Hire employees in the Philippines using an Employer of Record

One employee in Philippines means 15+ government registrations, monthly BIR filings, and SSS contributions that change quarterly. Most companies don't find out until they're already non-compliant and facing ₱50,000+ in penalties.

Here's the reality: you can't just hire someone and figure out the paperwork later. Philippines has strict labor laws, mandatory 13th-month pay, and government agencies that don't accept "we didn't know" as an excuse.

You've got three ways to hire legally in Philippines. Each has different costs, timelines, and headache levels.

Option 1: Set up your own entity

• Cost: $15,000-30,000 upfront, $8,000+ annual maintenance
• Timeline: 4-8 months minimum
• Complexity: SEC registration, BIR permits, SSS/PhilHealth/Pag-IBIG enrollment, local accounting
• Makes sense when: Hiring 15+ people long-term, permanent market commitment

Option 2: Hire contractors

• Cost: None upfront, but major limitations
• Timeline: Immediate
• Risks: Department of Labor fines ($2,000+), back taxes, employee conversion requirements
• Makes sense when: Short projects under 6 months, specialized consulting work
• Note: Hire with Columbus handles compliant contractor agreements too

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: Zero - we handle everything
• Makes sense when: 1-15 employees, testing the market, multi-country hiring

The math is pretty clear. If you're hiring 1-5 people, entity setup costs more than 4+ years of EOR fees ($179/month = $2,148/year per employee). You'd spend $25,000+ on entity setup versus $10,740 for five employees' first year with an EOR.

An EOR like Hire with Columbus handles all the complexity: employment contracts that follow Philippines labor law, monthly payroll with proper deductions, 13th-month pay calculations, government filings, and compliance updates when regulations change.

Ready to hire in Philippines without the compliance headaches? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in Philippines. Here's how the costs and risks compare.

Setting up your own entity costs ₱2.5-4 million ($45,000-70,000) upfront and takes 4-6 months. You'll need ongoing compliance, accounting, and legal fees that easily hit ₱1.2 million ($21,000) annually. This makes sense if you're planning 20+ employees long-term and want permanent market presence.

Hiring contractors seems faster - you can start immediately. But Philippines cracks down hard on misclassification with fines up to ₱500,000 ($9,000) plus back taxes and social security contributions. You also can't control contractors like employees or integrate them fully into your team.

Using an employer of record like Hire with Columbus costs $179/month per employee. We become the legal employer while you manage day-to-day work. Timeline? 2-3 days instead of months. For 5 employees, that's $895/month versus a ₱2.5 million entity setup.

How can you hire in Philippines?

Employment contract types in Philippines

Once you've chosen your hiring approach, you need the right contract type. Philippines recognizes several employment arrangements, each with specific rules.

Permanent contracts work for full-time core roles. No end date, full benefits, and standard termination protections. Most international hires fall here since you want long-term team members who feel secure.

Fixed-term contracts can't exceed 6 months for the same role. After that, the employee automatically converts to permanent status. Use these for genuine temporary needs like maternity leave coverage or specific projects with clear end dates.

Part-time employees get prorated benefits based on hours worked. They're still entitled to social security, health insurance, and paid leave - just calculated proportionally. Minimum is 4 hours per day if you go this route.

Probationary periods last up to 6 months for regular employees, 3 months for domestic workers. During probation, you can terminate with just cause or for failing to meet reasonable standards. After probation, termination requires just cause or authorized causes with proper process.

Project-based contracts exist for specific undertakings with defined scope and timeline. These automatically end when the project completes. Popular in IT, consulting, and creative industries where work has clear deliverables.

The tricky part? Philippines labor law favors employees heavily. Courts assume employment relationships are permanent unless you can prove otherwise. That's why contractor agreements need bulletproof language and genuine independence.

Hire with Columbus handles all contract types compliantly. We draft agreements that protect you from misclassification while giving employees proper protections. Our legal team knows exactly which contract fits your situation and local labor standards.

Seasonal workers get special treatment in agriculture, tourism, and retail. You can hire them for up to 6 months during peak seasons, but they convert to permanent if you extend beyond that or rehire for the same season next year.

