How to hire and pay remote workers in the Philippines

There’s never been a better time to invest in remote workers, and the Philippines offers a tempting talent pool. However, its regulations make it complicated to hire and pay employees abroad.

You don’t have to go into the process blind, though. This guide covers everything you need to know about hiring remote workers in the Philippines including the Philippines’ labor laws, tax requirements, and hiring expectations. Soon, you’ll know how to employ Filipino workers from anywhere in the world!

Why should foreign businesses hire Filipino workers?

If you’re unsure whether to hire workers from the Philippines or elsewhere, consider the factors outlined below.

High English levels

The Philippines was a colony of the US from 1898 to 1946, and English remains one of the official languages of the Philippines (along with Tagalog).

Filipino professionals have a strong grasp of the language, with the country’s English proficiency index ranking 20 out of 113 nations.

Language isn’t the only bonus of the shared history between the Philippines and the West. It also has various cultural similarities, with a culture sometimes dubbed “East meets West.”

This facilitates workplace relations and allows for easy communication despite the geographic distance.

Skilled workforce

As any manager knows, there’s more to the perfect employee than just their language abilities. Fortunately, it turns out that Filipinos have plenty more strings in their bows.

Filipino workers are known for their strong work ethic, which makes them willing to work through time zone differences.

LinkedIn found that Filipino professionals prioritized boosting their hard skills and soft skills in a range of industries over the past decade.

How to employ Filipino workers

Plenty of companies already employ workers in the Philippines as offshore employees while operating outside the country. These foreign businesses pay their remote staff in three ways:

1. Through their own legal entity

2. Via an employer of record

3. As contractors

Here’s what those methods look like.

Open a legal entity in the Philippines

If you want to handle everything yourself, you can pay your Filipino employees through your own legal entity. This requires opening a branch of your company in the Philippines and obtaining an employment permit from the Department of Labor and Employment (DOLE).

By managing everything yourself, you’ll have the greatest level of control possible. But you’ll also be at greater risk of taxation and legal problems if you make a mistake.

This option is best suited for large companies with existing local knowledge (or the means to obtain it).

Work with an employer of record

Instead of opening your own entity to pay full-time employees, you could use an employer of record (EOR).

Your EOR acts as an employer on your behalf, managing payroll, benefits, and taxes for your Filipino team. You still employ the workers, but your EOR handles the administrative duties and local compliance.

We’ll include more details on how a relationship with an EOR works shortly.

Pay workers as contractors

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 using Remote’s Contractor Management solution.

This provides one platform for organizations to handle contracts, invoices, tax forms, and more. There are features such as smart contractor onboarding and help with regional regulation compliance.

However, you should not attempt to pay full-time employees as if they were contractors. Doing so could expose your business to the liabilities that come with misclassification.

In what currency do companies pay remote workers in the Philippines?

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.

What are the tax rates for tax brackets in the Philippines?

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 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:

• ₱0-250,000: 0%

• ₱250,000-400,000: 15%

• ₱400,000-800,000: 20%

• ₱800,000-2,000,000: 25%

• ₱2,000,000-8,000,000: 30%

• ₱8,000,000+: 35%

These brackets cover only income taxes, not social security payments or other potential withdrawals. Employers in the Philippines must withhold their employees’ income taxes on their behalf.

Which parts of salary in the Philippines are taxable?

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.

Components of salary in the Philippines that incur full taxes

Workers who earn more than the 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.

Components of salary in the Philippines that incur partial taxes

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

• Hazard pay

• Overtime

• Night-shift bonus pay

These funds are exempt from income taxes and withholdings. Furthermore, Filipino workers who only earn the minimum wage aren’t required to file their taxes at all.

There are additional exemptions for Filipino remote workers, including:

• Insurance premiums

• Personal exemptions for themselves and their children

• Monetized unused vacation leave credits

• Tax-exempt fringe benefits such as housing and company vehicles for managers

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Is per diem taxable in the Philippines?

Per diem payments are daily allowances for employees to cover some of employees’ needs in the Philippines. These payments are a way for employers to motivate employees, but it’s important to handle them appropriately.

Most importantly, allowances may or may not be taxable depending on what the payments cover.

If a per diem allowance makes an employee’s job more enjoyable or provides significant value, the allowance is likely taxable. These are known as fringe benefits, and examples include health insurance and employee stock options. They’re taxed at a 35% rate.

