate, if applicable;
Records of taxable and non-taxable benefits;
Reimbursement liquidations;
Final pay computation;
Proof of remittance and tax filings.

Good documentation is essential in case of BIR audit or employee dispute.

XLV. Key Legal Principles

The topic may be summarized through the following legal principles:

A probationary employee is still an employee.
Compensation paid to an employee is generally taxable unless exempt.
Employers must withhold tax on taxable compensation.
Taxability does not depend on regularization.
Minimum wage earners may enjoy income tax exemption on qualifying compensation.
13th month pay and other benefits are exempt only up to the statutory ceiling.
De minimis benefits are exempt only within prescribed limits.
Allowances are taxable unless properly excluded or substantiated.
BIR Form 2316 must be issued to employees who received compensation.
Misclassification of employees as contractors may create tax and labor exposure.

XLVI. Conclusion

Probationary employment does not create a special tax exemption. In the Philippines, a probationary employee is generally subject to the same withholding tax rules as a regular employee. The employer must withhold tax on taxable compensation, remit it to the BIR, file the required returns, and issue the proper tax certificate.

The decisive factors are not the employee’s probationary status, but the existence of an employer-employee relationship, the nature of the compensation paid, the amount of taxable income, the employee’s minimum wage status, and the applicability of statutory exclusions.

For employers, the safest approach is to place probationary employees under the same payroll tax compliance system used for regular employees from the first day of paid employment. For employees, the practical concern is to understand payslip deductions, keep BIR Form 2316, and determine whether annual filing obligations remain.