For companies looking to expand their global workforce, there are many benefits to hiring employees in the Philippines.
The Philippines has a large workforce of about 40.5 million people, nearly 40% of its total population, and its thriving industries include manufacturing, agribusiness, and services.
The country is also known for its outsourcing capabilities, fast-growing economy, and young English-speaking workforce.
Read on to learn how to hire employees from other countries in the Philippines and enter this growing market compliantly.
Yes, foreign employers can hire employees in the Philippines. To hire employees in the Philippines, you must set up a legal entity in the country or work with an Employer of Record (EOR).
Global employers can also hire local contractors, but this approach involves significant compliance risks and limits scalability. We'll discuss this in more detail below.
The three main options for global companies hiring in the Philippines are establishing an entity, working with an EOR, and hiring a global contractor.
If a company wants to hire people directly from the Philippines, it must first establish a legal entity in the country.
Setting up an entity is the traditional way for many businesses to establish their overseas presence. It allows you to hire local talent directly and streamlines the hiring process. It also provides a strategic path to establish a long-term presence in the target market.
Setting up an entity is an advantageous option if you have fixed assets in the Philippines, have a large budget to spend, or plan to hire a large number of employees in the Philippines.
Despite this, entity setup is costly and time-consuming. It requires a knowledgeable HR team with expertise in local tax and labor regulations, a significant initial capital investment, and compliance with ongoing entity maintenance fees.
You should only set up an entity in the Philippines if it meets your long-term global expansion goals.
An Employer of Record (EOR) is a legal entity that can hire, payroll, and manage supported employees on your behalf in global markets, including the Philippines, without having to establish a legal entity.
As your global HR team, EOR handles everything from hiring and onboarding to risk mitigation, global benefits management, running global payroll, and providing ongoing HR support so that you can hire and pay employees quickly and compliantly in the Philippines without having to set up an entity.
While EOR is responsible for the heaviest HR tasks associated with building a distributed workforce abroad, you'll still need to take on the day-to-day responsibilities and goals of your employees.
Partnering with an EOR is a streamlined option to test foreign markets and quickly establish a workforce in multiple countries while reducing financial commitment and risk.
Some companies choose to hire Filipino contractors instead of hiring full-time employees. Hiring contractors allows employers to target local talent with specific projects or sporadic required expertise.
Since the contractor provides the service as a self-employed person, there is no commitment outside of the contract period. Hiring and paying contractors can also lead to greater flexibility, faster onboarding times, and cost savings.
However, hiring a Filipino contractor comes with the risk of misclassification. If you classify workers as contractors but treat them as employees, you'll risk tax refunds, unpaid benefits, reputational damage, and other penalties. We'll cover the risk of misclassification in more detail later in this article.
To hire employees directly in the Philippines, a foreign company must first establish a local entity — a reasonable option if you expect to have a long-term presence in the country.
However, another option for hiring Filipino workers directly is to hire a local contractor, which is a flexible, low-commitment, and cost-effective solution, but comes with scalability limitations and the risk of misclassification.
The cost of hiring an employee in the Philippines includes the employee's gross base salary plus at least 135%。This is because, in addition to paying monthly wages, employers must also contribute to the Social Security System (SSS)95. Contributions to the Philippine Health Insurance Corporation (Philhealth)2 and Family Development Commons2.
However, this total excludes costs associated with recruitment, onboarding, and other employee benefits, such as 13th-month pay.
To pay Filipino employees, foreign employers can manage payroll in-house or outsource it to a third party. If the employer administers payroll in-house, it must accurately deduct and contribute, comply with local payroll regulations, and pay employees via bank transfer or paycheck on a local account.
Many employers choose to outsource their Philippines payroll to a global payroll outsourcing partner to ease workload and reduce compliance risk.
When it comes to making payments to international contractors in the Philippines, most companies use international bank transfers, money transfer companies, international money orders, or contractor payment platforms.
While multinational companies can hire Filipino employees from abroad and pay them, there are always compliance risks when hiring talent across borders.
These risks relate to payroll tax regulations, permanent establishment liability, statutory benefit requirements, and misclassification. We will discuss each of them in detail below.
Foreign employers may not be familiar with mandatory payroll contributions in the Philippines. In the Philippines, failure to properly calculate wages and taxes can lead to lawsuits and fines, so it's crucial to understand the requirements.
In the Philippines, employers must consider the following wage contributions for their employees:
Social Security System (SSS). SSS provides financial support for a variety of unforeseen circumstances, such as illness, maternity, disability, retirement, and unemployment.
Philippine Health Insurance Corporation (PHiHealth). PhilHealth is a **funded healthcare system.
Family development is common**. This housing program provides short-term loans and housing programs to all Filipino workers.
When a company has a fixed location in the Philippines and generates income in the country, this usually triggers a permanent establishment and you are required to pay local corporate taxes.
If you set up a local entity in the Philippines, your local business tax obligations are clear. However, if you hire a Filipino contractor or send an in-country employee to the Philippines for business trips, these situations may also trigger a permanent establishment.
For example, if a local contractor completes a transaction or makes a sale in the Philippines on behalf of your company, this could trigger a permanent establishment, creating a local tax liability. If you ignore this responsibility, you may be subject to penalties for non-compliance such as non-payment of taxes, fines, and time-consuming lawsuits.
Filipino employees are also entitled to a variety of statutory benefits and holidays that may be unfamiliar to foreign employers, such as:
National holidays. The number of national holidays varies from year to year. In 2024, there will be 10 national statutory holidays.
Special non-working days. The Philippines** has 8 to 10 special non-working days per year. By 2024, there will be eight.
Service discretionary leave. This is similar to paid leave in other countries.
Personal Equity and Retirement Accounts (PERA). Pera is a retirement similar to a 401k retirement plan in the United States**.
13th-month salary. Unlike bonuses, the 13th-month salary is non-negotiable and is usually equivalent to a month's salary or one-twelfth of an employee's annual salary. Employers must pay by December 24 of each year.
Multinational companies that hire employees in the Philippines must be prepared to provide all local statutory benefits to their Philippines team.
When a company hires a contractor, even if unintentionally, misclassification is a risk.
For example, let's say you treat contractors like employees, manage their work schedules, or pay them a fixed salary. In this case, local authorities will treat them as employees under local labor regulations and cause you to owe benefits, taxes, and fines.
Each country has its own definition of employees and contractors, so it's important to consider your country's classification and reporting requirements and the Philippines.
Take a U.S. company as an example: If a U.S. company hires a Filipino contractor, it must file a W-8BEN tax return with the IRS to classify its status as a foreign worker as a non-U.S. citizen and determine the appropriate tax returns and withholdings.
Failing to properly classify your foreign contractors in the Philippines or meet local reporting requirements can result in potential penalties for your company, including fines, reputational damage, and a forced exit from the market.