Apprenticeship and training contracts let you hire learners at 75% of minimum wage for up to 6 months. After training, they either convert to regular employees or part ways. Good for building junior talent pipelines in specialized skills.

The bottom line? Most international companies use permanent contracts through an EOR. You get the stability and integration of full employees without entity setup costs or compliance headaches.

How does payroll and taxation work?

Your €60,000 employee actually costs €78,600 per year in Philippines. Between employer contributions hitting 12.5% and the complex 13th month pay requirement, most companies underestimate total employment costs by 20-30%.

Here's what you're really paying for when you hire in Philippines.

Tax brackets and income tax

Philippines uses a progressive tax system that starts gentle but ramps up quickly. Your employees will pay these rates on their annual income:

Most mid-level hires fall into the 20-25% brackets. You'll need to handle monthly withholding taxes (BIR Form 1601C) and annual reconciliation though.

Social security and employer contributions

This is where your costs really add up. Philippines requires multiple mandatory contributions that split between you and your employee:

You're paying 13% on top of salary just for mandatory contributions. That's before we get to the 13th month pay requirement.

Payment schedule and bonus requirements

Philippines employees expect their salary twice monthly on the 15th and 30th. Miss these dates and you'll have unhappy staff plus potential labor violations.

But the real surprise? You owe a 13th month pay by December 24th each year. This isn't a bonus, it's legally required and equals one month's basic salary. Budget an extra 8.33% of annual salary for this.

Additional required payments:

• Service incentive leave: 5 days cash conversion if unused
• Overtime pay: 25% premium for work over 8 hours daily
• Night shift differential: 10% premium for 10pm-6am work
• Holiday pay: Double pay for regular holidays, 30% premium for special holidays

Total employment cost breakdown

Let's say you hire someone at €60,000 annually (₱3.6M). Your real cost looks like this:

That's before overtime, night differentials, or any actual bonuses. Most companies budget salary only and get surprised by the 23% markup.

Payroll cycle and compliance deadlines

Philippines payroll runs on strict deadlines that'll cost you if missed:

Monthly requirements:

• 10th: File and pay withholding taxes (BIR Form 1601C)
• 30th: File and pay SSS, PhilHealth, Pag-IBIG contributions
• 30th: Process bi-monthly payroll (15th and 30th)

Quarterly requirements:

• File quarterly income tax returns (BIR Form 1601EQ)
• Submit quarterly SSS and PhilHealth reports

Annual requirements:

• January 31st: File annual income tax returns and issue 2316 certificates
• December 24th: Pay 13th month salaries
• January 31st: Submit annual PhilHealth and SSS reconciliation

Miss the monthly tax filing deadline and penalties start at ₱1,000 (€17) plus 2% monthly interest. Miss payroll dates and you're looking at potential labor cases.

Common payroll mistakes

We see companies mess up Philippines payroll in predictable ways:

Wrong 13th month calculation: Companies pay 1/12th of total compensation instead of basic salary only. Overtime and allowances don't count toward 13th month pay.

Missing night differential: Forgetting the 10% premium for 10pm-6am shifts. This applies even to salaried employees working night hours.

Incorrect overtime rates: Using straight-time rates instead of 25% premiums. Philippines labor law is strict about overtime calculations.

Late tax remittances: Filing BIR forms after the 10th results in automatic penalties, even for small amounts.

Payroll record keeping: Not maintaining detailed payroll registers. Department of Labor inspections require complete documentation.

Setting up compliant payroll

Running Philippines payroll yourself means juggling BIR registrations, monthly filings, and complex labor law calculations. Local accounting firms charge ₱15,000-25,000 monthly (€250-417) per employee, plus setup costs.

With Hire with Columbus, we handle all payroll calculations, tax filings, and compliance requirements for $179/month per employee. Your team gets paid on time, taxes get filed correctly, and you avoid the headache of Philippines tax law.

We calculate everything automatically from 13th month pay to night differentials to holiday premiums. No missed deadlines, no penalty fees, no labor law violations.

What benefits and leave are required?

Philippines employees get 5 days minimum vacation per year, but most companies offer 15-20 days to stay competitive. The real surprise? You'll pay salary 13 times a year thanks to the mandatory 13th month pay. That's an extra month's salary paid by December 24th.

