The Philippines: A Deep Dive!

An EOR company acts as a local employer for your business in the Philippines, taking care of all the administrative tasks, including labor contracts, tax contributions, social contributions, and payroll. Here are some reasons why you should choose an EOR when expanding into Indonesia:

Compliance with Philippines Labor Laws:

The Philippines has a complex set of labor laws that can be challenging for foreign companies to navigate. These laws include the Labor Code of the Philippines, which covers everything from employment contracts to working conditions and termination procedures.

1. Minimum wage: The minimum wage in the Philippines varies by region and sector.  It is set by the Regional Tripartite Wages and Productivity Boards (RTWPBs) and takes into account factors such as cost of living, industry practices, and productivity.  Employers are required to pay their employees at least the minimum wage rate.
2. Regular vs. probationary employment: Regular employees in the Philippines are entitled to certain benefits, such as holiday pay, 13th-month pay, and Social Security System (SSS) contributions.  Probationary employees, on the other hand, are not entitled to these benefits and may be terminated more easily. Probationary periods cannot exceed six months.
3. Termination: Employers can terminate employees in the Philippines for valid reasons, such as serious misconduct or redundancy. However, employers must follow due process and give employees notice and/or severance pay as required by law.  The process that must be followed is complex.
4. Hours of work: The standard work week in the Philippines is 40 hours, with eight hours per day.  Overtime pay must be provided for work beyond eight hours per day or 40 hours per week.
5. Leave benefits: Employees in the Philippines are entitled to various types of leave, including annual leave, sick leave, maternity leave, and paternity leave.  These benefits are subject to certain conditions and requirements, such as length of service and medical certification.
6. Labor unions: Employees have the right to form and join labor unions in the Philippines.  Employers are prohibited from discriminating against employees who participate in union activities, and collective bargaining is recognized as a legitimate way to negotiate terms and conditions of employment.
7. Health and safety: Employers are required to provide a safe and healthy working environment for their employees.  This includes providing appropriate safety equipment and training, as well as complying with health and safety regulations and standards.

It’s important for employers to stay up-to-date with Philippine labor laws to ensure compliance and avoid potential legal issues. Working with an Employer of Record (EOR) can help ensure compliance with labor laws, as the EOR will handle payroll, benefits, and other employment-related matters on behalf of the employer.

To ensure compliance with these laws, an EOR will work closely with your business to ensure that all necessary documents and processes are in place.  This includes drafting employment contracts that are compliant with local regulations, setting up a payroll system that meets local requirements, and ensuring that all necessary permits and licenses are obtained.

Tax Contributions:

Taxation is an important consideration for any business operating in the Philippines.  This includes income tax, value-added tax (VAT), and other taxes and fees.  An EOR can help your business navigate these requirements by ensuring that all taxes are paid on time and in compliance with local laws.

• Income tax: The tax rates for individual taxpayers in the Philippines are as follows:

• Up to PHP 250,000: 0%
• Over PHP 250,000 up to PHP 400,000: 20% of the excess over PHP 250,000
• Over PHP 400,000 up to PHP 800,000: PHP 30,000 plus 25% of the excess over PHP 400,000
• Over PHP 800,000 up to PHP 2,000,000: PHP 130,000 plus 30% of the excess over PHP 800,000
• Over PHP 2,000,000 up to PHP 8,000,000: PHP 490,000 plus 32% of the excess over PHP 2,000,000
• Over PHP 8,000,000: PHP 2,410,000 plus 35% of the excess over PHP 8,000,000
• Value-added tax (VAT): The standard VAT rate in the Philippines is 12%. Some goods and services are exempt from VAT, while others are subject to a reduced rate of 0% or 6%.

In addition to income tax and VAT, there are other taxes that may apply depending on the nature of your business.  These include withholding tax, documentary stamp tax, and local business tax.  An EOR can help you understand which taxes apply to your business and ensure that you are fully compliant with all applicable regulations.

Social Contributions:

In addition to taxes, there are also social contributions that must be paid in the Philippines. These include contributions to the Social Security System (SSS), the National Health Insurance Program (PhilHealth), and the Home Development Mutual Fund (Pag-IBIG).

