Employer of Record in the Philippines: Your Guide to Success

With their expertise in Philippine labour laws and regulations and robust infrastructure, an EOR can help you establish a successful presence in the country without the hassle and risk of setting up a legal entity.

In this guide, we will discuss what an employer of record is, their role in staff recruitment, and how partnering with one can benefit your business.

What is an employer of record services?

An employer of record is a third-party company that serves as the official employer for a group of workers. This means the EOR takes on all employee legal and administrative responsibilities, including payroll taxes, benefits, and compliance with labour laws.

By partnering with an EOR, companies can outsource the administrative burdens of managing employees and focus on their core business functions.

EORs handle all aspects of employee management, from onboarding and payroll management to performance evaluations and the termination process if necessary. They ensure that employees are paid accurately and on time and receive the benefits entitled to them under Philippine law.

The Role of Employer of Record in the Philippines

The Philippines represents a pivotal entry point to the ASEAN (Association of Southeast Asian Nations) markets, given its strategic location and highly skilled workforce.

With over 100 million people, the Philippines boasts a young and vibrant English-proficient population. This makes it an attractive destination for companies expanding into Southeast Asian markets.

Since the Philippine government permits 100% foreign ownership in almost all sectors, companies can easily set up and operate businesses there. However, navigating complex labour laws and regulations can be challenging for foreign companies.

This is where an employer of record comes in. By acting as the legal employer, they handle all employment-related tasks on behalf of the company, providing a seamless and compliant entry into the Philippines market.

10 Steps to Hiring Through an EOR in the Philippines

To make the most out of your partnership with an employer of record in the Philippines, here are ten essential steps to follow:

1. Understand your business needs and objectives in the Philippines market

The first step is clearly understanding your company policies, goals, and objectives in expanding to the Philippines market. This will help you communicate effectively with your EOR and ensure they have the necessary resources and expertise to support your business.

Factors you should consider include the type of employees you need, the duration of your project, and any specific skills or qualifications required.

Once you understand your business needs clearly, you can work with your EOR to develop a customised hiring plan.

2. Research and select a reputable EOR with experience in the country

Once you clearly understand your business needs, you can begin your search for an employer of record in the Philippines. Look for reputable companies with a proven track record and experience in the country. A comprehensive local network can also be beneficial in finding the right talent for your company.

Ask for references and case studies to ensure the EOR has successfully helped other businesses in similar situations. Word of mouth is an excellent way to find reliable and trustworthy EOR services.

3. Discuss and agree upon terms and expectations with the chosen EOR

Setting expectations and establishing clear communication is crucial for a successful partnership with an EOR. Discuss and agree upon terms, including the hiring process, costs, and timelines. Make sure to address any concerns or questions before signing the contract.

Open and transparent communication is the best way to ensure a successful partnership. Some of the details you'll need to discuss include:

• Scope of services provided
• Recruitment and hiring process
• Employee onboarding process
• Mandatory benefits management 
• Payroll and taxation procedures
• Legal compliance with local labour laws and regulations

Once you and the EOR have agreed upon all terms, document them in a formal contract.

4. Provide information on job vacancies, qualifications, and salary to the EOR

To find the right employees for your company, you must provide the EOR with information on job vacancies, qualifications, and salary expectations. This will help them advertise the positions and attract suitable candidates.

Be specific in outlining the job requirements and qualifications to ensure only qualified candidates are considered. The details usually provided include:

• Job title and description
• Required skills, experience, and qualifications
• Salary range
• Contract duration (if applicable)

Once the EOR clearly understands your hiring needs, they can begin their recruitment process.

5. The EOR works with headhunters who will post vacancies, screen CVs and conduct interviews on your behalf if this service is required

With the details provided, the EOR will works with headhunters advertise job vacancies on various platforms and screen resumes to find suitable candidates. They will also conduct initial interviews with potential employees to ensure they meet your requirements.

Once they have a shortlist of candidates, they will share their findings with you for final approval before proceeding with the hiring process.

6. Once candidates are selected, the EOR will handle all employment-related paperwork, visas, and contracts

Like any other legal document, contract paperwork can be confusing and daunting. This becomes more complicated when dealing with foreign employees.

By partnering with an EOR, you won't have to worry about this, as they will handle all employment-related paperwork on your behalf. This includes drafting employment contracts that comply with Philippine laws and regulations.

Working through employment-related legal paperwork can be particularly challenging when it involves global expansion in the Philippines. 