Beyond that extra month of salary, three benefits are mandatory: SSS (social security), PhilHealth (health insurance), and Pag-IBIG (housing fund). Let's break down what you'll actually pay and what happens when employees need time off.

Annual vacation leave

The Labor Code requires just 5 days of vacation leave after one year of service. That's it. Most employees won't even mention this because it's laughably low by modern standards.

Competitive companies offer 15-20 vacation days, with tech companies going up to 25-30 days. Vacation days don't automatically carry over. You need a clear policy stating whether unused days expire, carry over (usually capped at 5-10 days), or get paid out.

When employees resign, you must pay out unused vacation days at their current daily rate. Skip this and you'll face complaints with the Department of Labor and Employment.

Sick leave

Employees get 5 days of sick leave annually after one year of service. They don't need a doctor's note for 1-2 consecutive days, but anything longer requires medical certification.

Now it gets expensive. Employees with serious illnesses can take up to 6 months of unpaid leave while keeping their job. You can't terminate them during this period without facing illegal dismissal charges (which start at 6 months' salary in damages).

For work-related injuries, the Employees' Compensation Commission covers medical expenses and disability benefits. You're still on the hook for holding their position open.

Parental leave

Maternity leave is 105 days (15 weeks) at full pay for female employees. The first 60 days come from SSS, and you pay the remaining 45 days directly. Solo mothers get an additional 15 days.

Fathers get 7 days of paternity leave at full pay, which you cover entirely. Adoptive parents get 105 days for the primary caregiver and 7 days for the other parent.

Same-sex couples face complications since the law specifies "married couples." You'll need legal guidance for non-traditional family structures.

Public holidays 2025

Philippines has 12 regular holidays and several special non-working days. Pay employees 200% of their daily rate if they work regular holidays, 130% for special days.

Local governments can declare additional holidays. Manila might have different special days than Cebu, so check with your local office.

Mandatory benefits breakdown

You'll contribute to three government programs. What you pay exactly:

SSS covers retirement, disability, death, and maternity benefits. The 14% total contribution applies only to the first ₱30,000 of monthly salary.

PhilHealth provides health insurance coverage. Employees can use this at government hospitals and accredited private facilities.

Pag-IBIG helps employees buy homes through low-interest loans. Employees earning under ₱1,500/month contribute 1%, everyone else pays 2%.

You'll also pay 13th month pay (one month's salary by December 24th) and service incentive leave (5 days minimum for vacation/sick leave).

Optional competitive benefits

Most companies add these benefits to attract talent:

Health insurance: Private HMO coverage beyond PhilHealth. Expect ₱15,000-50,000 per employee annually for decent coverage.

Life insurance: Usually 1-3x annual salary. Group policies cost about 0.5-1% of total covered salaries.

Rice allowance: ₱1,500-2,000 monthly rice subsidy. It's tax-free up to ₱2,000 and employees genuinely appreciate it.

Transportation allowance: ₱2,000-5,000 monthly, especially valuable in Metro Manila traffic.

Internet allowance: ₱1,000-3,000 monthly for remote workers. Critical given inconsistent home internet quality.

Tech companies often add gym memberships, meal allowances, and flexible work arrangements. Government employees expect these perks in private sector roles.

Common benefit mistakes

Missing 13th month pay deadlines: You must pay by December 24th. Late payment triggers penalties and employee complaints. Pro-rated amounts apply for employees who worked less than a year.

Incorrect SSS contributions: Using wrong salary bases or missing contribution deadlines results in penalties of 3% per month. The Bureau of Internal Revenue cross-checks SSS records with tax filings.

Inadequate leave policies: Having only the legal minimum (5 days vacation, 5 days sick) makes hiring nearly impossible. Candidates will reject offers immediately.

Forgetting local holidays: Missing city or provincial holidays means paying overtime rates unexpectedly. Employees know their local holidays better than you do.

Poor documentation: Not keeping proper medical certificates, leave applications, and benefit records leads to labor disputes. The burden of proof falls on employers during DOLE inspections.

Administering these benefits correctly requires local HR expertise (₱600,000+ annual salary), benefits software (₱15,000/month), legal review (₱200,000/year), and risk of errors (₱100,000+ in potential fines and back payments).