However, per diem payments made strictly to cover business expenses are not taxable. These are known as de minimis benefits since they’re minimal in value. Some examples are:

• Catered lunches

• Refreshments

• Monetized unused vacation leave

• Uniform and clothing allowance

• Laundry allowance

Note that some of these items are only non-taxable up to a certain amount, after which taxes may apply.

Is there a difference between allowance and reimbursement in the Philippines?

The Philippines is quite lenient regarding tax-exempt compensation, but it still has 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 employers award for their own convenience. If a remote worker is given a relocation allowance to move somewhere with better internet access, this may be considered an employer convenience benefit. It will therefore be tax-free.

On the other hand, reimbursements are considered a repayment for business expenses. These aren’t taxed in the Philippines since the employer has already paid once.

What payroll deductions are employers required to make in the Philippines?

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 income taxes for their employees.

• Philippine Health Insurance Corporation: The Philippines pays for its national health insurance program through mandatory monthly contributions of 3% of a worker’s salary. This is 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.

Philippines —

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What is the minimum wage in the Philippines?

In the Philippines, the national minimum wage differs between regions to reflect different economic conditions and cost of living. The Regional Tripartite Wages and Productivity Board (RTWPB) dictates this.

For instance, in Metro Manila, the daily minimum wage is ₱500.66 per day.

However, there’s a different minimum wage for agricultural and non-agricultural workers.

Workers are also entitled to:

• Overtime pay

• Night shift differential

• Rest days

• Holiday pay

• Separation pay

• Pensions.

How much is overtime pay in the Philippines?

The basic overtime pay rate in the Philippines is 125% of an 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.

What are the local labor laws in the Philippines?

The Philippines has a relatively involved labor code. Let’s look at the most important labor laws for remote workers.

Worker classification

There are four main classifications for Filipino employees:

• Regular

• Casual (part-time or temporary work)

• Project (the same as independent contracting)

• Seasonal (primarily agricultural work)

Reasons for dismissal

Regular employees may only be fired “for cause.” In other words, an employer must prove it has a good reason to let a worker go.

Employees must be notified of their termination at least one month before the end of their employment.

Just causes for dismissal include serious misconduct, gross neglect of duties, and committing a crime or offense.

Compensation

Workers must be paid at least twice a month.

Terminated workers must receive separation pay equal to one month of salary.

Workers who have to work overnight (between 10 pm and 6 am) must be paid a night shift bonus of 110% of their regular pay.

Working hours and conditions

According to the Labor Code of the Philippines, a standard working week is eight hours a day over five days. Clinical personnel may work more.

Workers cannot be forced to work overtime unless there is an urgent need.

Employees must receive meal periods of at least 60 minutes, although these are non-compensable. They must also receive 25 hours of rest after six consecutive workdays.

Additionally, employers should be sure to follow Filipino employment laws. These include the Anti-Sexual Harassment Act of 1995, the Telecommuting Act, and the Data Privacy Act of 2012.

Holidays and leave

As with most countries, the Philippines gives its workers a few national holidays. All employees should get paid during these holidays.

Legally, employers must pay employees a full month’s salary if they have worked for them the whole year (known as the 13th month pay). Employers must pay this by the 24th December each year.

Employees who worked for six of the past 12 months are entitled to maternity leave. They can take at least two weeks off work before giving birth, and four weeks after giving birth.

How to pay contractors in the Philippines

If you require only a short-term or limited-scope project, you may want to consider working with a Filipino contractor. Contractors don’t fall under the same labor laws as employees, so working with them is simpler.

When you pay contractors with Remote’s Contractor Management solution, you don’t need to worry about the tax codes in the Philippines, since you won’t be withholding 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.

How to pay remote employees in the Philippines

To pay remote employees in the Philippines, you must either:

1. Open your own local legal entity in the country.

2. Work with a global employment solution that acts as your employer of record (EOR).

Since EORs own a legal entity in your target country, they can handle the documentation and legal processes involved in hiring staff. As a result, you get to work with top-quality talent without navigating the foreign bureaucracy.

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.

Pay remote workers in the Philippines with Remote

The Philippines is full of talented workers, but you need to get your head around a few rules and regulations before you start dishing out contracts.

Fortunately, Remote makes this process easy.

Leveraging Remote’s understanding of local laws, customs, and employee expectations helps you attract and retain top local talent. We take care of everything from running payroll to creating localized benefits packages. 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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