Employer of Record in the Philippines
The Philippines has signified as a vibrant hub for skilled and talented professionals, making it a beneficial destination for companies seeking to expand their remote workforce. However, navigating the complexities of international hiring, particularly around employment laws, taxes, and payroll, can be daunting.
To avoid complexities, you need to know how to use an Employer of Record (EOR) in the Philippines.
As the country offers skilled professionals, employers across the globe get into the market to find the best employees for their organization. If you have a similar plan, this blog will help you as it is a guide to hiring in the Philippines with an Employer of Record.
Before learning about EOR in the Philippines, let’s check the hiring details of Filipino workers.
Hiring in the Philippines
Hiring the most qualified and talented professionals from the Philippines could be terrible if you don’t know the Philippines’ labor market, laws, regulations, and payroll details. This information will help you find the best Employer of Record partners in the Philippines to avoid unwanted hassle.
Employment contracts and agreements in the Philippines
Hiring Filipino talent can be advantageous, but understanding the legal requirements surrounding employment contracts is crucial. Here’s the list of key points to consider:
Mandatory elements
- Start date and duration
- Job description
- Compensation and benefits
- Work hours and schedule
- Grounds for termination
- Dispute resolution mechanisms
Optional elements
- Confidentiality clause
- Intellectual property ownership
- Non-compete clause
Legal requirements
- Written and signed
- Copy provided to employee
- Department of Labor and Employment (DOLE) registration
- Compliance with Philippine labor laws
Labor compliance in the Philippines: Key points for employers
Ensuring labor compliance in the Philippines is vital for employers employing Filipino workers remotely. Here’s a summary of primary points to remember:
Key regulations
- Labor Code of the Philippines
- Social Security System (SSS)
- PhilHealth
- Pag-IBIG Fund
- Department of Labor and Employment (DOLE)
Compliance responsibilities
- Employment contracts
- Compensation and benefits
- Working hours and breaks
- Leave entitlements
- Termination
- Recordkeeping
- Reporting
- DOLE inspections
Consequences of non-compliance
- Penalties and fines from DOLE
- Labor complaints and disputes
- Damage to company reputation
- Legal liabilities
Payroll and payroll taxes in the Philippines
Payroll components
Gross salary: Employee’s basic salary before deductions.
Mandatory deductions
- Income tax: Calculated based on a progressive tax bracket system.
- SSS, PhilHealth, and Pag-IBIG contributions: Shared between employer and employee based on mandated rates.
Optional deductions
- Employee contributions to voluntary benefit plans or company loans.
Net salary: The final amount received by the employee after all deductions.
Taxes and contributions
Employer responsibilities
- Withhold income tax from employee salaries.
- Based on mandated rates, contribute employer share to SSS, PhilHealth, and Pag-IBIG.
- File and pay taxes and contributions to BIR, SSS, PhilHealth, and Pag-IBIG on deadlines.
Employee responsibilities
- Pay any income tax due after annual adjustments.
- Contribute employee share to SSS, PhilHealth, and Pag-IBIG.
Additional considerations
- 13th-month pay: Mandatory bonus equivalent to one month’s basic salary, paid before Christmas.
- Overtime pay: Subject to higher tax rates.
- Benefits: Depending on the type and amount, it may be taxable or non-taxable.
- Record keeping: Maintain accurate payroll calculations, deductions, and tax payment records.
- Compliance: Penalties and fines apply for non-compliance with tax and contribution regulations.
Employment benefits and compensation in the Philippines
Understanding employee benefits and compensation in the Philippines is essential for hiring and retaining top talent. Here are the key elements to consider
Mandatory benefits
- Social Security System (SSS): This system provides retirement, disability, sickness, and maternity benefits. Employers and employees contribute shares.
- PhilHealth: Covers hospitalization and other medical expenses. Shared contributions.
- Pag-IBIG fund: Offers housing and savings benefits. Shared contributions.
- 13th-month pay: Bonus equivalent to one month’s basic salary, paid before Christmas. Employer responsibility.
- Leave entitlements: Annual Leave (15 days), Sick Leave (10 days), and other special leaves are mandated.
Commonly offered benefits
- Health insurance: Covers additional medical expenses beyond PhilHealth.
- Life insurance: Helps financial security in case of death.
- Retirement plans: Supplement SSS benefits for a more comfortable retirement.
- Performance bonuses: Reward outstanding employee performance.
- Training and development: Invests in employee skills and career growth.
Compensation
- Minimum wage: Varies depending on region and industry.
- Basic salary: The main component of employee compensation.
- Overtime pay: Compensates for work beyond standard hours.
- Allowances and bonuses: Provide additional income on top of the basic salary.