Hire with Columbus handles all benefit administration, government filings, and compliance monitoring for $179/month per employee. We calculate contributions automatically, file reports on time, and maintain all required documentation so you can focus on growing your team instead of tracking benefit deadlines.

What are the compliance requirements?

You need written contracts in the Philippines. Period. Verbal agreements don't exist legally and they'll come back to bite you with claims, back payments, and potential reinstatement orders that cost months of salary.

The Philippines has strict employment protection laws that heavily favor employees. Miss one mandatory step in termination or contract drafting, and you're looking at major financial penalties plus legal complications that drag on for months.

Employment contract requirements

Every employment contract must be written and include specific mandatory clauses. The contract needs to specify job title, duties, salary, work schedule, place of work, and termination conditions.

Contracts must be in English or Filipino (or both). If the employee doesn't understand the language used, you're required to provide translation. Foreign companies often miss this requirement and face contract nullification.

You don't need to register standard employment contracts with the government, but certain positions (like executives earning above ₱82,000 monthly) require additional documentation. The contract becomes legally binding once both parties sign, regardless of start date.

Probation periods

Standard probation period is six months maximum. You can set shorter periods, but anything beyond six months is automatically invalid under Philippine law.

During probation, you can terminate with just cause or without cause (with proper notice). After probation ends, termination becomes much more complex and expensive. You'll need just cause or follow lengthy consultation processes for redundancy.

Most companies set the full six months to properly evaluate employees. It's your best window for making personnel decisions without major legal complications.

Working time regulations

Standard work week is 48 hours maximum (8 hours daily, 6 days) or 40 hours (8 hours daily, 5 days). Anything beyond 8 hours daily requires overtime pay at 125% of regular rate.

Night shift differential applies from 10 PM to 6 AM at 10% additional pay. Weekend work (if not part of regular schedule) gets 30% premium. Holiday work ranges from 200-260% depending on holiday type.

You must maintain accurate time records for all employees. The Department of Labor regularly audits these records. Missing documentation results in ₱25,000-100,000 fines plus back pay calculations favoring employees.

Notice periods

Notice periods are consistent regardless of tenure, but severance requirements increase substantially with service length. Employees can waive their notice period, but employers cannot reduce the 30-day requirement without employee consent.

Payment in lieu of notice is acceptable if both parties agree. Most companies prefer this option to avoid potential workplace disruption during notice periods.

Termination process

Just cause termination requires specific grounds: serious misconduct, willful disobedience, gross negligence, fraud, or criminal conviction. You must provide written notice specifying the violation and give the employee chance to respond.

The process involves: written notice of charges, employee response period (typically 5-10 days), investigation/hearing, and final decision notice. Skip any step and the termination becomes illegal, requiring reinstatement plus back wages.

Redundancy and retrenchment require 30-day advance notice to employees and the Department of Labor. You must prove genuine business reasons and follow "last in, first out" principles unless legitimate business reasons justify different selection criteria.

Severance pay requirements

Severance is mandatory for redundancy, retrenchment, and closure. Just cause termination doesn't require severance, but wrongful dismissal can result in full back wages from termination date until resolution.

Separation pay calculations use the employee's regular salary rate, including regular allowances and benefits. Overtime and bonuses typically aren't included unless they're guaranteed compensation.

Data protection requirements

The Philippines Data Privacy Act applies to all employee information. You need explicit consent for processing personal data beyond what's necessary for employment purposes.

Employee files must be secured with appropriate technical and organizational measures. Data breaches require notification to the National Privacy Commission within 72 hours, with potential fines up to ₱5 million for violations.

Cross-border data transfers (like to your home country's HR systems) require adequate protection measures or explicit employee consent. Many foreign companies overlook this requirement until audit time.

Common compliance mistakes

Invalid employment contracts happen when companies use generic templates without Philippines-specific clauses. Missing mandatory provisions like probation periods, overtime rates, or termination procedures can void the entire agreement.

Wrong termination processes are expensive mistakes. Companies often skip the required notice periods to Department of Labor or fail to provide proper employee response opportunities. This turns legal terminations into wrongful dismissal cases.

