Expanding your business operations in the Philippines is smart for foreign organisations. You'll benefit from a highly skilled workforce and lower costs.
Although expanding into a foreign country can be daunting, this guide will help you quickly navigate the Philippines' labour laws, tax requirements, and hiring expectations. Additionally, you'll discover why engaging employees through an EOR is a wise decision and how to execute it successfully.
Employment Dynamics in the Philippines
This section provides an in-brief snapshot of some critical aspects of employment law in the Philippines and the HR landscape.
Legal and Regulatory Frameworks in the Philippines
With the right approach and a solid understanding of the guidelines, setting up operations in the Philippines can be a successful venture for your company. While the employment regulations may lean towards the employees, your business can still attract top talent by following the necessary protocols.
Working hours: Philippines has a 6-day work week with at most 8 hours a day or 48 hours per week.
Minimum wages: The minimum wages in the Philippines vary according to different regions (based on the standard of living). The national average is 537 PHP per day. The pay could be as low as 89 PHP in some regions.
Overtime pay: Employees who work overtime are entitled to an extra payment of 25% on top of their regular wages. Workers obliged to work overnight must be paid a night shift premium of 110% of their regular salary. Night shift workers must be paid a premium of 110% of their regular salary.
Employer contributions: Employers are required to contribute regularly to the Social Security System (SSS), National Health Insurance Programme and the Home Development Mutual Fund, which covers sickness, maternity, disability, retirement, deaths and funerals, health insurance and housing loans.
Paid leave: All employees who have completed one year of service are entitled to five days of paid leave. Employees usually provide 15 days of paid vacation a year.
Maternity and paternity leave: Female employees are entitled to 105 days of paid maternity leave, while male employees are entitled to seven days.
Taxation: The corporate tax rate for foreign resident companies in the Philippines is 30% based on net taxable income. Employers in the Philippines must also withhold their employee's income tax on their behalf.
Work-from-home and remote work policy: Companies under the Information Technology and Business Process Management sector should follow a 70-30 hybrid work model. Companies that don't follow this rule can potentially lose their current tax incentives. Remote employees must also receive the same collective rights as on-site employees.
Human Resource Potential in the Philippines
The economy of the Philippines is rapidly growing in Southeast Asia, making it a popular destination for foreign corporations to establish their presence. The government offers comparatively lower wages, and the Filipino workforce is highly educated, bilingual, and displays exceptional work ethics. Furthermore, 77% of Filipino workers show enthusiasm towards upskilling and retraining, indicating their keenness towards learning and self-development. The country also encourages hybrid work environments, as the government passed a law in 2019 to protect the rights of remote workers and promote a hybrid work culture for tech sector employees.
Employing workers in the Philippines with an EOR: How does it work?
An Employer of Record (EOR), a global employment solution, can help you hire and manage a workforce in the Philippines without going through all the complexities of opening your legal entity in the country.
An EOR, will literally act as an employer on your behalf while taking care of administrative duties such as payroll, taxes, compliance, and reporting for your Filipino employees. They will handle all the paperwork and formalities through their entity. They can even recruit staff for you in the Philippines as they will be well-versed in the local language and processes.
In short, working with an EOR like Teamed will make hiring, managing, and paying your team in the Philippines easier. Get all the benefits of working with foreign talent without navigating foreign bureaucracy alone.
Working with an EOR Partner in the Philippines
When venturing into a new market or expanding business in the Philippines, select the right Employer of Record (EOR). Let's learn how to compare potential EOR partners and make the right decision:
Selecting the right EOR
Firstly, look for an EOR with extensive experience in the Philippines and a proven track record of serving other companies. They should have deep knowledge of the employment laws, regulations, and best practices. There are employment regulations unique to the Philippines that foreign organisations may overlook when navigating alone. For example, night shift workers are entitled to 110% of average wages. This should be considered before hiring any night shift workers.
The best EORs would be able to accommodate your business growth and adapt to your dynamic requirements. They should be able to provide service for both large and small-scale companies.
And finally, an EOR should have a solid local network to provide the best service. They should have relationships with government authorities, legal advisors, and recruiters. This will give you access to local insights that will be difficult if you do it alone.
Contractual agreements and responsibilities
Every EOR service provider out there has different roles and responsibilities. For instance, some EORs only handle HR administration, while some provide a full-package service. So make sure you get the contractual agreement and duties right before finalising.
