Establishing a business entity overseas offers numerous advantages, such as accessing new markets and talent while reducing project development costs. To avoid bureaucratic hurdles and fully leverage foreign opportunities, why not outsource an employer of record service provider?
In this guide, we’ll cover everything about EOR services, including their functions and the benefits of partnering with a credible EOR service provider like CreaThink Solutions.
What is Employer of Record Services?
An EOR is an outsourcing provider that handles legal and administrative tasks related to hiring remote employees, offering a simple and efficient solution for businesses to employ foreign talent without setting up a new business entity in the outsourcing country. Employer of Record providers handle legal and regulatory requirements, payroll, and other HR tasks.
Businesses often outsource by partnering with agencies like Business Process Outsourcing or Employer of Record companies to hire remote employees efficiently.
An Employer of Record in the Philippines serves as a vital ally for foreign firms seeking to establish a foothold without forming a legal entity.
Employment Dynamics in the Philippines: A Snapshot
Understanding Philippine employment laws is key to successful operations. While regulations favor employees, adherence can attract top talent.
Work Hours and Wages
The standard work week is six days, with up to 8 hours per day or 48 hours per week. Minimum wages vary by region, averaging 537 PHP per day.
Overtime and Benefits
Overtime work earns employees an additional 25% of their regular wages. Night shift workers receive a 110% salary premium. Employers contribute to Social Security, Health Insurance, and Housing Funds.
Leave Policies
Employees with one year of service receive five days of paid leave and typically enjoy 15 days of paid vacation annually. Maternity leave lasts for 105 days, while parental leave is seven days.
Taxation
Foreign resident companies face a 30% corporate tax rate based on net taxable income. Employers must withhold employee income tax.
Income Tax Brackets (Effective January 1, 2023):
Up to PHP 250,000: 0%
PHP 250,001 to PHP 400,000: 15%
PHP 400,001 to PHP 800,000: 20%
PHP 800,001 to PHP 2,000,000: 25%
PHP 2,000,001 to PHP 8,000,000: 30%
Above PHP 8,000,000: 35%
Work Arrangement
The Information Technology and Business Process Management sector follows a 70-30 hybrid work model. Remote employees receive equivalent rights as on-site staff for tax incentives.
Benefits of Employer of Record Services
Partnering with an Employer of Record in the Philippines offers several key benefits for both employers and employees:
Pros:
- More control: Unlike BPOs, you have complete control over hiring, firing, and promotions within your organization, leading to better oversight of team performance.
- Flexible for small to medium businesses: EORs allow you to hire any employees you need without minimum requirements, providing scalability.
- Timesaving: Engaging with an EOR frees time to focus on core business functions instead of recruitment and administrative work.
- No need for local incorporation: EORs handle all legalities, ensuring compliance with local labor laws without setting up local entities.
- Collaborative hiring process: EORs work closely with you throughout the hiring process and manage ongoing HR tasks for your remote team.
- Transparent cost: You set employee salaries, and pricing is agreed upon upfront, eliminating surprises.
Cons:
- Internal team management: Unlike BPOs, day-to-day management of your team remains internal within your organization.
- Longer hiring process: EORs prioritize quality over quantity, which may result in longer hiring timelines to ensure candidates fit each role and meet legal requirements.
Compliance and Legal Considerations
When hiring from the Philippines, it’s essential to understand key differences in hiring practices compared to the US. For example, paid sick leave isn’t mandatory, and employees become eligible for at least five days of paid leave after a year.
Female employees receive 105 days of fully paid birth-related leave, while married males can take up to seven days of paid leave per child.
Additionally, employees receive a 13th-month salary on or before December 24th The standard workweek is 48 hours over six days, with overtime compensated at 25% of the base rate, rising to 30% for special holidays.
Managerial positions do not qualify for overtime pay. Employment terms include a six-month probationary period, with both employees and employers required to provide 30-day notices for resignations and dismissals.
Immediate terminations can occur for just causes, and severance pay is due only for authorized terminations, potentially amounting to a month’s salary per year of service.
Hiring and Onboarding Processes
Once you’ve selected an EOR for the Philippines, gather essential employee details such as name, date of birth, contact info, bank details, and tax IDs. Customize and distribute legally compliant employment agreements via the EOR, covering key working conditions like probation, hours, wages, benefits, and termination policies.
The EOR offers support and guidance during onboarding, ensuring new employees feel confident and capable. The aim is to foster comfort and competence for optimal job performance.
Payroll Management and Benefits Administration
In the Philippines, compliance with taxation and social security requirements is essential for employers, and partnering with an EOR solutions provider can ensure accurate management of these obligations. Key contributions and deductions include:
- Withholding Tax on Compensation: Employers deduct a portion of an employee’s salary as withholding tax, remitting it to the government as an advance payment of the employee’s income tax.
- Social Security: Contributions to the Social Security System (SSS) are mandatory, with rates of 9.5% for employers and 4.5% for employees.
- PhilHealth: Employers must contribute 5% of employees’ gross income to the Philippine Health Insurance Corporation (PhilHealth).
- HDMF (Pag-IBIG Fund): Mandatory Home Development Mutual Fund contributions involve employers and employees each contributing PHP 200 monthly.
Choosing an EOR Partner in the Philippines
Selecting the right Employer of Record when expanding into the Philippines market. Here’s how to make the right choice:
- Experience and Track Record: Look for an EOR with extensive experience and a proven track record in the Philippines. They should be well-versed in local employment laws and regulations, including unique provisions like the 10% additional night shift wage entitlement.
- Scalability and Flexibility: Ensure the EOR can accommodate your business growth and adapt to dynamic requirements, catering to both large and small-scale companies.
- Local Network: Choose an EOR in the Philippines with a solid local network, including relationships with government authorities, legal advisors, and recruiters. This provides access to valuable local insights and support.
Looking to hire an EOR provider in the Philippines? CreaThink Solutions is the perfect partner for you! Founded by Filipino BPO experts, CreaThink Solutions aims to provide innovative solutions to international businesses seeking proficient remote workforces.
Visit our website to learn more about EOR in the Philippines and how we can help your business with employer of record services. Connect with us via Facebook, YouTube, and LinkedIn to learn how EOR solutions can take your business to the next level.