However, partnering with an EOR alleviates these complexities. They manage the intricate process of obtaining necessary work permits and visas, such as the Alien Employment Permit (AEP) and the 9(g) work visa, essential for foreign nationals seeking employment in the Philippines. 

The EOR ensures that all documentation, including employment contracts, complies with Philippine laws and regulations. If the employee needs an AEP, this process involves several steps, including submitting a completed AEP application form, securing an employment contract, and providing copies of the employee's passport and business permit. 

Once the AEP is granted, the 9(g) visa application can be filed through the Bureau of Immigration, requiring additional documentation like a notarised certification of the employer’s employee composition and a clearance certificate from the Bureau of Immigration. 

The entire process, taking approximately two to three months, includes a provision for a Provisional Work Permit, allowing the employee to start work if the visa process is incomplete. Thus, an EOR provides a streamlined, compliant path to manage these critical legal aspects of hiring in the Philippines

7. The EOR will onboard employees according to your company's policies and procedures

Onboarding is a crucial process for any new employee. The EOR will onboard the employees according to your company's policies and procedures to ensure a smooth transition. They will also provide necessary training and orientation about their roles and responsibilities.

8. The EOR will administer payroll, taxes, benefits, and handle other HR tasks

Employment in the Philippines involves various legal and financial requirements, including payroll, taxes, benefits, and other HR tasks. Your EOR will take care of these responsibilities on your behalf to ensure compliance with local laws and regulations.

They will also handle any employee-related concerns or issues that may arise during their employment. This allows you to focus on your core business without worrying about the administrative burden of managing employees.

9. Regular performance evaluations will be conducted by the EOR, with input from your company if desired

Performance evaluations are crucial for monitoring employee progress and identifying areas for improvement. Some EORs will conduct regular performance evaluations, with input from your company if desired, to ensure that employees meet your expectations.

This provides an opportunity to give feedback and address any issues that may arise before they become more significant problems.

10. The EOR will handle termination of employment according to local laws and regulations

If an employee needs to be terminated, the EOR will handle all necessary procedures according to local laws and regulations. This includes providing any required severance pay or benefits.

The EOR will also assist in finding a replacement if needed, ensuring minimal disruption to your business operations.

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Legal entity setup vs. using a Philippine EOR

Using an EOR in the Philippines is more straightforward and cost-effective than setting up a legal entity. Establishing a legal entity involves time, money, and a thorough understanding of local laws and regulations.

Working with an EOR allows you to focus on your business operations while leaving the administrative tasks and legal complexities to them. It also minimises financial risks associated with setting up a legal entity, such as registration fees and ongoing compliance costs.

Moreover, hiring through an EOR allows for greater flexibility in staffing. You can easily adjust the number of employees and their roles without worrying about legal implications or additional administrative tasks.

Partnering with an EOR in the Philippines is a practical and efficient way to expand your business operations into the country. It allows you to tap into a pool of skilled workers while ensuring local laws and regulations compliance. With an EOR handling all employment-related tasks, you can focus on growing your business and achieving your goals in the Philippines.

Employment Laws and Regulations in the Philippines

Employment law in the Philippines is governed by Labor Code 1974, which outlines the rights and obligations of employers and employees. As an employer, it is essential to be familiar with these laws and regulations to ensure compliance and avoid any legal issues.

Some key employment laws in the Philippines include:

• Minimum wage requirements - There is no uniform minimum wage in the Philippines. The Philippines’ Department of Labor and Employment has 51 different daily minimum wage rates, making it crucial to know the minimum wage in the specific location where your employees work.‍
• Probationary period - Employers can put new hires on probation for up to six months, during which they can terminate the employment with justifiable cause. After this period, employees are entitled to notice of termination and may be eligible for severance pay if terminated without cause. ‍
• Regular working hours - The standard work week in the Philippines is 40 hours, with eight hours per day as the maximum. Any work over eight hours is considered overtime and should be paid at a higher rate, 25% of their regular wage if the overtime is conducted on a regular day, and 30% on public holidays.‍
• Leave entitlements - Employees are entitled to various leaves, including sick leave, maternity/paternity leave, annual leave, and special leave for specific circumstances such as marriage or bereavement.‍
• Termination procedures and requirements - Employers must follow the proper procedures when terminating employment, including giving written notice and holding a hearing in misconduct cases. They must also provide the employee with a certificate of employment upon termination.

