Hiring Independent Contractors in the Philippines

TransferWise
03.29.20
6 minute read

There are several advantages in hiring contractors/professionals in the Philippines. Aside from the 12-hour time difference; there are less legal implications you have to worry about. There’s no employee-employer relationship between your company and the contractor so you don’t have to worry about paying mandated government contributions like Social Security, home development fund nor insurance and even overtime pay. You'll only pay for professional or contractor’s fee as compensation based on your agreement, so that’s one less burden for you.

Pros and cons of hiring Independent Contractors in the Philippines

Pros

  • Easier to Run Payroll - A lot of work goes into preparing payroll due to tax reporting, calculations, payslips etc. But most of these tasks are not necessary when paying independent contractors. However, you’d need an international money transfer service ready to help execute transfers from USD to PHP. Use services like TransferWise for Business to save time and money on payroll and send multiple payments in one go. This will save you over 30% of the overall international transfer cost you’d normally incur using traditional banks or PayPal.

  • Saving costs - the biggest advantage you can get in hiring an independent contractor because you don’t have to pay for federal payroll taxes, healthcare benefits, and even equipment and other employee requirements. The Philippines has also low labor cost¹ in Asean, lagging behind the rate of China but still competitive in the professional level.

  • Less exposure to lawsuits - lessen the instances you’ll pay for your attorney and other employment related labor fees.

  • Flexible work schedule increasing productivity - can also be of advantage since most contractors are working in a remote schedule they can hand-pick their work which produces the best results.

  • Filling temporary roles - or as-needed work can be done by an independent contractor which offers you the solution to a short-term function and you can let them go after several months without any additional adjustment on your next payroll.

  • More access to skilled professionals - enable you to select from the best pool of people based on their proficiencies.

Cons

  • Less control on the quality or result of the job – one of the downsides of hiring an independent contractor is you cannot mandate the method through which the work is done and the result may vary from your expectations.
  • Limited opportunities for training – compared to employees’ contractors received less training on how to do the job well since most of these people are just temporary in nature, unless you find someone who has experience in your business niche.
  • Availability can vary – inconsistency on the output may be the result of this scenario, since most independent contractors just come and go.
  • Turnover and lack of loyalty – most businesses hire contractors for short term jobs, relying too heavily on contractors mean a higher turnover rate than employees. Independent contractors can be notoriously disloyal and may also work for your competitors which may result in misaligned job functions.
  • More legality involved – aside from lack of control you must also make sure contracts and paper works are in order because failure to do it may result in loss of copyrights to the work.

The main problem with working with contractors is the varying degree of quality you’ll receive to each job done, this can harm relations with your clients or customers. Managing quality control and contractor freedom is quite the balancing act.

What are the most outsourced jobs?

  • Telecommunications/Call Centers. The telecommunications sector is consistently among the top contributors to the global outsourcing industry. Dialling an 800 number today can and often does connect you to someone on the other side of the world.
  • Manufacturing. Many companies around the world contract out their production to companies that are located in a country where there is a cheaper labor.
  • Writing. Most large companies, universities, book publishers and movie studios rely on freelance writers to produce everything from fictional books, press releases, screenplays, and other business writings.
  • Web Design and Programming. For large corporations, designing and maintaining web sites can be resource intensive, that’s why many outsource the work to experts.
  • Security. For property and personal defence, there are private security firms who provide security and protection especially in these anxious times.
  • Health and Pharmaceuticals. Maybe you’ve visited a doctor and he said a few words about your X-ray or MRI result and need to be transcribed and placed into your medical record, these tasks are commonly outsourced as a way to reduce costs.
  • IT Support. Information technology help-desk agents and support staff are mostly outsourced; most of us rely on phones, talking to someone who helps us get the work finished.
  • Tax Preparers. If numbers and taxes aren’t your thing, then you can always ask help from someone whether it’s about financial information or tax laws.
  • Human Resources. Commonly on start-ups and newly established companies they are focused on the business operations so they tend to hire human resources services from others outside the company.
  • Telemarketers. In order to boost the product and services of a company they outsource people who deliver prepared sales talks and persuade customers to purchase a product or service or to make a donation.

How to hire contractors from the Philippines

The Department of Labor and Employment (DOLE) has issued Department Order No. 174, series of 2017 (DO 174), providing a new set of guidelines to govern contracting and subcontracting. For foreign companies who want to hire contractors in the Philippines, it is a must to understand the laws and regulations that apply in this premise.

DO 174 ensures that its service contractors are compliant with the new guidelines, and reviews its contracting arrangements to ensure that it is not engaged in labor-only contracting or other prohibited forms of employment arrangements.

Here are the guidelines in hiring contractors from the Philippines;

1. Understand the labor laws in the contractor’s country ( DO 174 series of 2017).
2. Determine if your business has to report to IRS or withhold tax on payments made to independent contractors.
3. Have foreign contractors complete IRS Form W-8BEN.
4. Learn the nuances of local tax laws related to independent contractors.
5. Prepare a well defined contractor agreement that meets legal requirements of all countries involved.
6. Set a pay scheme to the foreign contractor.

Other things to consider in hiring a contractor include;

  • study their references
  • interview carefully use video conferencing if necessary
  • get everything in writing
  • keep records of payments made to foreign contractors
  • keep communication open
  • have a recruitment procedure to find qualified workers
  • monitor the work done by a contractor, there are tools to monitor remote workers such as Upwork, Hubstaff, and Xero.

Where to find contractors

There are several options to choose in hiring independent contractors in the Philippines, you can either ask for referrals and hire them yourself or get a recruitment service to hire for you. Regardless of what you choose, here are the top websites to find Filipino professionals:

1. Onlinejobs.ph – it is the largest website for Filipino remote job seekers with over 250,000 resumes you can browse.
2. Virtualstaff.ph - operates like Onlinejobs.ph but at a lower monthly subscription rate.
3. Bestjobs.ph – almost similar set-up with other job sites with the exception of their payment scheme, instead of monthly subscription it offers all site’s features at PHP 2,000 ($38) per job ad. Job ads deactivate 60 days after posting.
4. EasyOutsource – acquired by Onlinejobs.ph in 2014 and recommended for business owners who want to limit their search audience.
5. Jobstreet.com – a job portal founded in 1997 in Malaysia and is now the largest online employment company in Southeast Asia including the Philippines which serves about 80,000 corporate customers and 11 million jobseekers.

A cost effective way of paying contractors in the Philippines

Not that many payroll services support international payroll which is why companies use money transfer services like TransferWise to pay their employees overseas. It's cheaper and faster compared to traditional banks and offers the real exchange rate without any mark-ups. Transfers are typically processed in 0 - 2 working days.

Additional benefits are:

  • Multiple transfers in one go through the batch payment tool
  • USD global - pay overseas contractors in USD
  • Borderless account - hold, send and receive funds in one multi-currency account
  • Linkable to accounting software such as Xero
  • Automated batch payments through open API to save you time and streamline the process.

Here’s how to use the batch payment tool for paying your employees and independent contractors:

  1. Set up a business account with TransferWise
  2. On your activity page, click Batch payments.
  3. Download a batch payment template file.
  4. Open the template file in a spreadsheet editor and fill in your transfer details.
  5. Save your file as a .CSV (it should have .csv at the end) and upload the file on your account.
  6. Review the transfers in your batch.
  7. Pay for your batch.
  8. Track your transfers in real time on your account.

Start saving today with TransferWise

Sources:

  1. Business Inquirer blog post
  2. DOLE website
  3. IRS website

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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