Hiring in the Philippines: 10 Must-Know Compliance Facts

Remote work opens many opportunities for everyone, one of which is to hire from anywhere in the world. This means you can tap into a broader talent pool from even the other side of the globe or expand your global footprint quickly with the support of emerging remote hiring solutions.

The Philippines stands out as a premier destination for hiring remote workers, thanks to its skilled workforce and cost-effective labor. 

If you’re considering hiring a remote employee in the Philippines, these essential compliance facts you need to know to ease the employment process and ensure compliance. 

Here’s a comprehensive guide to help you navigate the process of hiring and paying remote workers in the Philippines.

#1. The Appeal of the Filipino Workforce 

The Filipino workforce is renowned for its strong work ethic, dedication, and proficiency in English.

With a literacy rate of over 96% and a high level of English proficiency, communication is seamless, and language barriers are minimal. The country ranks second in English proficiency in Asia and has English as one of its official languages.

These qualities make Filipino professionals highly sought after when it comes to finding cost-effective skilled talents.

Moreover, Filipinos share a cultural affinity with Western countries, particularly the United States. This means your Filipino team members are likely to integrate more quickly with your existing crew, simplifying collaboration and fostering a harmonious work environment.

If you want to broaden your talent pool to Asia, Filipino professionals are good choices for roles in customer support, administration, content writing, graphic design, IT, data entry, accounting, and also sales.

#2. Currency and Taxation in the Philippines

Many Filipino remote employees widely prefer being paid in USD because it's more stable than their local currency. However, in many cases, you still need to manage the currency conversion to Philippine pesos (PHP) to ensure they receive the agreed salary.

No matter what options to hire foreign employees you choose, you'll need a payroll system that seamlessly runs payroll for your remote team and follows the tax deduction and contribution regulations required by local government agencies.

Remote employees in the Philippines are taxed based on their income, with additional contributions for social security and health insurance. The Philippines also uses a progressive tax system, but their tax brackets range from 0% to 35% for both Philippines residents and non-residents.

• 0%: Up to PHP 250,000
• 20%: Over PHP 250,000.01 up to PHP 400,000
• 25%: Over PHP 400,000.01 up to PHP 800,000
• 30%: Over PHP 800,000.01 up to PHP 2,000,000
• 32%: Over PHP 2,000,000.01 up to PHP 8,000,000
• 35%: Over PHP 8,000,000.01

#3. Salary Breakdown and Tax Treatment

In the Philippines, the components of an employee's salary typically include basic pay, allowances, benefits, and statutory contributions. 

Here's a simple breakdown of these components and their corresponding tax implications:

Taxed Components

• Basic Salary: Fully taxable above the minimum wage.
• Bonuses and Incentives: Fully taxable unless they fall under specific exemptions.

• Holiday Pay, Hazard Pay, Overtime, and Night Shift Bonuses: These are generally taxable, except for minimum wage earners (MWEs) or under specific conditions with reduced tax rates.
• 13th Month Pay: Exempt from tax up to PHP 90,000. Amounts exceeding this are taxable.

Tax-Exempt Components

• De Minimis Benefits: Some allowances are tax-exempt up to certain limits, like uniform allowances (PHP 6,000/year), rice subsidies (PHP 2,000/month), Christmas and major anniversary gifts (PHP 5,000/year), and unused vacation leave credits (not exceeding 10 days converted to cash). The latest maximum thresholds of de minimis benefits, meaning benefits of relatively small value, can be found in the Revenue Regulations (RR) No. 11-2018. 
• Health and Life Insurance Premiums and some other fringe benefits are excluded from the employees’ taxable income yet are subject to a final benefits tax. (I will mention this again later.) 
• Personal Exemptions and Additional Exemptions for Dependents under qualified conditions.

#4. Minimum Wage and Overtime Regulations

The Department of Labor and Employment (DOLE) is your go-to for all things labor law in the Philippines. This regulatory framework ensures that employees get fair wages and are properly compensated for overtime.

