Hiring Independent Contractors in the Philippines

Among the advantages of hiring contractors in the Philippines, one of the benefits is that you have less contractual and legal obligations. You'll also only pay professional or contractor’s fees as compensation based on your agreement, which can often save employers money.

Hiring contractors in the Philippines involves various steps and considerations you need to know about. Read on for more information about the process of hiring Filipino contractors, the pros and cons of hiring contractors, and how Wise will help you save money while paying them.

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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, paycheck, 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 Wise Business to save time and money on payroll and send multiple payments in one go.

• Saving costs - this is 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 also has a low labor cost in ASEAN (Association of Southeast Asian Nations).¹

• Flexible work schedule and increasing productivity - can also be an advantage since most contractors are working remotely they can work when they are capable of producing the best results.

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

• More access to skilled professionals - enables you to select from the best pool of people based on the talent you need.

Cons

• Less control on the quality or result of the job - one of the downsides of hiring an independent contractor is you cannot control the method through which the work is done and the result may vary from your expectations.

• Limited opportunities for training - compared to employees, contractors receive 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 switch employers frequently.

• Turnover and lack of loyalty - most businesses hire contractors for short-term jobs, relying too heavily on contractors means 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.

• Still includes legal requirements - aside from lack of control you must also make sure contracts and paperwork are in order, as it could lead to legal issues.

The main problem when working with contractors is the varying degree of quality you’ll receive. As a result, the use of contractors can harm relations with your clients or customers, so you must balance the quality of your contractors’ work alongside the gains you receive from temporary labor.

How to hire contractors from the Philippines

Step 1: Understand the labor laws in the contractor’s country (DO 174 series of 2017)

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.

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.

Step 2: Determine if your business has to report to the IRS (Internal Revenue Service) or withhold tax on payments made to independent contractors

The employer looking for an independent contractor must consider two scenarios: 1) You are an independent contractor, or you are in business for yourself, or 2) You hire individuals to provide services to their business.

If you are a business owner seeking to hire or offer a contract with other individuals, then you need to consider whether they are employees or independent contractors. In many cases, your contractor relationship will not require any additional tax or reporting obligations to the IRS.

Step 3: Have foreign contractors complete IRS Form W-8BEN

Regardless, it is recommended for freelancers to fill out the IRS Form W-8BEN. This document will serve as a useful tool in the case that independent contractors provide false information to the hiring company. As a result, you will not be held responsible for any wrongdoing.

Step 4: Learn the nuances of local tax laws related to independent contractors

Though contracted relationships with remote freelancers are often exempt from local laws in the Philippines, other local regulations may still apply. For instance, freelancers must register with the Bureau of Internal Revenue (BIR), which requires them to fulfill reporting obligations throughout the financial year.

Failure to complete these measures could result in legal problems and project delays for your company.

Step 5: Prepare a well-defined contractor agreement that meets legal requirements of all countries involved

You should always have a written agreement for hiring an independent contractor. For example, a contract helps clarify crucial points and avoid misunderstandings. Having one is a crucial step to protect your business and clients.

To ensure that your contract abides by local laws, it could be beneficial to seek legal advice on freelancer contracts.

You can download free freelancer contract templates from Wise!

Step 6: Set up a payment for the foreign contractor

Of course, setting a payment scheme comes with the territory of hiring a contractor. Most freelancers and businesses use a digital payment platform, such as Wise, for sending and receiving payments. It’s simple and quick to transfer money to them.

You can enter a US dollar amount, and the Filipino contractor will get their money in Filipino pesos.

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
• Maintain open communication
• 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).

While this list is not exhaustive, it will save you from making a lot of the common mistakes while hiring a contractor.

Where to find contractors in the Philippines

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. EasyOutsource - acquired by Onlinejobs.ph in 2014 and recommended for business owners who want to limit their search audience.

4. 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.

Pay contractors in the Philippines with ease using Wise Business

Not many payroll services support international payroll, which is why companies use money transfer services like Wise Business to pay their employees overseas. It's cheaper and faster compared to traditional banks and offers the mid-market 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
• Pay overseas contractors in USD or PHP
• Borderless account - hold, send, and receive funds in one account
• Linkable to accounting software such as Xero
• Automated batch payments through open API to save you time and streamline the process.
• Track your transfers in real time on your account.

Start paying your contractors with Wise 🚀

Auto Conversion 👈
With Wise Business you also can set Auto Conversions. Choose your currencies, the amount to convert, and your desired exchange rate. Wise will then automatically exchange the amount when your desired rate is available. This is a great, easy, and safe way to save money if you need to pay employees or suppliers abroad.✅

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Sources:

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