When we decide to expand internationally and hire employees in other countries, we must familiarize ourselves with the local culture, business practices and any differences in operation.
While international business relationships can clearly be beneficial to both parties and function harmoniously, it’s essential to acknowledge the differing perspectives and not just assume you’ll be able to use your same business practices in the new location.
There are notable differences between the US and the Philippines in working culture and employment regulations. This article encompasses the primary differences that a US employer should expect before and during the hiring process of Filipino employees.
What to Consider When Hiring a Remote Worker in the Philippines
The Philippines have patterned their educational system after the US educational system. Because of this, US employers generally find it very easy to adjust with the Philippines working style.
There are, however, still some distinct differences. For a successful working relationship, US employers should familiarize themselves with these variations when hiring Philippines employees.
Filipino people are highly communal and respectful of power dynamics. This is markedly different from the US, which is more individualistic. You may notice this play out in various ways within the workplace. Filipino employees are highly punctual in their meetings and appointments. They may refer to people as “sir” and “mam”, although using a colleague’s first name is also generally acceptable.
Filipino employees rarely take risks in their work, and frequently defer decisions to those with higher positions. In instances where they are the decision-makers, Filipino employees will usually like to discuss with their peers and come to a decision communally. This may mean tasks take longer, as clarifying everyone’s consensus is essential.
It would benefit a US employer to know that in the Philippines, supervisors expect employees to ask them for advice, so they may be interacting more with their Filipino employees than they usually would with their American ones. Filipino employees are also very hesitant to disagree with a supervisor, and will actively avoid saying the word ‘no.’ They may instead use the word ‘maybe’ to indicate disagreement. It is therefore vital for US employers to carefully listen out for any signs of hesitation a Filipino employee may express for a more long-lasting and open working relationship.
Personal relationships are also quite strong in a Filipino working context, as establishing a friendship is seen to deepen a business relationship. US employers should note that in the Philippines, asking questions about a fellow employee’s personal life, such as questions about family, is the norm. Furthermore, Filipinos will usually expect a US employer to ask similar questions back!
In the Philippines, the official business language is English. Up to 90% of Filipinos speak American English, so US employers won’t often need to worry about translating any documents from English to Tagalog.
What is the time difference between the US and the Philippines?
The East Coast will struggle to communicate with their Filipino employees, as it is 9 am in the Philippines when it is 9 pm in New York. The West Coast has slightly better chances of communicating within work hours, as it is 6 pm in California during Philippine’s 9 am.
How is this commonly dealt with?
US employers may have to accept that they will receive any responses from their Philippines team very late into their night, or the following day. Calls between the West Coast and the Philippines will be possible if the US employer is willing to continue working after 6 pm, or if the employee in the Philippines can start working from 8 am.
It has been commonplace for US multinationals to ask Philippines workers to mirror or overlap US working hours. This leads to very late nights. But it can have the positive of missing peak hour traffic commuting into an office.
How many hours do Filipino employees work?
Employees in the Philippines work eight hour days, across five days a week. This means that an employee in the Philippines will be working 40 hours a week, which is less than the US’ average of 47.
If a US employer wants the employee to exceed these hours, the employer can arrange this in the employment contract, and overtime is also usually given.
At Shield GEO, our Filipino employees enjoy the benefits that come with a flexible work arrangement. In particular, they benefit from working from home. Rush hour traffic is a significant problem, especially in Manilla. It is common for a commute to take 1-2 hours each way. Employees who transition to working from home can save up to 20 hours per week if they don’t have to commute. By having sustainable working hours, flexibility around start and finish times and freedom to choose their work location, employees enjoy a healthier work-life balance and don’t need to worry about heading into work on time or staying back for long hours on end.
How do you recruit employees in the Philippines?
Recruiting is best done through word of mouth in the Philippines, which is indicative of their community focussed culture. Outreach via Linkedin can be a good way to tap into these networks. Advertising on websites and using recruiters is also popular. There are a lot of different websites, including many catering to particular industries or job titles. Similarly, there are recruiters specialized in general recruitment, specific industries and particular roles.
How do you interview remote workers in the Philippines?