Social Contribution Rates:

• Social Security System (SSS): Employers contribute 7.37% of an employee’s monthly salary to the SSS, while employees contribute 3.63% of their salary. Self-employed individuals also contribute to the SSS.
• National Health Insurance Program (PhilHealth): Employers contribute 2.75% of an employee’s monthly salary to PhilHealth, while employees contribute 2.75% of their salary. Self-employed individuals also contribute to PhilHealth.
• Home Development Mutual Fund (Pag-IBIG): Employers contribute 2% of an employee’s monthly salary to Pag-IBIG, while employees contribute 1% of their salary. Self-employed individuals also contribute to Pag-IBIG.

An EOR will handle these payments on your behalf, ensuring that your employees have access to social security benefits and other programs. This can include healthcare coverage, retirement benefits, and housing loans.

Payroll:

Managing payroll in a foreign country can be complicated, especially if you’re not familiar with local laws and regulations.  An EOR can take care of all payroll processing and ensure that your employees are paid accurately and on time.

Here are some key points to keep in mind regarding the payroll process in the Philippines:

1. Frequency of payroll: Employers in the Philippines must pay their employees at least twice a month, with no more than 16 days between paydays. Some employers may choose to pay their employees more frequently, such as weekly or bi-weekly.
2. Payslip requirements: Employers are required to provide their employees with a payslip that includes details of the employee’s gross pay, deductions, and net pay. The payslip should also include any overtime pay, holiday pay, or other allowances that the employee is entitled to.
3. Mandatory deductions: Employers are required to make certain deductions from their employees’ paychecks, including Social Security System (SSS) contributions, National Health Insurance Program (PhilHealth) contributions, and Home Development Mutual Fund (Pag-IBIG) contributions. Employers must also withhold taxes on behalf of their employees and remit these taxes to the government.
4. Voluntary deductions: Employees in the Philippines may choose to have additional voluntary deductions taken from their paychecks, such as contributions to a retirement fund or health insurance plan. Employers must obtain written consent from the employee before making any voluntary deductions.
5. Payment methods: Employers may pay their employees in a variety of ways, such as through cash, check, or direct deposit.  Employers are required to provide their employees with a pay slip indicating the details of their pay and deductions.
6. Record-keeping: Employers are required to keep accurate records of their employees’ pay and deductions.  This includes maintaining records of employee earnings, deductions, and tax withholding.

Business Cultural Understanding:

Finally, an EOR can help your business navigate the unique business culture of the Philippines.  This includes everything from local customs and traditions to communication styles and work ethics.

Here are some key points to keep in mind regarding business culture  in the Philippines:

1. Relationship-oriented: Building relationships is an important part of doing business in the Philippines. It’s common to spend time getting to know business partners and colleagues on a personal level before discussing business matters.
2. Respect for hierarchy: The Philippines has a strong hierarchical culture, with respect for authority and seniority. It’s important to address people by their formal titles, such as “sir” or “ma’am,” especially when dealing with government officials and those in positions of power.
3. Timekeeping: While punctuality is appreciated, it’s common for meetings to start later than the scheduled time.  It’s important to be patient and flexible when it comes to scheduling and timekeeping.
4. Communication: Filipinos tend to communicate indirectly and politely, often using euphemisms and vague language.  It’s important to listen carefully and ask clarifying questions to ensure clear communication.
5. Business attire: Business attire in the Philippines is generally conservative and formal.  Men typically wear long-sleeved dress shirts and slacks, while women wear dresses or dress pants.
6. Food and hospitality: Sharing food is an important part of Filipino culture, and it’s common to have meals or snacks during meetings or negotiations.  Offering hospitality and generosity is appreciated and can help build relationships.
7. Etiquette: Etiquette is important in Filipino culture, and it’s important to be polite and respectful in all interactions.  Avoiding confrontation and conflict is valued, and it’s important to maintain a positive and harmonious relationship with business partners and colleagues.

Understanding the business culture in the Philippines can be important for establishing successful business relationships and partnerships.  Working with a local Employer of Record (EOR), such as Eos – Employment Outsourcing Solutions can also help navigate cultural differences and ensure compliance with local laws and regulations.

n conclusion, compliance with Philippines laws, tax contributions, social contributions, payroll, and business cultural understanding are all critical considerations for any business expanding into the Philippines.  

By partnering with an Eos – Employment Outsourcing Solutions, you can ensure that your business is fully compliant with all applicable regulations, and that your employees are managed effectively and respectfully in the local context.  

Contact Eos – Employment Outsourcing Solutions today to learn more about how we can support your expansion into the Philippines and other markets around the world.