Hire Contractors in the Philippines

As the demand for skilled labor grows, the Philippines has become an attractive destination for companies seeking to hire contractors overseas. 

The country boasts a robust educational system, with numerous universities and institutes offering a steady flow of graduates yearly. These individuals are proficient in multiple fields, including engineering, technology, manufacturing, and more. 

This has, in turn, enabled multiple organizations to tap into a global pool of highly qualified talent who can contribute to business growth. 

The best part? The Filipino workforce's proficiency in English. This means more accessible and effective communication, fewer misunderstandings, and smoother business operations. 

To ensure a seamless contractor onboarding process, most seek the services of contractor management software or an Employer-of-Record, while others hire directly.

This article will provide a detailed overview of the ‘how to hire contractors’ process in the Philippines, its challenges, and solutions.

How to Hire Contractors in the Philippines

There are two main ways of hiring independent contractors in the Philippines. 

1. Hiring directly
   Hiring a contractor directly means you will be the sole person in charge of all the crucial aspects, such as setting up clear goals and requirements for the project, sourcing top talent through job listing platforms such as LinkedIn or Upwork, drafting contractor agreements that comply with the Philippine labor laws, and managing contractor payroll.

2.  Hiring through AOR
   Partnering with a contractor management software or AOR such as Skuad simplifies the hiring journey. Skuad takes care of all the administrative burdens, such as contractor onboarding, ensuring compliance, and making accurate payments.

Hiring Contractors Through Skuad AOR

• With Skuad AOR by your side, you can seamlessly onboard, pay, and manage contractors globally.
• With expertise in over 160+ countries, Skuad boasts some robust capabilities, such as in-house legal expertise to draft locally compliant contracts, payroll in over 100+ currencies, and built-in IP protection. 
• Additionally, if you ever wish to turn your independent contractors into full-time employees, Skuad will help you. We guarantee a seamless switch by keeping all the employment history and records intact.

How to Pay Contractors in the Philippines

The traditional method of paying contractors in the Philippines involves direct payment through,

• Direct deposits or wire transfers
• Checks
• PayPal or any other online payment systems

However, it usually involves a lot of paperwork that can be difficult to manage, especially if you are looking to hire multiple independent contractors in the Philippines. Additionally, the process can be time-consuming since you must comply with all the labor regulations in the country. 

Another method that is both cost-effective and guarantees accurate and on-time payment involves partnering with Skuad. 

With Skuad as your global hiring partner, you can easily navigate through the complexities of payroll compliance and multi-currency transactions. Some of its many features include,

• Payroll in over 100+ currencies
• Automated contractor invoicing and payments
• Streamlined payroll data consolidation

Hiring Contractors Directly vs Hiring Contractors via Skuad

Below is a table highlighting a detailed comparison of the two main ways to hire contractors in the Philippines.

Cost of Hiring Contractors in the Philippines 

There is no single answer to how much does it costs to hire contractors in the Philippines. It usually differs based on a multitude of factors, such as,

• The scope of the project: A long-term project is far more likely to cost you than a short-term one. 
• The nature of work: Work that demands highly specialized skills will require more compensation than general administrative roles.
• The contractor's experience: An individual with many years of experience is likely to charge you more than someone with less experience or who has just started freelancing. 
• The industry: The average wage commanded by someone deployed in the IT sector is ₱151 per hour, whereas individuals working in the healthcare industry usually charge around ₱196 per hour.

In addition, you will also have to bear the cost of contractor onboarding and payroll processing or the fees for contractor management software, should you seek one.

Challenges of Hiring Contractors in the Philippines

Here are some of the few challenges you will likely encounter when hiring independent contractors in the Philippines.

1. Contractor Regulations in the Philippines

When it comes to hiring an independent contractor in the Philippines, the labor laws of this country impose various restrictions and requirements for contractor-based work relationships. 

While the primary goal of most of them is to avoid the danger of unfair treatment of workers, these regulations foreclose a variety of opportunities that otherwise would have been available. 