US employers can interview remote workers through video conferencing and phone calls. Internet bandwidth can often be a problem in the Philippines, so it is good to have a variety of options available (e.g. try for video but have a phone line available as a backup).
Are the Filipino resumes different from American resumes?
As Philippines education is based on America’s educational style, resumes are usually written quite similarly. One of the main differences between the US and Philippines resume is that a Philippines resume will include a headshot and even details like height and weight.
Is making an offer to an employee in the Philippines different that hiring in the US?
The US employer needs to be clear on what exactly they are offering to the employee. Is the amount gross or net? Is it in PHP or USD? Is it a monthly salary or annual?
Employees in the Philippines get paid 13 salary installments a year, so make sure that you factor this in when calculating a monthly salary.
Benefits like an internet allowance and private health insurance are great incentives for people in the Philippines.
How can a US company legally hire a remote employee in the Philippines?
US companies may wonder how it is possible to hire a remote employee in the Philippines from abroad. There are a few different ways to accomplish this, all of which are legal, with different levels of cost and complexity.
Set up a legal entity
If your company has a serious commitment to the Philippines, such as starting a call center or other business operation, then it may be feasible to set up your own entity or branch office. The requirements for business incorporation and registration can be daunting and will require some investment, as well assistance from local experts.
If you are just hiring a few remote employees, this option is probably impractical and there are better ways to go about it.
Hire them as a contractor
A simpler solution is to hire them as an independent contractor, and you will find there are Filipinos who are used to working this way and may even prefer it. You won’t have the same loyalty as with an employee, but you also avoid the cost of employment which includes offering benefits and paying social contributions.
Keep in mind that if you treat a contractor like an employee, you run the risk of misclassification. If you manage the work schedule and methods and pay them a fixed ‘salary’, the employee could claim they are not really a contractor and are entitled to employee benefits.
Hire them with an employer of record
If your recruit values an employee role, there is a way to hire them using an employer of record (EOR) in the Philippines. The employer of record has an established legal entity that is ready to hire and payroll remote employees on your behalf, while you still manage their work activities.
Steps to hiring remote employees in the Philippines for US companies:
- Recruit and interview your new hire to confirm their skills and experience
- Make an informal offer including role, compensation, and benefits
- Work with a GEO service that can offer an employer of record in the Philippines
- The GEO provides your company and the employee a Letter of Assignment that details all of the contract parameters and terms to be included in the employment contract
- The EOR drafts an employment contract that is compliant with local laws for the employee to sign
- The new employee submits all of their personal details and tax ID number to the EOR via a secure portal so that taxes and contributions can be withheld
- The employer of record onboards the new employee, and places them on a Filipino payroll
- Each month the EOR will invoice your company for the entire labor cost, including any employer contributions to social security
Your company remits the entire labor cost to the EOR, which is run through payroll and the employee is issued a payslip and their monthly salary.
How to Pay Remote Employees in the Philippines
Do Filipino employees get paid differently than US employees?
Philippines payroll operates similarly to the US, where they deduct all tax and social security in the payroll, and transfer the net salary to the employee.
How often do Philippine employees get paid? Can they be paid bi-monthly?
Typically, employees in the Philippines are paid bi-monthly. If the US employer wants to pay every month, they should let their Filipino employee know in advance.
Shield GEO prefers to pay monthly.
What are some common benefits that foreign employers offer remote employees in the Philippines?
Remote work inherently provides many benefits, including increased productivity, shorter (if any) commute times, flexible work scheduling, and more savings for the employer and employee. Many foreign employers provide additional allowances to their employees such as payment of business expenses, internet and telecom allowances, and the ability to work from a co-working space if so desired. An internet allowance is particularly helpful given the common bandwidth issues. Employers regularly pay a stipend for reasonable expenses such as travel where necessary.
Health insurance can cost up to USD 2000-2500 per year for top-level whole family coverage. Typically, you pay health insurance annually and upfront. Employers can opt to offset the outstanding health insurance cost against an employee’s final paycheque. Still, you should approach this option with caution because of the relatively low salaries in the Philippines.
