Hire and pay employees in the Philippines

Employer of Record (EOR) vs. entity

Before you kick off the hiring process for your Filipino employees, you need to figure out whether to hire them through an Employer of Record or set up your own local entity. 

• Legal entity in the Philippines. Setting up a legal entity from scratch usually requires registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with tax and labor laws.
• Philippine EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own entity. As well as allowing you to hire full-time Filipino employees, EORs handle all the legal requirements for complying with Philippine laws for payroll, contracts, and benefits. EOR services also include calculating and withholding taxes, onboarding and managing employees, and running payroll.

Deciding between an EOR and your own entity depends on your company’s resources, size, and plans to scale. Here are the pros and cons of each:

Read our guide to understand the steps involved in hiring through an EOR in the Philippines—and see how Rippling can help you hire and onboard Filipino employees in 90 seconds.

Classifying Filipino workers: employees vs. contractors

Another thing to get right in the early stages of hiring is classifying workers. The Philippines, like many other countries, defines employees and independent contractors differently—and misclassification can result in fines and penalties.

Here are some of the key differences between contractors and employees in the Philippines:

Check out our classification guide to make sure you’re staying compliant with Philippine labor and employment laws.

Work permits for Filipino employees

You need to ensure a candidate is allowed to work in the Philippines before you can move forward with the hiring process. Unless exempt, foreign nationals who aren’t citizens of the Philippines or permanent residents are required to obtain an Alien Employment Permit (AEP) to work in the Philippines. Then they typically need to apply for a 9(g), an employer-sponsored working visa granted to address labor shortages.

After that, an applicant can explore the following functional visas:

• Temporary Visitor’s Visa. This is for foreign nationals visiting the Philippines for leisure and business purposes. You can extend it in two-month increments until 16 months—or lengthen the stay up to two years with government approval.
• International Treaty Trader. Lasting up to two years, this visa is for residents of the US, Japan, or Germany who are looking to develop a business in the Philippines that they’ve previously invested in.
• Special Investor’s Resident Visa (SIRV). As long as they keep at least $75,000 (USD) in investments within the country’s borders, this visa allows foreign nationals to live in the Philippines indefinitely.
• Special Non-Immigrant Visa. This permit is for foreign nationals who are executives at companies headquartered or have a subsidiary in the Philippines. It takes about a month to process, and unlike many other Philippine work permits, holders of this visa don’t need an AEP.

Before you make your first hire in the Philippines (or transfer an existing employee to the country), read our full guide on how to acquire a work permit there.

New hire onboarding checklist

Once you’ve confirmed that your employee is legally allowed to work in the Philippines, you’re ready to move on to the next steps of the onboarding process. When done right, this can set the tone for a fulfilling employment relationship.

Remember, a successful onboarding experience isn’t just about getting the first day right. Here’s what to keep in mind for each stage of onboarding: 

Before their first day

• Complete a background check. 
• Send an employment contract (more on that in the next section).
• File other necessary paperwork.
• Prepare for tax withholdings. 
• Enroll them in benefits.
• Add them to payroll. 
• Order and configure their devices. 
• Prepare any resources they’ll need.
• Schedule their orientation.

On Day 1

• Make sure their workspace is ready. 
• Send out a welcome email. 
• Give them an agenda. 
• Schedule a meeting with their manager.
• Host a get-to-know-you event with the team.
• Give them an office tour. 
• Provide them with a list of contacts.

During their first 90 days

• Schedule training. 
• Assign work and help them set goals. 
• Schedule regular check-ins. 
• Seek their feedback on how to improve the experience.

For more details on each of these steps, see our guide on new hire onboarding in the Philippines.

What to include in an offer letter in the Philippines

Offer letters are an integral part of the hiring process, and it’s important to make sure the conditions of employment are clear to avoid any legal disputes down the line. Here’s a basic checklist of what to include in an offer letter, also known as an employment contract:

• Position, job description, and job duties
• Start date and working hours
• Probationary period
• Compensation and benefits
• Vacation leave policy
• Payment frequency
• Termination policy
• Confidentiality and non-disclosure agreements
• Contact information
• Non-compete and non-solicit agreements

Read our guide on how to send a legally compliant offer letter in the Philippines for a deeper dive into probation periods, termination policy, and more.

NDAs and confidentiality agreements in the Philippines

A non-disclosure agreement (NDA) is a legal contract that protects a company’s confidential information from being shared with third-party entities. In the Philippines, NDAs are legally binding as long as they comply with provisions in the country’s Civil Code, Intellectual Property Code, and Electronic Commerce Act.

Here’s what an NDA can protect in the Philippines: 

• Trade secrets
• Proprietary technology
• Business plans, strategies, and tactics
• Sensitive personal information protected by the Data Privacy Act
• Any information not intended for public consumption

Read our first-timer’s guide to the different types of NDAs in the Philippines—and the components you may need to make them enforceable.

Running background checks on Filipino employees

As eager as you may be to fill a position quickly, be sure not to skip out on the background check stage of the onboarding process. These screenings are necessary to verify employee credentials and avoid potential threats to the business.

Here are the common background checks to run on employees in the Philippines: 

• Criminal record
• Identity
• Employment verification
• Reference check
• Work authorization
• Education history
• Credit reports and financial records
• Social media profiles
• Driving records

Check out our guide for more information on the background checks you can run in the Philippines—and which ones are illegal.