Department Order No. 174 is the primary legislation that sets guidelines for companies that wish to hire contractors in the Philippines. It states that contracting or subcontracting can only be allowed if the following conditions are met,

• The contractor or worker is engaged in an independent business and undertakes to perform the job on its responsibility, according to its standards and manner. 
• The contractor has sufficient capital to fulfill the job responsibilities set out by the principal (employer) on the account and method, including investing in the necessary tools and equipment.
• The contractor is not bound by the employer in any way during the work performance, except for the results. 
• The service agreement signed must be in accordance with the labor laws of the Philippines, which highlight the rights and benefits of the contractor's or subcontractor's employees. 

Understanding these regulations and other provisions is a must for businesses looking for contractors in the Philippines. It will help you understand the laws related to the distinction between employees and contractors in this country, thereby avoiding the risk of worker misclassification. 

2. Ensuring Registration and Tax Compliance

All freelancers in the Philippines are required to register with the Bureau of Internal Revenue and obtain a Tax Identification Number (TIN). The current income tax rate for individuals in this country ranges from 0% to 35%, depending on income. 

Additionally, contractors in the Philippines who exceed the threshold of PHP 3 million need to register as VAT taxpayers and pay VAT on their sales.

These are, however, examples of just a few provisions. Various other tax obligations are in place, which, if not complied with, can have direct legal consequences. 

As an employer, understanding and ensuring adherence to these regulations can get messy at times. Therefore, most businesses usually deploy contractor management software to handle the international contractor payroll process. 

However, it usually comes at a significant cost and is not financially viable for small to medium-sized companies.

How to Convert a Contractor into an Employee in the Philippines

Converting contractors in the Philippines to full-time employees or switching from 1099 to W2 is straightforward as long as you follow these steps.

1. Understand the employment laws: Carefully comply with the labor laws that guide the employee-employer relationship in the Philippines. For example, every employee in this country is entitled to at least five days of annual leave (after one year of service) and 18 days of public holidays.
2. Inform the contractor: Communicate to your contractor all the details related to this switch, such as their new roles and responsibilities, salary and working hours, and entitlements.
3. Draft a locally compliant contract: Generate an employment contract, preferably in writing, that adheres to the labor laws and clearly outlines all the agreement details.
4. Conduct background checks: Gather the relevant personal information about your contractor-turned-employee and run a thorough background check to avoid the risk of any unwanted surprises.‍
5. Onboarding: Begin with the employee onboarding process and add them to your payroll system.

Hire Contractors in the Philippines with Skuad

Skuad’s expertise in over 160+ countries has proved to be an invaluable resource for multiple companies worldwide. It is a unified platform that simplifies the entire contractor onboarding process, all while ensuring compliance. 

With Skuad’s in-house legal team, you can draft contracts that ensure full compliance with the Philippines' labor and tax laws. Skuad’s robust payroll solutions also enable you to automate invoicing and send payments in over 100 currencies. 

‍Get started with us today and transform your global hiring experience with customized and efficient solutions.

FAQs

Q1: How do you hire a contractor in the Philippines?

Ans: There are two ways of hiring contractors in the Philippines. You can hire directly, which is usually much more time-consuming and bears a high risk of misclassification of workers. You can seek the services of contractor management software or an AOR, such as Skuad, that will facilitate the entire hiring process. 

Q2: How do you pay a contractor in the Philippines?

Ans: One of the best ways to pay a contractor in the Philippines is to partner with an AOR, such as Skuad. It is a unified platform that boasts robust payroll solutions, such as multi-currency payments, automated contractor invoicing, and regulatory compliance. 

Q3: Who pays the contractor’s tax in the Philippines?

Ans: Unlike employees whose taxes are handled under the PAYE system, contractors are not offered this service due to the nature of their work. Therefore, they are usually required to do everything by themselves, including filing and paying their taxes. 

Q4: Can a US company hire an independent contractor in the Philippines?

Ans: Yes, US companies can hire contractors in the Philippines. However, every such organization must carefully understand the labor laws and other relevant regulations of this country to minimize the risk of non-compliance. 

Q5: How does Skuad help with hiring and paying independent contractors in the Philippines?

Ans: Skuad is a global hiring platform with expertise in over 160+ countries, including the Philippines. It features various capabilities that ensure a simplified hiring journey, such as payroll in 100+ currencies, an in-house legal team to deal with all compliance issues, a built-in IP protection system, and more.