Missing social security registrations within 30 days of hire result in ₱5,000-20,000 fines per employee. The SSS, PhilHealth, and Pag-IBIG registrations are mandatory and strictly enforced.

Penalties for violations

Common compliance failures in Philippines:

• Invalid employment contract: ₱25,000-100,000 fine plus contract reconstruction favoring employee
• Wrong termination process: Full back wages from termination date plus reinstatement order or separation pay
• Missing mandatory clauses: Contract deemed invalid, requiring back payments and benefit corrections
• Improper dismissal: 1-3 years back wages plus separation pay and legal fees
• Unregistered employees: ₱5,000-20,000 per employee for each missed agency (SSS, PhilHealth, Pag-IBIG)
• Overtime violations: Double the unpaid amount plus ₱10,000-40,000 administrative fines

Labor cases in Philippines typically favor employees, and resolution can take 1-3 years. Legal fees alone often exceed ₱200,000-500,000 for contested termination cases.

Hire with Columbus ensures every contract includes mandatory Philippines clauses and follows exact termination procedures. We handle all registrations, maintain compliant records, and manage any labor disputes according to local law. This removes the risk of costly compliance failures that can easily exceed our $179/month per employee fee.

What has changed recently?

The Philippine labor market got a major shake-up in 2025, and honestly, some of these changes caught even seasoned HR pros off guard. The biggest headline? The Telecommuting Act finally got its implementing rules in March 2025, which means remote work isn't just a pandemic Band-Aid anymore—it's officially part of how people work.

Let me break down what actually matters for your hiring plans right now.

New remote work regulations

The Department of Labor and Employment (DOLE) released detailed guidelines that treat remote work as a legitimate employment arrangement, not a temporary accommodation. You'll need formal telecommuting agreements for any employee working from home more than two days per week.

The agreement must specify work hours, performance metrics, and who pays for internet and equipment. Most companies are splitting tech costs 50/50 with employees, but that's negotiable. What's not negotiable? You still need to provide the same benefits and protections as office-based staff.

If you're using an EOR like Hire with Columbus, we handle these agreements as part of our standard $179/month per employee service. Trust me, getting the language wrong can trigger labor disputes you don't want to deal with.

Minimum wage increases across regions

Every region bumped up minimum wages between January and April 2025, with increases ranging from ₱15 to ₱35 per day. Metro Manila now sits at ₱645 per day (about ₱16,770 per month), while Cebu hit ₱485 per day.

What trips up foreign employers: these aren't suggestions. Regional wage boards set these rates, and labor inspectors actually check compliance. The penalties start at ₱25,000 for first-time violations and can hit ₱100,000 for repeat offenses.

Updated 13th month pay calculation

The Bureau of Internal Revenue clarified how to calculate 13th month pay for employees with variable compensation in 2025. If your staff earn commissions, overtime, or performance bonuses, you now need to include the monthly average of these payments in the 13th month calculation.

This affects a lot of sales and customer service roles that foreign companies typically hire for in the Philippines. The old method of using just base salary won't cut it anymore.

Stricter foreign worker quotas

The Department of Labor tightened enforcement of the 5% foreign worker limit in 2025. They're now requiring quarterly reports instead of annual ones, and companies that exceed the quota face immediate work permit suspensions.

Good news though: this doesn't affect you if you're hiring Filipino employees through an EOR. You're not the employer of record, so these quotas don't apply to your hiring decisions.

Enhanced data privacy penalties

The National Privacy Commission doubled penalties for data breaches involving employee information. Fines now start at ₱500,000 for small-scale violations and can reach ₱5 million for major breaches affecting over 1,000 employees.

They're particularly focused on foreign companies that process Filipino employee data outside the Philippines. You'll need explicit consent and proper data transfer agreements, which most EORs handle automatically in their employment contracts.

New mandatory training requirements

Companies with 50+ employees must now provide annual workplace harassment prevention training, following the Safe Spaces Act amendments that took effect in February 2025. The training must be conducted by certified providers and documented for DOLE inspections.

The training costs about ₱2,000 per employee annually, and you can't just send people a PDF to read. It needs to be interactive and include scenarios specific to Philippine workplace culture.