Paying employees in the Philippines

There is no nationally set minimum wage in the Philippines, so pay ranges can vary across regions—typically highest in the country’s capital, Manila. Once you’ve decided between an EOR or your own entity and chosen a payroll solution, here are the next steps: 

• Determine your new hire’s employment status.
• Collect employee information for payroll, including name, date of birth, date of hire, contact information (including mailing address), bank information, amount to be paid in PHP (including bonuses), Tax Identification Number (TIN), Social Security System (SSS) number, PhilHealth number, and Home Development Mutual registration.
• Understand the implications of paying in Philippine pesos (PHP).
• Run payroll.
• File your taxes in the Philippines.

For more detailed information, read our step-by-step guide to running payroll for employees in the Philippines.

Mandatory employee benefits in the Philippines

The Labor Code of the Philippines, which sets the minimum labor standards for its workforce, requires mandatory benefits programs—and the penalty for not complying is a sizable fine. While employers must meet these minimums, they are welcome to provide supplemental benefits as well.

Mandatory benefits include:

• Social security. The Philippines has a Social Security System (SSS) that funds the majority of its benefits. After employees and employers make their mandatory SSS contributions, the benefits this system covers include retirement, sick leave, disability, maternity leave, death benefit, unemployment insurance, and funeral grants. 
• Health insurance. PhilHealth, the Philippine Health Insurance Corporation, is a government-owned healthcare program that covers all full-time Filipino employees. Employees and employers split monthly contributions 50-50, with premiums at 4.5% of an employee’s base salary—though this will increase to 5% for 2024 and 2025. 
• Home development mutual fund. The Pag-IBIG Fund is a government program that provides housing loans and financial assistance to Filipino citizens in search of affordable housing. Employers are required to contribute 2% of an employee’s monthly salary to the fund, while employees themselves contribute 1% or 2%, depending on their income. 
• Vacation entitlements. For every year they work, Filipino employees are entitled to five days of paid “service incentive leave,” which can also be converted to cash if not used.
• Statutory holidays. There are two types of holidays in the Philippines: “regular holidays” and “special non-working holidays.” During regular holidays, employees are entitled to double pay if they are called in to work. On the other hand, special days are unpaid—except if an employee does have to work, they’re entitled to a 30% pay bump.
• 13th month pay. Employers must provide all non-management employees in the Philippines with an extra month’s pay by Christmas Eve. To confirm they’ve made the mandatory payment, employers are required to file a compliance report by mid-January.

For more information, read our comprehensive guide on offering employee benefits in the Philippines—from parental leave to statutory holidays.

Managing remote employees’ computers and apps

Managing remote workers’ devices in the Philippines from overseas may come with some logistical challenges. There’s a lot to keep track of: configuring and shipping devices, and eventually collecting them when an employee moves on from your company. 

Rippling can help you set up, manage, and disable all the apps your company uses—all in one place. Learn more about how to manage remote employee devices from onboarding to offboarding in our guide.

Protecting company IP in the Philippines

When you bring new employees on board, they gain access to sensitive company information. In order to maintain a competitive edge, it’s critical to take precautions to protect your company’s intellectual property. And if you’re hiring in the Philippines, there’s a whole set of country-specific IP laws to take into account.

The International Property Code of the Philippines recognizes seven types of IP rights:

• Copyright: protect literary, scientific, and artistic works.
• Patent protection: protect third parties from profiting off an invention.
• Trademarks: protect signs that distinguish goods and services.
• Geographic indications: protect agricultural products, food, alcohol, textiles, and handicrafts.
• Industrial design: protect patterns for commercial products.
• Layout designs of integrated circuits: protect 3D electronic products.
• Trade secrets and confidentiality agreements: protect company information that could be used to gain competitive advantage.

Read our beginner’s guide to IP law in the Philippines for more information on protecting these rights.

Complying with Filipino labor laws

The labor laws in the Philippines differ from any other country when it comes to leave benefits, social security, and overtime pay—and non-compliance could result in tens of thousands of PHP in fines or potential jail time. 

Here are some regulations to keep in mind: 

• At-will employment doesn’t exist. Employees have a “right to security of tenure” and can only be dismissed for “just” or “authorized” causes as defined in the Labor Code of the Philippines.
• Misclassifying employees can cost companies up to PHP 500,000. Employers who misclassify employees can face penalties like back pay, benefits reimbursement (with interest), hefty fines, and possible jail time.
• Non-disclosure agreements (NDAs) are legally binding. Philippine courts typically uphold NDAs—provided they comply with other laws of the Philippines and aren’t used to cover up criminal behavior.
• Employees are entitled to 13th month pay. As previously mentioned, employers are required to pay employees an extra month’s salary by Christmas Eve and file a compliance report by mid-January. 
• Employers are responsible for workplace health and safety standards. Employees are protected from injury, sickness, and other safety hazards, with violation penalties ranging from PHP 20,000 to PHP 50,000.
• Filipino employees have the right to join trade unions. Collective bargaining agreements give employees a say in their working conditions. These agreements include provisions like information on wages, night shift differential pay, service incentive leave, terminations, working conditions, and disciplinary action.

Check out our guide for a closer look at labor laws in the Philippines.

Terminating employees in the Philippines

While termination isn’t top of mind when you bring on new hires, it’s important to be prepared for when this situation does arise.

In the Philippines, employers are required to follow due process prior to officially dismissing an employee. In order to terminate an employee, the Labor Code of the Philippines must deem the cause as “just”—meaning at least two notices were given, the employee had a chance to respond in writing, and a hearing was conducted to challenge the decision. In these instances, the terminated employee does not receive severance pay.

Looking for more information on terminations in the Philippines? Read our full guide.

Disclaimer: Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.