Net pay as employee versus contractor at the same gross.
Net pay difference
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Employee net
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Contractor net
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Gross premium to match
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Your breakdown
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Same gross, very different take-home
A common scenario in the Philippines: you are offered the same headline figure to come on as a regular employee or to invoice the company as an independent contractor or professional. They sound equivalent. They are not. The tax treatment, the mandatory contributions, and who pays for your benefits all differ, and the gap in what actually lands in your bank account can run into six figures a year. This calculator compares annual net pay on both routes at one shared gross so you can see the real number rather than the headline.
It is aimed at freelancers, consultants, and professionals deciding between a payroll seat and a service contract, and at employers trying to set a fair contractor rate. The default contractor method picks whichever of the 8 percent flat tax or graduated-plus-percentage-tax is cheaper, which is what a well-advised contractor would elect.
What each side pays, and who absorbs the benefits
The employee path runs gross compensation through monthly SSS, PhilHealth, and Pag-IBIG contributions, deducts those for the year, then applies graduated income tax to what remains. The employer quietly shoulders its own larger share of those contributions, which never shows on your payslip but is real cost to them. The contractor path, when the 8 percent flat option is elected, taxes gross sales above PHP 250,000 at 8 percent and replaces percentage tax entirely, but the contractor funds every peso of their own retirement and health cover voluntarily. This tool does not deduct those voluntary contributions from the contractor's net, so read the contractor figure as pre-benefits cash.
A PHP 900,000 offer, both ways
Take the defaults: PHP 900,000 annual gross, PHP 100,000 of business expenses, and the cheaper-of contractor method. The figures use the rates this calculator applies.
The contractor nets about PHP 110,000 more on the same PHP 900,000. The 8 percent flat tax is doing the work: PHP 52,000 against the employee's PHP 116,025 of income tax, and the contractor skips the mandatory payroll contributions in this calculation. Because the contractor already comes out ahead, the gross premium a contractor would need to charge just to match the employee is effectively zero here, so the tool shows PHP 0 in that box. That premium figure only becomes positive when the employee route wins, typically at higher incomes where the 8 percent advantage narrows.
The benefits gap the headline number hides
That PHP 110,000 edge is not free money. The contractor has to buy their own health insurance, build their own retirement fund, and weather months with no work or no thirteenth-month pay. An employee gets paid leave, employer-matched SSS and PhilHealth, and the security of a regular payslip. Before celebrating the contractor figure, set aside a chunk of that advantage for the cover you are giving up. A reasonable rule of thumb is to treat the gap as the cost of self-funding benefits, not as a pure raise.
The biggest mistake is forgetting the PHP 3,000,000 ceiling. The 8 percent option is only available to self-employed individuals and professionals whose gross sales stay under the VAT registration threshold. Cross it and you are pulled into VAT and graduated rates, and the contractor advantage modelled here can reverse sharply. Watch that line as your billings grow.
Do contractors really skip SSS and PhilHealth entirely?
No. Self-employed individuals are required to register and contribute to SSS and PhilHealth, and Pag-IBIG membership is encouraged, just at self-employed rates they remit themselves rather than through an employer. This calculator leaves those out of the contractor net to isolate the tax comparison, so subtract your own expected contributions before treating the contractor figure as final. Check the current self-employed rates with SSS, PhilHealth, and Pag-IBIG.
When does the employee come out ahead?
Usually at higher gross figures and when you value the safety net. As income rises, more of a contractor's earnings face the 8 percent flat tax with no exempt slice beyond the first PHP 250,000, while an employee keeps deducting contributions and benefits. Switch the contractor method to graduated in the dropdown and add realistic business expenses to see the crossover for your own numbers.