Partnering with an EOR in the Philippines ensures your business complies with these laws and regulations. The EOR will handle all employment-related tasks, including providing employees with entitlements and benefits according to local laws.

Employee Benefits and Entitlements

In the Philippines, employees are entitled to various statutory benefits and social security system entitlements provided by labor laws. These include:

Aside from these statutory benefits, employers in the Philippines may also offer common supplemental benefits such as health insurance, retirement plans, and other bonuses or incentives.

Termination and Notice Period Guidelines

Under Philippine law, there are two types of termination: authorised cause dismissal and just cause dismissal. Authorised cause dismissal involves termination due to business closure, economic reduction, or health reasons, while just cause dismissal covers issues such as misconduct, disobedience, neglect, fraud, or crime.

In cases of authorised cause dismissal, employers must provide employees with at least one month's notice and separation pay based on the length of service.

For just cause dismissal, no notice is required, but the employee must be allowed to explain their side in a hearing.

Employers must follow the proper procedures when terminating employees, as failure can result in legal repercussions. Partnering with an EOR can help ensure that termination processes are handled correctly and in regulatory compliance with local laws.

Additionally, an EOR can guide the appropriate action in case of employee disputes or grievances, minimising potential legal risks for your business.

Benefits and Challenges

There are various benefits and challenges to expanding your business into the Philippines. Some advantages include:

• Access to a large pool of young and educated workers with proficiency in English By expanding into the Philippines, you can tap into a workforce of over 105 million people with a literacy rate of 96% and proficiency in English.‍
• Favorable business environment - The Philippine government offers various incentives for foreign companies looking to invest in the country, such as tax breaks and streamlined procedures for business registration.‍
• Strategic location - With its proximity to other Southeast Asian countries, the Philippines is an ideal base for businesses looking to expand into the region.‍
• Cost-effective labour costs compared to other countries in the region - The Philippines offers competitive labour costs compared to other countries in the region, making it an attractive location for businesses.

However, there are also some challenges that businesses may face, such as:

• Cultural differences and language barriers can make it challenging to communicate effectively with employees - Employers may need to invest in cultural training and language support for their employees to ensure smooth communication.‍
• High competition for skilled talent - Due to the country's high number of graduates, there is fierce competition for top talent in specific industries. Companies may need to offer competitive salaries and benefits to attract and retain qualified employees.‍
• Bureaucratic processes and regulations - The Philippines has strict regulations and bureaucratic processes that can make it challenging for businesses to navigate. Partnering with an EOR can help mitigate this challenge by ensuring compliance with these laws and regulations.

Overall, the benefits of expanding your business into the Philippines can outweigh any potential challenges, especially with the support of a reliable employer of record Philippines partners. Your business can thrive in this rapidly developing economy by understanding and complying with local laws and regulations.

So, it is imperative to choose an EOR with a wealth of experience and expertise in the Philippines to help you navigate these challenges and ensure success for your business.

Choosing the Right Employer of Record Service in the Philippines

Now that you know the benefits and challenges of expanding your business into the Philippines, choosing the right employer of record (EOR) service provider is crucial. Here are some factors to consider when selecting an EOR in the Philippines:

• Prioritise experience and expertise - Look for a service provider with a strong track record of successfully supporting businesses in the Philippines. They should know extensively about local laws, regulations, and cultural nuances to ensure compliance and smooth operations.‍
• Consider their range of services - Apart from employer of record services, you may also need assistance with payroll, benefits administration, and other HR functions. Choose an EOR that can provide comprehensive services to meet your business needs.‍
• Look for flexibility - Every business has unique requirements, so choosing an EOR that can tailor their services to your needs is essential. This flexibility is crucial in ensuring the success of your expansion into the Philippines.‍
• Check for transparent pricing - Make sure that the EOR you choose provides transparent pricing and is upfront about all costs associated with their services. This will help you avoid any hidden fees or surprises down the line.

By considering these factors and thoroughly researching potential EOR service providers, you can find a reliable partner to support your business expansion into the Philippines. Your business can thrive in this dynamic and promising market with proper guidance and compliance.

The Wrap Up

Expanding your business into the Philippines can bring various benefits, such as access to a skilled workforce and a favourable business environment. However, there are also challenges, such as cultural differences and talent competition.

Choosing the right employer of record service in the Philippines is crucial for navigating these challenges and ensuring success for your business.

Knit offers a comprehensive range of employer of record services in the Philippines, backed by years of experience and expertise. Contact us today to learn more about how we can support your business expansion into this dynamic market.