You might be feeling overwhelmed by the complexities of hiring outsourced accounting talent in The Philippines, and that's completely understandable. The good news is you're not alone in this. Many accounting firms, just like yours, have navigated these waters successfully.
While there’s no one-size-fits-all answer, understanding the options available can make this process much smoother.
There are three main ways to handle tax and payroll for your new hires in The Philippines:
In this post, we’ll share more details about these options so you can make the best decision based on your company’s needs.
Note: This article is for educational purposes only and doesn’t constitute legal advice. We recommend consulting with your lawyer for specific guidance for your situation.
In The Philippines, payroll calculation starts with gross salary, which includes basic pay and any additional earnings. Deductions are made for income tax, as well as healthcare and social security, which are all based on percentages of the salary. After deductions, the remaining amount is the net pay. Employers may also handle other deductions like private insurance or union dues, depending on the benefits offered.
Payroll taxes include income tax, monthly contributions to the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund, commonly known as Pag-IBIG. These contributions are mandatory and calculated as a percentage of the employee’s monthly salary to provide benefits like retirement, health insurance, and housing loans.
The Bureau of Internal Revenue (BIR) oversees income tax, which is calculated on a graduated scale based on the employee's earnings. Employers are responsible for withholding these taxes from salaries and remitting them to the BIR.
The 13th-month pay in the Philippines is a welcome year-end bonus equal to one month's salary, guaranteed by law and delivered by December 24th. This bonus is tax-exempt up to a certain amount and adds a festive boost to employees' holiday celebrations!
Everyone chips in for the mandatory Social Security System (SSS) contributions in The Philippines. These funds help cover retirement, health, maternity, disability, and even death benefits, with both employer and employee splitting the cost.
PhilHealth provides comprehensive healthcare coverage, including doctor’s appointments and hospital stays. This contribution is also shared between the employee and employer as a percentage of the monthly salary but is capped at a certain point.
The Pag-IBIG fund offers a savings program, affordable housing loans, short-term multipurpose loans, and calamity loans to support the financial needs and homeownership goals of Filipino workers.
Like SSS and PhilHealth, both employers and employees contribute to the fund.
Other contributions may include emergency employee funds, union dues, regular holidays, private health care, and retirement plans, depending on what you decide to offer.
Setting up payroll will depend on whether you hire as independent contractors or through an EOR.
Most of our clients at TeamUp hire independent contractors as it is much simpler, and most team members in the Philippines prefer this option. All you need to do is decide on an appropriate regular salary and/or hourly rate for your new hire and then pay through a platform like Wise.
This approach reduces administrative overhead and compliance responsibilities, as contractors handle their own taxes. Additionally, it offers flexibility for both parties, making it easier to scale your team according to project needs and business demands. Contractors often appreciate the autonomy and potential for higher earnings that this arrangement can provide.
Now, if you wish to hire an employee and not an independent contractor, most accounting firms will end up doing this through an EOR. An EOR serves as a middleman and handles all of the HR and compliance-related tasks.
For instance, it’s important to be aware of the many minimum wage requirements, which vary depending on the region and industry. Additionally, mandatory benefits like healthcare and retirement plans, as well as employer taxes, must be factored into the overall compensation package.
Working hours and overtime pay also follow Philippine Labor Laws, with mandated maximum hours per day and premium rates for extra work. Paid leave, notice periods for termination, and severance pay are other critical elements that impact both employer obligations and employee rights. Probation periods and the observance of public holidays, as well as special holidays, also play significant roles in payroll management.
Navigating payroll, taxes, and compliance when hiring employees in The Philippines can be complex, but understanding the technicalities and the legalities can simplify your options.
Engaging independent contractors can reduce administrative burdens but can get unwieldy if you have a large team. An EOR is often the most efficient choice if you plan on hiring hundreds or thousands of accountants and bookkeepers, as it ensures comprehensive compliance and allows you to focus on your core business.
Ultimately, it is about choosing the best option to make sure your staff is looked after.
There’s no one right answer that works for everybody. It’s just what works for you and your team. We, of course, can’t give you direct advice on which approach is right for your business, but we can help you understand what the options and considerations are.
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