Even though people prefer the flexibility of remote work regarding where and when work can be done and we’re even moving towards the 4-day work week, in some cases, it may be necessary for our Filipino remote team members to be available during specific hours. 

So, in the Philippines, the standard workday is eight hours, typically excluding a one-hour lunch break. All employees are entitled to a minimum of 24 consecutive hours of rest after every six consecutive normal workdays.

Additionally, DOLE mandates that employees must be paid biweekly, at intervals not exceeding 16 days. So if you prefer the monthly payment schedule, be sure to negotiate with your Filipino employees upfront.

Minimum Wage

The minimum wage can vary depending on where your employees are located due to the cost of living. And new wage orders are issued from time to time.

For example, in Metro Manila, which is defined as the National Capital Region (NCR), it is PHP 610 per day now. 

Other regions have their own minimum wage rates, set by local boards that consider living costs and economic conditions. 

Overtime Regulations

If your employees clock in more than eight hours in a day, they’re required overtime pay at 125% of their regular hourly rate.

Different rates may apply for work performed on rest days (130%), special days (130%), or regular holidays (at least 200%).

Additionally, if any of these overtime hours fall between 10 PM and 6 AM, your employees are entitled to a night shift differential. This means they receive an extra 10% on top of their regular hourly rate for each hour worked during these late-night hours.

#5. Mandatory 13th Month Salary

In the Philippines, the 13th month salary is a must and has to be paid by December 24 each year. You also need to submit a compliance report to DOLE by January 15 of the following year.

All rank-and-file employees who have worked for at least one month during the year are entitled to it. Even if they haven't worked the full year—they'll get a pro-rated amount. 

This is quite different from the US, where there's no federal law requiring a 13th-month salary or similar bonus. It's up to the employer and can vary widely.

#6. Payroll Deductions for Statutory Benefits

Besides withholding income taxes from salaries and remit them to the Bureau of Internal Revenue (BIR), you also need to make the following mandatory deductions and contributions for employees’ social security, healthcare, and housing benefits:

Social Security System (SSS)

The Social Security System (SSS) in the Philippines is a government insurance program for Filipinos, similar to Social Security in the US. It offers financial support for workers during retirement, disability, sickness, maternity, and death.

For 2024, the total SSS contribution rate is 14% of the employee's monthly salary.

This contribution is split between the employer and the employee, with the employer paying 9.5% and the employee paying 4.5%. The contributions are based on a minimum monthly salary of PHP 4,000 and a maximum of PHP 30,000​.

For example, if your Filipino remote employee’s salary is PHP 50,000, their SSS contributions will still be based on the maximum salary cap of PHP 30,000.  

Philippine Health Insurance Corporation (PhilHealth)

PhilHealth covers inpatient and outpatient care for employees, including hospital stays, medicines, and major surgeries.

For 2024, the premium rate is 5% of the employee’s monthly basic salary, with contributions capped at a maximum of salary of PHP 100,000. Both employer and employee share this contribution equally. 

Home Development Mutual Fund (Pag-IBIG Fund)

The Pag-IBIG Fund is a national savings program and housing finance scheme that helps Filipino workers achieve homeownership. It offers housing loans, savings options, and short-term loans for emergencies.

Since February 2024, the contribution rate has been 2% of the employee’s salary for those earning above PHP 1,500 per month, with both the employer and the employee contributing equally. 

The maximum salary used for contributions is PHP 10,000, making the maximum monthly contribution PHP 200 each from both the employer and the employee.

#7. Leave Policies for Filipino Remote Employees

The Philippines has a relatively robust legal framework governing leave policies. 

Employees there appreciate the protections and entitlements provided by law, such as maternity leave, paternity leave, and special leave for solo parents and women. 

Many Filipino employees value companies that offer additional annual leave, sick leave, and other types of leave beyond the statutory minimums. 

Here’s the breakdown of the key types of leave benefits that are popular in the Philippines and their common practices:

1. Annual Leave

Filipino employees are entitled to a minimum of five paid days of Service Incentive Leave (SIL) per year after one year of service. This leave can be used for vacation or personal matters.

