Introduction
When businesses expand internationally, navigating the complexities of labor laws, taxes, and employee compliance can be a major obstacle, especially in a foreign country. Employer of Record (EOR) services offer a streamlined solution for companies looking to hire employees in the Philippines without the need to set up a legal entity. This guide explores the role of EOR in the Philippines, its benefits, how it works, and the services it provides. Additionally, we’ll compare EOR to setting up a legal entity and answer common questions about hiring employees in the Philippines.
What is an Employer of Record (EOR) in the Philippines?
Definition and Role of an EOR
An Employer of Record (EOR) is a third-party service provider that manages the legal aspects of employment for businesses that wish to hire employees in foreign countries without establishing a local entity. In the Philippines, an EOR acts as the official employer for the employee, while the client company retains control over daily operations and work responsibilities. The EOR takes on all legal, compliance, payroll, and tax responsibilities, ensuring businesses stay compliant with Philippine labor laws.
Key Services Offered by an EOR in the Philippines
- Payroll Management: The EOR handles all payroll-related tasks, including tax withholding, employee compensation, and deductions.
- Employment Contracts: EORs draft and manage compliant employment contracts in line with Philippine labor laws.
- Tax and Social Security Compliance: The EOR ensures that employee taxes, including SSS, Pag-IBIG, and PhilHealth, are properly withheld and remitted.
- Benefits Administration: EORs manage statutory benefits such as health insurance, retirement savings, and other mandatory perks.
- Termination and Severance: EORs follow local laws regarding employee termination, ensuring that all legal processes are adhered to, including severance pay and notice periods.
Why Choose an EOR in the Philippines?
Advantages of Using an EOR
- Speed and Flexibility: The most significant advantage of using an EOR in the Philippines is the ability to hire employees quickly without needing to go through the lengthy process of establishing a local entity.
- Cost-Effective: Setting up a legal entity can be expensive due to registration fees, office setup, and ongoing compliance costs. An EOR, on the other hand, offers a much lower-cost alternative, allowing businesses to hire employees efficiently while avoiding the administrative overhead of entity establishment.
- Full Compliance: Compliance with local labor laws in the Philippines can be complex, especially with frequent changes to tax rates, employee benefits, and working conditions. The EOR ensures full legal compliance, mitigating any potential legal risks.
- Focus on Core Business: With an EOR handling the administrative and compliance tasks, businesses can focus on what they do best: growing their core operations.
EOR vs Legal Entity: Which Is Right for Your Business?
Benefits of EOR vs Setting Up a Legal Entity in the Philippines
- EOR Benefits:
- Quick Hiring: Businesses can hire employees within days instead of months, avoiding the long and costly process of setting up a local entity.
- Lower Overheads: An EOR eliminates the need for business registration, office space, and dedicated HR teams in the Philippines.
- Reduced Risk: The EOR handles all legal responsibilities, ensuring that the business complies with Philippine labor laws, minimizing risks.
- Legal Entity Benefits:
- Complete Control: Establishing a local entity gives businesses complete control over their operations, HR policies, and employee management.
- Long-Term Commitment: If a business plans to make a long-term investment in the Philippines, setting up a legal entity may be the preferred choice.
Key Differences:
- EOR: Allows businesses to hire employees without setting up a local entity. Fast setup, low costs, and full compliance.
- Legal Entity: Full autonomy and long-term establishment but higher costs and longer setup times.
How to Hire Employees in the Philippines through an EOR
Hiring employees through an EOR provider in the Philippines is a simple and straightforward process. Here’s a step-by-step guide:
Step 1: Choose the Right EOR Provider
Start by researching and selecting an EOR provider that is well-versed in Philippine labor laws and has a reputation for reliability. Some prominent EOR providers include Velocity Global, Deel, and Remote.
Step 2: Define Job Roles and Terms
Clearly define the roles, job descriptions, and salary packages for the employees you wish to hire in the Philippines. Work closely with the EOR to ensure the contracts align with both your business needs and the legal requirements in the Philippines.
Step 3: Sign the EOR Agreement
Once the terms and conditions are agreed upon, sign a contract with the EOR. This contract will outline the responsibilities of the EOR, such as managing payroll, benefits, and compliance, as well as the client company’s expectations.
