Singapore — 10 min
Philippines — 10 min
There’s never been a better time for companies to begin investing in remote workers. The Philippines is a tempting talent pool full of educated workers with great work ethics. However, the Philippines has many laws and regulations that make hiring and paying remote workers complicated for those abroad.
You don’t have to go into the process blind, though. In this in-depth guide, you’ll learn about the Philippines’ labor laws, tax requirements, and hiring expectations. You’ll also discover the best way to hire and pay workers in the Philippines.
There are plenty of companies that already employ workers in the Philippines while operating outside the country. These foreign businesses pay their staff in three ways: through their own legal entity, through an employer of record, or as contractors. Here’s what those methods look like.
If you want to handle everything yourself, you can pay your Filipino employees through your legal entity in the country. This requires you to open a branch of your company in the Philippines. You manage everything yourself, which provides you with the greatest level of control, but it also puts you at risk of taxation and legal problems if you make a mistake. This option is best suited for large companies with deep pockets and existing knowledge related to international business expansion.
The alternative to opening your own entity to pay full-time employees is to use an employer of record, or EOR. Your EOR acts as employer on your behalf in the country while managing payroll, benefits, and taxes for your Filipino team. You still employ the workers, but your EOR handles the administrative duties while taking on the burden of local compliance.
If you don’t need your workers to be regular employees, you can hire them as contractors instead. In this case, you can pay workers directly by using Remote’s Contractor Management solution. However, you should not attempt to pay full-time employees as if they were contractors, as doing so could expose your business to the liabilities that come with misclassification.
The Philippines uses the Philippine peso, also known as the “piso” in Filipino. The piso is worth about two cents USD on average and is commonly abbreviated as "P." Companies outside the Philippines must convert their currency into piso to pay their Filipino workers.
The Philippines has a tax code that’s similar in many ways to the U.S. tax code. This includes a tax bracket exempt from taxation, progressive brackets, and tax exemptions and deductions.
All workers who are considered to live full-time in the Philippines must pay taxes in the country according to their tax bracket.
The tax brackets in the Philippines are:
These brackets cover income taxes alone, not social security payments or other potential withdrawals. Employers in the Philippines must withhold their employees’ income taxes on their behalf.
Not all parts of your employees’ salaries are taxable in the Philippines. Here’s what you need to know about how income tax is applied to Filipino remote workers’ salaries.
Workers who earn more than minimum wage will need to pay income taxes on at least part of their income. Any monetary compensation above the first tax bracket is subject to income tax. However, certain fringe benefits may not be considered part of an employee’s salary and therefore not subject to income tax.
Other parts of wages and salaries in the Philippines aren’t taxed at all. For example, tax exemptions in the country include:
Salary at minimum wage
Holiday pay and bonuses
Night shift bonus pay
These funds are exempt from income taxes and withholdings. Furthermore, Filipino workers who earn minimum wage and only minimum wage aren’t required to file their taxes at all.
There are additional exemptions for Filipino remote workers, including:
Personal exemptions for themselves and their children
Monetized unused vacation leave credits
Tax-exempt fringe benefits such as housing and company vehicles for managers
Per diem payments are daily allowances given to employees to cover specific needs. Per diem is common for business travel in the Philippines.
In the Philippines, per diem allowances may or may not be taxable depending on what the payments cover. If a per diem allowance is granted to make an employee’s job more enjoyable, the allowance is likely taxable. However, per diem payments made strictly to cover business expenses are not taxable.
The Philippines is quite lenient regarding tax-exempt compensation, but they still have tax allowances. An allowance is considered a fringe benefit, so it’s often subject to the country’s fringe benefits tax.
There are exceptions, such as benefits that are more convenient to the employer than the employee. If a remote worker is given a relocation allowance to move somewhere with better internet access, this may be considered an employer convenience benefit, and therefore not taxed.
On the other hand, reimbursements are considered repayment for business expenses. As a result, reimbursements aren’t taxed in the Philippines because they are considered to be something the company was responsible for in the first place.
The Philippines does not require many payroll deductions. The mandatory deductions are:
Social security: The country’s social security payments must be withheld by employers on behalf of their employees.
Income taxes: As in most countries, employers withhold incomes taxes for their employees.
Philippine Health Insurance Corporation: The Philippines funds its national health insurance program through mandatory monthly contributions of 3% of a worker’s salary, split between the employee and the employer.
Home Development Mutual Fund: This fund, also known as the Pag-IBIG, is a national savings program that offers home loans and housing. This is paid for through a mandatory P200 monthly contribution split between employers and employees.
In the Philippines, the national minimum wage is set at P537 per day. This may be higher in large cities or more populous states. Workers are also entitled to overtime pay, night shift differential, rest days, holiday pay, separation pay, and pensions.
The basic overtime pay rate in the Philippines is 125% of the employee’s regular hourly rate. Overtime is required whenever an employee works more than eight hours a day. If a worker works on a holiday or rest day and does overtime, it is 130% of the holiday pay rate.
The Philippines have a relatively involved labor code. The most important labor laws for remote workers include:
Workers may be regular, “casual,” project, or seasonal. Project employment is the same as independent contracting, while casual employment is part-time or temporary, and seasonal is predominantly agricultural.
Regular employees may only be fired “for cause,” meaning that the business has proven it has a good reason to release an employee. Employees must be notified of their termination at least one month before the end of their employment.
Workers must be paid at least twice a month.
Terminated workers must receive separation pay equal to one month of salary.
Workers cannot be forced to work overtime unless there is an urgent need.
Workers obliged to work overnight must be paid a night shift premium of 110% of their regular salary.
If you require only a short-term or limited-scope project, you may want consider working with a Filipino contractor. Contractors are not held to all the same labor laws as employees, so paying them and managing the working relationship is simpler. You can pay contractors with Remote’s Contractor Management solution and not need to worry about the tax codes in the Philippines, as you would not withhold taxes from contractor pay.
However, if you hire contractors yourself, you risk contractor misclassification. The Philippines has strict laws regarding how workers are classified. If you treat workers like employees but classify them as contractors, you could be sued for back taxes and receive fines.
This can also be a problem if you hire a contractor but decide to increase their role in your company. Remote can help you simplify the contractor classification process or convert contractors into employees.
To pay remote employees (not contractors) in the Philippines, you must either open your own local legal entity or work with a global employment solution that acts as your employer of record (EOR). EORs handle all of the paperwork and legalities for you through their owned legal entity. Technically, they even hire your staff for you. However, you get all the benefits of working with top-quality talent without navigating foreign bureaucracy yourself.
Working with an EOR like Remote makes it easy for you to hire and pay your team in the Philippines. Plus, Remote can help you scale your hiring process quickly by handling the legal details. Learn more about how to compare potential EOR partners.
To pay remote workers in the Philippines, no one makes it easier, safer, and more cost effective than Remote. Whether you’re working with contractors, employees, or both, Remote can act as your EOR and take the effort out of hiring the best talent.
Remote’s expertise in Filipino employment means you can attract and retain top local talent by leveraging Remote’s understanding of local laws, customs, and employee expectations. We take care of everything from running payroll to creating localized benefits packages to tax compliance. You find the talent, and we make it easy for you to work together.
If you’re ready to get started, sign up today and begin onboarding employees and contractors in minutes. Have questions?
Contact us and let us know how we can help.
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