Clearly outline the specific services and boundaries you want the EOR to provide. Some standard services include recruiting, payroll, employee benefits, HR administration, and compliance support.
Also, ensure that the contractual agreement between your organisation and the EOR specifies that the EOR should handle tax filings, withholding, and other legal work. These essential tasks would determine the smooth running of your firm in the Philippines.
Confidentiality and data protection
Ensure the EOR provides data security measures such as encryption, secure storage systems, and regular audits. They ensure that the employees' data is protected and not misused in compliance with the Philippine Data Privacy Act.
The EOR can help businesses uphold confidentiality and implement robust Intellectual Property (IP) protection measures. Remember, if an EOR fails to comply with the country's laws or breaches any data privacy rules, the company they were hired by may also face charges and be held responsible. So make sure you are careful with the EOR you choose.
Roles and Responsibilities of an EOR in the Philippines
An Employer of Record in the Philippines can handle multiple tasks ranging from recruiting to compliance.
Hiring and Recruiting through an EOR
While Employer of Record (EOR) services may offer recruitment assistance in certain cases, there are instances where they collaborate with recruitment partners to support employers in sourcing suitable candidates. However, the core focus of EORs lies in efficiently onboarding employees and effectively managing them on behalf of the employers.
Their primary responsibility is to handle the administrative tasks associated with onboarding new employees, ensuring compliance with legal requirements, and overseeing ongoing employee management.
The EOR then prepares and presents the employment offer to the candidate, outlining compensation details and terms of employment and onboarding the candidate. The Philippines have different rules in terms of working hours and leaves. So an EOR will ensure this is right in all the official documentation.
Although your organisation can do these tasks internally, an EOR can do it much more efficiently as they know the local landscape in the Philippines and have a much more robust network. The EOR plays a role in fostering positive employee relations and works to maintain a harmonious work environment.
Payroll and Benefits Management
Another important job the EOR handles is the timely and accurate distribution of salaries and benefits as your global payroll service. They also ensure contributions to funds like Social Security and Home Development Mutual Fund, which are mandatory contributions to be made by an employer in the Philippines.
On behalf of your organisation, the EOR can administer employee benefits programs. These include health insurance plans, retirement savings programs, vacation and leave management, and other benefits.
Further, EORs can track the attendance and productivity of your employees and do a performance review based on your requirements. They may also set goals and expectations with team members to ensure the smooth running of your organisation.
Legal Compliance and Risk Management
An EOR will ensure legal compliance and financial risks for the client. Apart from ensuring that the organisation follows the employment practices aligned by the country, they also handle employee disputes and grievances and manage employee terminations and severance.
There are certain legal aspects in the Philippines that you should be cautious about, like the arduous termination process. Workers should get a 30 days written notice and severance pay in case of termination with an authorised cause. Because of this, most employers choose to have a lengthy probation period (usually six months) when hiring Filipino workers.
In a foreign country, it's always best to seek the services of an EOR because they would know the best ways to protect the client's interests and implement policies to minimise risks associated with employment.
Reporting and Record-keeping
The EOR maintains records such as up-to-date employee reports, personal information, employment contracts, and performance evaluations to facilitate an efficient HR process. They also generate and maintain payroll and tax reports.
Businesses in the Philippines must register with the BIR and comply with the tax reporting and payment obligations. This includes filing regular tax returns, such as the Monthly Percentage Tax, Quarterly Income Tax, and Annual Income Tax Return.
Employers must also report and remit contributions to PhilHealth, the national health insurance program. Monthly reports and payments should be submitted to comply with the requirements.
And additionally, they also must report their employees' contributions to the SSS, a government agency responsible for social security benefits. They need to submit monthly reports and remit the corresponding gifts.
These are essential for the proper financial management of an organisation. And for all this to happen seamlessly, it's best to hire a skilled EOR to handle these tasks so that you can focus on core business functions.
Collaborate with an EOR to expand your organisation in the Philippines
An EOR provides employers with stability regarding different HR functions while helping them save money and time. You will no longer need to appoint multiple agents and organisations to get started with hiring Filipinos.
Teamed can help you onboard employees within hours rather than weeks or months. With local experts, we ensure you get access to the right talent pool and provide them with the best experience. We coordinate employment services in the Philippines and across the Asia Pacific region. Contact us to get expert guidelines according to your organisation's circumstances.