Why do some accounting firms choose to hire direct themselves with independent contractors while others bring on an Employer of Record (EOR) for compliance instead?

Both offer distinct advantages and drawbacks, and choosing which model to use can significantly impact your firm's operational efficiency.

In this article, we examine the benefits, drawbacks, and key considerations.  

Note: Before we go too far, I should say that I'm not a lawyer, nor do I play one on the internet. So, I can't give legal advice. I can only offer my opinion, which after a decade of working internationally, I think is rather well-informed, if I do say so myself.

Hire as a contractor

• You write a contract with your offer and your terms along what the candidate is responsible for (taxes, health insurance). They sign it.
• When a contractor takes a role, they understand that they are responsible for paying their taxes, etc.
• Across both of my companies, my team are all contractors, and we treat them like long-term team members.  
• It’s my opinion that it’s not illegal to be a contractor in The Philippines.

If you value simplicity 

• As for compliance, there's not much you need to do. It's just a simple contract.

Hire through an Employer of Record (EOR)

• An EOR is a company in The Philippines that employs people for you. They do payroll, compliance, and depending on the company, a bit of HR.
• When you hire through an EOR, your team members will be employees.
• The most important difference between a BPO and an EOR is that they provide service at your discretion.
• This means if you decide you hate the EOR, you can take your team elsewhere. This is NOT true with a BPO.
• Depending on the company, you can expect to pay about $250-600 USD per month per employee. (This of course doesn't include the salary.)

Streamlined HR Processes

EORs streamline all HR processes, from onboarding to payroll to benefits and administration. This efficiency can save you time and money, allowing for a smoother operational flow.

For instance, if you want to know all of the details behind the scenes of what an EOR takes care. Here are some of the most common employee laws that an employer needs to know:

• 1. Labor Code of the Philippines: The employment practices you must adhere to in the Philippines, which includes hiring practices, working conditions, wage laws, and termination procedures.
• 2. Social Security System (SSS): A social insurance program for Filipino workers that provides benefits for retirement, maternity, disability, death, and funeral. You’re required to register and make contributions on behalf of your employees.
• 3. Philippine Health Insurance Corporation (PhilHealth): The national health insurance program that provides health coverage for all Filipino citizens. Companies have to register and contribute to PhilHealth for their employees.
•  4. Home Development Mutual Fund (Pag-IBIG): A national savings program and affordable shelter financing for Filipino workers that you’re obligated to register your employees for and pay contributions.
• 5. Tax Code: Governs the taxation of individuals and corporations, including withholding taxes from employees' salaries. 

For example, say you want to bring on a new bookkeeper named Mia,

An EOR will handle her contract preparation, collection of personal documents, setting up payroll accounts, and making sure there’s compliance with local employment laws.

They’ll manage Mia's payroll, accurately calculating her salary in Philippine Pesos, deducting the correct tax and social security contributions, and making sure there are timely payments.

Through the EOR, Mia receives a comprehensive benefits package, including health insurance, Pag-IBIG, and PhilHealth contributions, which matches local practices and improves her job satisfaction.

They’ll also assist with the HR onboarding tasks, providing Mia with the necessary resources and support to integrate effectively into your remote team. And they’ll keep track of holidays in The Philippines, track her vacation days, etc.

What should you choose?

• It depends. 

Pros of hiring through an EOR 

• You don’t need to bother with setting up and running payroll
• If concerned about an unknown unknown risk, this will cover all your bases
• Takes the burden of administration and keeping track of vacation, sick leave, away
• You have someone to do light mediation with HR requests and complaints
• You’ll have someone on the ground to advise you of things like when and how much raises and bonuses are appropriate

Cons of hiring through an EOR 

• It’s an additional cost - USD $250-600 per month can be a large percentage of your accountant’s salary (potentially $1000-2000)

Other considerations - 

• If you have a specific reason not to use contractors, the EOR will be the right solutionsome text
  • For example,
  • If your lawyer advises you
  • If your clients have policies that you need to abide by (for example, some public companies or large corporations might)
• You’ll need to be aware of Philippine holidays and employment policies, such as the process for firing employees. 

Pros of hiring as contractors 

• It’s easy and simple, the fastest way to get started
• It’s flexible
• No additional expenses
• Compliant - It’s my opinion that it’s not illegal to be a contractor in The Philippines
• Another factor is the team members. I can tell you that they have a very strong preference to be contractors and it doesn’t limit your ability to retain them for the long term. Most people I talk with assume that because people in the US or Australia prefer to be employees that people in The Philippines must also. That's just simply not the case.

Cons of hiring as contractors

• You have to do the administration of payroll, etc.

Most of TeamUp’s clients go the contractor route

• Of the firms I talk with across the US, Canada, and Australia - most hire team members as contractors.
• Often they talk about working with an EOR but usually change their minds

Most people who use an EOR have a specific reason related to their company structure and compliance. If you don't already know that reason, chances are that you'll be better suited to hiring as a contractor

Our Founder, Isaac’s, opinion

At TeamUp, we’re agnostic about which choice a firm makes on this.  But I do have a personal opinion.

It’s my *opinion* that US, Australian, or Canadian rules and regulations do not apply to other countries.  Likewise, Philippine rules do not apply outside of their borders.

The beautiful thing about hiring people overseas as contractors is that it frees us to treat people how they should be treated - extremely well.

Sometimes people ask me if they should offer benefits like healthcare.  I often respond, “Why not ask your teammates instead of me?”  That’s what I do.  

As I write this, we’re due to take another look at the benefits we provide our TeamUp team, who are contractors.  I have a budget in mind, and I’ll simply ask them what they want.  If it fits within the budget, I’ll give it to them.

Of course, my company can’t open an account with a Philippine healthcare provider, so any healthcare benefits will be allowances paid with their salaries that they can use to pay for it.

Like I said, this is my opinion, and I am a born-and-bred American, so I have a perspective that you may not share.  When I talk with Australians, for example, it seems like some have an idea that Australian employment law applies in The Philippines.  This is inconceivable to me, but I am just a dumb American!

Even here at TeamUp, we have different views on this topic.  So, please use your own judgment for your individual circumstances.

By the way, we are currently looking for a lawyer with expertise in international employment law to get an authoritative statement on this topic.

Key Takeaways

At TeamUp, we believe in the power of building your own team, your own culture, and your own relationships. That way, you can train your team your way.

If you want to learn more, you can schedule a free call with us and we’ll be happy to talk through your needs. 

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