How Global Companies Can Legally Hire Talent in The Philippines ?
The Philippines has always been one of the preferred destinations for businesses looking to expand their global workforce. Cost efficiency is one of the key concerns and prime factors for these companies.
The Philippines is a developing economy with a lower GDP per capita compared to more developed nations, hence an employer can enjoy lower costs for operations. According to PayScale, the expected average annual salary for a Filipino customer service representative in 2025 is USD 4,013 as compared to USD 44,779 in the US.
The Asian Development Bank states in one of it’s reports, that besides facilitating lower operational costs for businesses, The Philippines is also home to approximately 700 active startups. These startups benefit from a workforce that possesses, higher levels of knowledge and advanced skills, to generate needful technological output.
Companies in the Philippines thus enjoy a combination of an affordable and skilled workforce together with high English proficiency – deeming it ideal for foreign investment.
In this guide, we explore different hiring models, from Employer of Record services to direct hiring and payroll management in Philippines, to help you navigate the legal and regulatory landscape when hiring in the Philippines.
How to hire in the Philippines?
Direct Hiring
The Philippines government allows foreign companies or entrepreneurs to directly hire Filipinos, upon fulfilling the requirements of the SEC’s Company Registration System (CRS) for Corporations, or DTI Business Name Registration System for Sole Proprietorships – and having their respective businesses registered thereunder.
One needs to check if they fall under the restricted category within the Foreign Investments Negative List (FINL), attain the required business permits, register with the Bureau of Internal Revenue (BIR) for taxes, and with the Filipino Social Security System, PhilHealth and Pag-IBIG.
Setting up a legal entity is beneficial for those who aim for long-term projections in The Philippines. Additionally, every business has its own differentiated need to opt for a particular business structure. For instance, large companies can quickly enter the Filipino market by acquiring companies and inherit it’s local capabilities.
Engage an Employer of Record
Engaging an Employer of Record is a preferred choice for companies looking for an easier entry into the a foreign workforce. As local entity setups can take a lengthy and expensive process, companies can consider the EOR offering as a quicker and more cost-effective method.
Companies who have engaged an EOR service, are better able to devote their attention and resources to core business activities. A relief as well from the administrative burden of hiring and handling payroll, HR, and other related functions.
As EORs have a better understanding of their local labour laws, it helps to effectively mitigate any risk of non-compliance. Furthermore, it is also recommended for those who do not plan to make any heavy investments into The Philippines until some exploration has been carried out.
BPO Model and Independent Contractors
It is worth noting that according to the IT & Business Process Association of The Philippines – IBPAP, the BPO industry in The Philippines employs over 1.4 million people and contributes to 8% of the country’s GDP.
However, it is also worth noting that not every business benefits from utilising a Business Process Outsourcing (BPO) model. This model will work for specific business tasks that often includes customer support, IT services and back-office operations.
Similarly, Independent Contractors are more suitable for short-term projects and business needs for specialised skills; however, this presents a speedy and cost-effective avenue for hiring workers. It is thus important for future employers in The Philippines to have a grasp of the different models of hiring that can be employed, for specific needs.
Understanding Labor Laws & Employment Contracts
The principle that any doubts in the interpretation of labour laws should be resolved in favour of the employee rather than management – is critical for employers to understand about the fundamental thinking in Philippines jurisprudence. One can easily observe the kind of importance The Philippines government affords to labour rights. The basic laws are however similar to many other countries, few of the notable laws are as follows:
Ø The employees have a right to a 13th month salary which should not be less than one twelfth of the total basic salary earned within a calendar year.
Ø Contribution of 10% to Social Security System (SSS), 2.5% to the Philippine Health Insurance Corporation (PhilHealth), and 2% to Home Development Mutual Fund by the employer for fund salary above ₱1500.
Ø Work performed beyond eight (8) hours is considered overtime. An additional compensation equivalent to employee’s regular wage plus at least twenty-five percent (25%) thereof, is required to be paid for overtime. Work performed beyond eight hours on a holiday or rest day shall be paid an additional compensation equivalent to the rate of the first eight hours on a holiday or rest day plus at least thirty percent (30%) thereof.
Ø Provision of service incentive leaves, paternity leaves and maternity leaves is duly required.
Ø The Social Security Program provides a package of benefits in the event of death, disability, sickness, maternity and old age.
Conclusion
Companies need to assess and decide on choosing an appropriate way for effective hiring in The Philippines. By setting up a legal entity in The Philippines, companies can hire directly and retain full control over the process.
Alternatively, an EOR shoulders the responsibility of hiring by acting as the official legal employer. The EOR takes on the administrative burden of handling the entire process, and is in charge of the compliance and risk management of the engagement.
Contact Galaxy Payroll Group – a leading HR and Business Advisory service provider for the Asia Pacific region.
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FAQ’S
Can a foreign company hire employees in the Philippines without a local entity?
Yes, foreign companies can hire employees in the Philippines by engaging an Employer of Record (EOR) service provider. They can also outsourcing the required function to a Business Process Outsourcing (BPO) provider, if suitable.
As a foreign employer, what are the legal requirements for hiring in The Philippines?
Foreign employers must comply with Filipino labour laws. This covers properly crafted employment contracts, adherence to statutory benefits, contributions and tax obligations.
What are the common hiring challenges in The Philippines?
There is high competition for skilled talent. There also needs to be clear understanding of employment regulations and cultural differences. Payroll and workforce management are common challenges for new overseas employers.