Common Practice: Many companies offer more than the statutory minimum, often providing 10-15 days of annual leave to attract and retain talent.

2. Sick Leave

There is no specific statutory requirement for sick leave in the Philippines; employees can use their SIL for sick days. 

SSS provides sickness benefits to members with at least three monthly contributions in the 12 months before illness, requiring confinement for at least four days. The benefit equals 90% of the average daily salary, payable for up to 120 days annually.

However, it’s common for employers to include it in their benefits package.

Common Practice: Many companies offer additional paid sick leave, convert unused leave to cash, or carry it over to the next year. Medical certificates are often required for extended absences. 

3. Maternity Leave

Different laws mandate the leave benefits of being parents in the Philippines. 

Under the Expanded Maternity Leave Law (Republic Act No. 11210), female employees get 105 days of paid leave for each live birth, covering all types of deliveries. 

Single moms get an additional 15 days of paid leave, totaling up to 120 days. They can also request an extra 30 days of unpaid leave if they need more time.

To be eligible, employees need to have paid at least three monthly SSS contributions in the 12 months before the birth​.

Common Practice: Employers generally adhere strictly to these legal requirements. Some progressive companies offer additional support, such as return-to-work programs or flexible working arrangements post-maternity leave.

4. Paternity Leave

For new dads, the Paternity Leave Act of 1996 grants 7 days of paid leave for married male employees. This applies to both private and public sectors and is available for the first four deliveries of their legitimate spouse.

This leave allows fathers to support their partners and bond with their newborns during those crucial first days.

5. Parental Leave for Solo Parents

They get 7 days of paid leave each year if they've worked for at least one year (whether continuously or broken). This leave helps solo parents manage their responsibilities, especially when their presence is needed​.

6. Bereavement Leave

While not mandated by law, many companies provide 3-5 days of bereavement leave for the death of an immediate family member.

7. Special Leave Benefits for Women

Women who undergo surgery due to gynecological disorders are entitled to a special leave of up to two months with full pay. 

To qualify for this benefit, the employee must have rendered at least six months of continuous service within the last 12 months. 

Common Practice: Companies comply with this requirement and may also provide additional support or flexible working arrangements during recovery.

8. Leave for Victims of Violence Against Women and Their Children (VAWC)

Victims of domestic violence are entitled to up to ten days of paid leave.

Common Practice: This leave is provided as needed and may be extended depending on the circumstances.

In the Philippines, female employees who are victims of violence, including physical, sexual, psychological, and economic abuse, are entitled to up to 10 days of paid leave. 

This leave allows employees to attend to medical and legal concerns arising from the abuse. 

To be eligible, employees must present a certification from the barangay (village) chairman, prosecutor, or clerk of court, indicating that an action is pending or being prosecuted under the VAWC law. 

Common Practice: Leave can be extended as needed, depending on medical and legal requirements, but it cannot be converted into cash if unused and is not cumulative. 

Complying with these rules shows that companies are supporting their employees in such difficult circumstances, contributing to a safer and more supportive work environment​.

#8. Holiday Offs in the Philippines

There are many holidays in the Philippines, including paid and unpaid ones.

Regular Holidays

Employees are entitled to a day off with full pay on regular holidays. 

If they work on these days, they receive 200% of their daily wage for the first eight hours. Any overtime work on a regular holiday is paid at an additional 30% of their hourly rate on top of the double pay.

Here’s the list of paid public holidays honoring significant historical, religious, and cultural events in the Philippines:

• New Year’s Day - January 1
• Maundy Thursday - March 28
• Good Friday - March 29
• Day of Valor (Araw ng Kagitingan) - April 9
• End of Ramadan (Eid'l Fitr) - April 10 
• Labor Day - May 1
• Independence Day - June 12
• Festival of Sacrifice (Eid'l Adha) - June 17 
• National Heroes Day - August 26
• Bonifacio Day - November 30
• Christmas Day - December 25
• Rizal Day - December 30 

Special Non-Working Days

On special non-working days, employees who work are entitled to 130% of their daily wage for the first eight hours. 