Step 4: Employee Registration and Documentation
The EOR will manage the registration of employees with local authorities, including processing work permits (if necessary), and ensuring the employment contract complies with Philippine labor laws.
Step 5: Ongoing HR and Payroll Management
The EOR will handle ongoing HR services, including payroll processing, employee benefits, and compliance with tax regulations, ensuring that everything runs smoothly.
EOR Services in the Philippines: What You Get
1. Payroll Processing
The EOR provider handles payroll for employees, ensuring compliance with Philippine tax laws, including income tax, SSS, Pag-IBIG, and PhilHealth contributions.
2. Benefits Administration
Employees receive mandatory statutory benefits, including 13th-month pay, paid sick leave, maternity/paternity leave, and health insurance (PhilHealth). Some EOR providers also offer additional perks like meal allowances, private health insurance, and wellness benefits.
3. Tax and Compliance
EOR providers ensure businesses remain compliant with all Philippine tax laws. This includes ensuring timely submission of tax returns and contributions to the Bureau of Internal Revenue (BIR), as well as contributions to employee social security and healthcare funds.
4. Termination and Severance
EORs also manage employee terminations, following the Philippine Labor Code for any layoffs, dismissals, or resignations, ensuring all required severance pay and benefits are provided.
Employee Benefits in the Philippines
Statutory Benefits
- 13th-Month Pay: A mandatory benefit where employees receive an additional one-month salary by December.
- Health Insurance: Employees are entitled to health insurance benefits under PhilHealth, which provides coverage for medical expenses.
- Social Security: SSS contributions cover benefits like disability, sickness, and retirement.
- Pag-IBIG Fund: Provides housing loans and other financial assistance for employees.
Optional Benefits
- Meal Allowances: Some businesses offer daily or monthly meal allowances.
- Wellness Programs: Private health insurance, gym memberships, and mental health support.
- Performance Bonuses: Companies often offer performance bonuses, especially during the holiday season.
Taxes and Compliance in the Philippines
Employer Responsibilities:
- SSS Contributions: Employers are required to contribute to the Social Security System (SSS), which provides benefits for employees in cases of sickness, disability, and retirement.
- PhilHealth: Employers must contribute to PhilHealth, which covers medical expenses for employees.
- Pag-IBIG: Contributions for the Pag-IBIG Fund provide housing loans and savings programs for employees.
Employee Responsibilities:
- Income Tax: Employees are subject to progressive income tax rates depending on their salary. The EOR ensures proper tax withholding and remittance.
- Other Deductions: Employees contribute to the SSS, PhilHealth, and Pag-IBIG, which are deducted from their salary.
FAQs – Employer of Record (EOR) Philippines
1. How Does an Employer of Record Comply with Philippine Labor Laws?
An EOR provider ensures compliance with the Philippine Labor Code, handling all employee-related matters such as employment contracts, payroll, tax filings, benefits, and termination processes in accordance with local laws.
2. What Benefits Come with Using an EOR in the Philippines?
Using an EOR simplifies the process of hiring employees in the Philippines by ensuring compliance with local labor laws, managing payroll, and eliminating the need for a local legal entity. This allows businesses to hire employees quickly and cost-effectively.
3. Can an EOR Hire Remote Talent Across the Philippines?
Yes, an EOR can hire remote employees across any region in the Philippines, ensuring that businesses can tap into the country’s entire workforce without having to worry about compliance.
4. What’s the Difference Between EOR and PEO in the Philippines?
A PEO (Professional Employer Organization) provides HR services like an EOR, but typically retains a more active role in employee management and administration. An EOR, on the other hand, takes on full legal responsibility as the employer while the client company manages the day-to-day work.
5. Is it Legal to Use EOR Services in the Philippines?
Yes, using EOR services is legal in the Philippines. EOR providers ensure that all employment practices comply with local labor laws, including tax withholding, employee benefits, and contract management.
Conclusion
For businesses looking to hire employees in the Philippines without the complexity of establishing a local entity, partnering with an Employer of Record (EOR) is an ideal solution. An EOR offers a cost-effective and fast way to expand operations while ensuring full compliance with Philippine labor laws. With an EOR managing payroll, benefits, and compliance, businesses can focus on scaling their operations and entering the Philippine market with confidence.
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.