Severance pay and employee terminations in the Philippines
Severance pay is the financial compensation awarded to an employee laid off, terminated, or separated from the company under other circumstances. Navigating employee terminations in the Philippines involves understanding severance pay regulations and ensuring compliance with local labor laws. The key points are:
Who gets severance pay?
Filipino employees are entitled to severance pay under two main circumstances:
1. Authorized causes: Termination for reasons outside the employee’s control, such as business closures, retrenchment (redundancy), or force majeure (natural disasters).
2. Just causes: Termination due to employee misconduct or violation of company policies, as defined by law. However, severance pay is still required in specific situations like illness or injury preventing job performance.
Calculating severance pay
Authorized causes
- One month’s salary for every year of service if the employee has worked for less than two years.
- 1/2 month’s salary for every year of service if the employee has worked for two years or more.
- At least one month’s salary is required, even if the employee has worked less than a year.
Just causes
- No severance pay is awarded unless the employee’s offense falls under “serious illness or injury.” In this case, they receive half a month’s salary for every year of service.
Important notes
- Fractional years: Service of at least six months is considered one year for calculating severance pay.
- Termination pay: If the employee receives termination pay instead of notice (for authorized causes), the amount is considered part of the severance pay.
- Tax implications: Severance pay is subject to income tax.
- Compliance: Failure to pay proper severance pay can result in penalties and legal action.
The risks of employee misclassification in the Philippines
Mislabeling employees as independent contractors, rather than employees in the Philippines, carries substantial risks for employers and employees. Below is the list of risks involved:
- Financial penalties: The Bureau of Internal Revenue (BIR) and other government agencies can impose substantial fines and back taxes for misclassified employees. These penalties can be based on unpaid taxes, social security contributions, and PhilHealth contributions.
- Legal disputes: Misclassified employees can file legal complaints against the employer for unpaid benefits, overtime pay, and other entitlements. It can lead to costly lawsuits and damage to the company’s reputation.
- Compliance issues: Misclassification can trigger audits and investigations from government agencies, resulting in additional administrative burdens and compliance costs.
- Reputational damage: News of employee misclassification can damage the company’s image and hinder its ability to attract and retain top talent.
What is an EOR in the Philippines?
An EOR acts as a legal employer on your behalf, assuming all the responsibilities of hiring and managing your remote Filipino employees. The process includes tasks like:
- Contractual obligations: Drafting and managing employment contracts that comply with Philippine labor laws.
- Payroll processing: Handling salaries, taxes, and deductions, ensuring employees receive accurate and timely payments.
- Benefits administration: Managing employee benefits like health insurance and social security contributions.
- Tax compliance: Filing all necessary tax returns and adhering to Philippine tax regulations.
- Immigration support: Assisting with visa applications and work permit requirements, if applicable
What are the benefits of using an Employer of Record in the Philippines?
An Employer of Record (EOR) in the Philippines offers various primary benefits for companies hiring remote Filipino talent. Here are some of the most important:
Reduced administrative burden
- Compliance assurance: An EOR handles all compliance aspects, including labor laws, taxes, and payroll, giving you peace of mind and freeing up your resources.
- Streamlined hiring: They manage the entire hiring process, from contract drafting to onboarding, saving you time and effort.
- Minimal paperwork: You deal with minimal paperwork and administrative work, allowing you to focus on core business activities.
Cost savings
- No need to set up a local entity: Avoid the costs of establishing and maintaining a local legal entity in the Philippines.
- Reduced overhead: Eliminate expenses associated with hiring HR staff, managing payroll, and dealing with legal complexities.
- Transparent fees: EORs offer precise and predictable fee structures, enabling better budgeting and cost control.
Faster hiring and scalability
- Quick access to talent: Tap into the Philippines’ large talent pool without navigating complex hiring regulations.
- Flexible scaling: Easily adjust your team size without the administrative burden of onboarding and offboarding individual employees.
- Reduced hiring time: EORs streamline the hiring process, allowing you to find and hire qualified candidates quickly.
It is easy to hire Filipino workers. However, employers need to understand and calculate the Employer of Record in the Philippines to avoid unnecessary financial burdens.
If you are looking for the best Employer of Record partners in the Philippines, sign up with Global Squirrels – a hiring and payroll solution.
Why can Global Squirrels be your best Employer of Record partner in the Philippines?
Global Squirrels is one of the best Employer of Record partners in the Philippines. It helps you hire Filipino workers. The platform helps you find employees globally and manage their payroll on behalf of the employers.
It is an all-in-one solution available at the most affordable cost, in a one-time payment of 15% of the employee’s annual salary.
Talk to our expert if you want to learn more about Global Squirrels!
Conclusion
Utilizing an EOR in the Philippines allows you to tap into the country’s talented workforce while minimizing administrative burdens and costs. By carefully choosing the best Employer of Record partners in the Philippines, which helps you align with your requirements, you can build a successful remote team in the Philippines and gain a competitive edge.