If they do not work, the "no work, no pay" principle generally applies unless there is a favorable company policy, practice, or collective bargaining agreement (CBA) that provides otherwise. 

Overtime work on these days is paid an additional 30% of their hourly rate​.

Here’s the list of non-working days in the Philippines:

• Chinese New Year - February 10
• Black Saturday - March 30
• Ninoy Aquino Day - August 21
• All Saints’ Day - November 1
• All Souls’ Day - November 2
• Feast of the Immaculate Conception of Mary - December 8
• Christmas Eve - December 24
• Last Day of the Year - December 31 

#9. Fringe Benefits for Seniors

If you're hiring remotely in the Philippines for senior roles like managers or supervisors, you may want to pay attention to the fringe benefits and their taxes.

Fringe benefits are extra perks given to employees on top of their salary, such as company cars, housing, and expense accounts. 

These benefits are great for attracting top talent but come with specific tax rules you need to follow. 

In the Philippines, fringe benefits given to managerial and supervisory employees are subject to Fringe Benefits Tax (FBT) at a rate of 35% of the grossed-up value of the benefit. 

This means if you provide a benefit valued at PHP 65,000, the grossed-up value is PHP 100,000, and the tax you pay is PHP 35,000.

It's important to note that FBT is the employer's responsibility, not the employee's. 

Some benefits are exempt from this tax, like contributions to retirement funds or benefits required by the nature of the job. Benefits provided to rank-and-file employees (de minimis benefits) are also generally exempt.

#10. Employee Termination

If you're managing remote employees in the Philippines, it's essential to understand the termination rules to ensure compliance, which depend on the type of employment.

The Philippines recognizes employment types: regular, casual, project-based, and seasonal employment.

Regular employees who perform essential tasks for the business have strong protections. They can't be terminated without just or authorized cause and due process. This means giving notice, holding a hearing, and providing a decision notice. They are also entitled to separation pay if terminated for reasons like redundancy (one month's salary per year of service) or retrenchment (at least one-half month’s salary per year of service).

The grounds for termination are classified into just causes and authorized causes:

• Just causes include serious misconduct, willful disobedience, and gross neglect of duties, all of which require due process. 
• Authorized causes, such as redundancy or business closure, necessitate a 30-day notice to the employee and DOLE.

For casual employees who are hired for tasks that are incidental to the business, termination is simpler. They can be let go when their task ends.  

However, if they work for over a year, they become regular employees and gain the same protections. 

An example of a casual employee might be someone hired temporarily to manage an increased workload during a peak season.

Project-based employees are hired for specific projects, and their employment ends when the project is completed. They usually don't get separation pay unless their contract specifies it.

Seasonal employees work during specific times of the year, and their employment ends with the season. They typically do not face the same termination complexities as regular or casual employees unless they are re-hired for successive seasons or projects, in which case they may gain regular status.

Final Thoughts

Hiring remote workers in the Philippines offers numerous benefits, including cost-effective labor, a highly skilled workforce, and a favorable business environment. 

Understanding payment methods, currency and taxation, salary components, payroll deductions, labor laws, and employee benefits in the Philippines is crucial for businesses to effectively navigate the complexities of hiring. And I hope this roundup of 10 facts gives you a better glimpse into these aspects!

Remember, you don’t have to do this all alone. 

If you’re not ready to set up a subsidiary in the Philippines and handle employment-related administrative tasks on your own, partnering with an Employer of Record is the simplest way to hire international employees and manage compliance aspects there. For example, Deel provides a comprehensive solution for global hiring, payroll, and compliance that is trusted by many remote-first companies like Coinbase, Dropbox, and Shopify. (See our detailed review of Deel here.)

Check out my curated list of the Best Employer of Record Services in 2024 and guide to choose the right EOR partner. 

Disclaimer: This article is here to provide some helpful information, but it is not a substitute for professional tax, accounting, or legal advice. Be sure to consult with your tax, accounting, and legal advisors before engaging in any related activities or transactions.