Can employers pay a stipend for expenses?
At Shield GEO, we provide our remote employees in the Philippines with a health and wellbeing allowance which primarily goes against health insurance. We also provide our employees with a stipend for their internet expenses and pay for a co-working space, if they choose to use one.
How is work equipment provided to remote employees in the Philippines?
Employers also commonly provide a stipend to remote employees for work equipment such as a laptop and other peripherals. Some employees in the Philippines can choose their own equipment as well, provided their employer’s approval. In this case, employers can provide a stipend up to a certain amount or pay the full amount.
Employers must remember to take note that some electronics are expensive to buy locally. It’s also important to realize that because of the high cost of items such as laptops and the relatively low salaries employees may not be able to purchase the goods on their own and claim an expense reimbursement.
Amazon.com does not have a local presence in the Philippines, and local technology vendors are not set up well to accept foreign transactions. With many local e-commerce websites, you may not be able to use a foreign credit card, but you can get an invoice and make an international bank transfer. In addition, the local supply of technology items can be limited.
Also, some items may be difficult to ship to new employees due to customs. This can lead to additional costs if you prefer to purchase items in the USA and then courier them directly to your employee. Sites like Amazon.com will often factor these shipping and customs costs if they offer fulfillment on international orders to a Philippines address.
At Shield GEO, we ensure our Philippines remote employees have the correct equipment to complete their day-to-day tasks efficiently. We provide our employees with a laptop, keyboard and mouse, and a headset for conferencing. At our employee’s primary place of work, typically their home, we also provide a monitor, desk, ergonomic chair, and desk lamp.
We also have sometimes asked our employees to obtain local invoices, and then we wire funds to the employee via a service like Transferwise. This means they don’t have to pay the cost upfront and we don’t have the hassle of multiple international wire transfers.
Can employers pay remote workers in the Philippines in USD?
The total salary can be set in Philippine Pesos or benchmarked against USD.
However, because tax and social security is calculated in PHP, the payroll calculations for employees have to be run through PHP, and the employee will file a tax return based on their income recorded in PHP.
The net PHP salary can be paid in USD to a USD bank account if the employee wishes, but there might be additional banking or FX costs related to this.
If you wish to fix the base salary in USD, there are a couple of approaches we recommend in our FAQs.
When Shield GEO first started hiring our workers in the Philippines, we engaged them as contractors and paid them in USD. More recently, we’ve moved everyone to employee status in order to ensure compliance. We now set all Philippines salaries in PHP, but we also track the PHP against the USD. If the PHP moves dramatically against the USD, we have the option to pay an FX bonus to ensure this won’t impact our Philippines employees earnings.
What are the paid time off entitlements in the Philippines?
The paid time off in the Philippines can initially seem quite confusing as the US employer needs to consider National Regular Holidays, Special Non-Working Days and Service Discretionary Leave. The Philippines’ equivalent of PTO is called Service Discretionary Leave. National Regular Holidays is similar to how the US would conceive Public Holidays. Special Non-Working Days are what the US employer may find unique.
The Philippines Labour Code states that an employer must allow employees a Service Incentive (Annual Leave) of 5 days per year. US employers should note that in practice, employers offer a vacation leave benefit, and as long as this leave entails at least five days of leave, the US employer will not be breaking Philippines law. These five days includes sick leave as well. If a Filipino employee does not take five days of annual leave during the year, by law, it has to be paid out by the employer at the end of the year.
Is it common for foreign employers to provide more than five days of PTO?
At Shield GEO our employees are offered “Shield Days” which vary each year so that they get 20 leave days, not including National Regular Holidays. The set up is a bit complicated, so please contact us if you’d like a more detailed explanation.
What happens if my employee works on a public holiday?
The Philippines has 12 public holidays and employees are not required to work on those days. If a public holiday (National Regular Holiday) falls on a typical working day, the employer can require the employee to work but must pay them 200% of their daily rate for the first 8 hours.
At Shield GEO our employees always take National Regular Holidays off.
What are special non-working days?
The Philippines government prescribes between 8-10 special non-working days per year. The exact number of days will vary but is published each year on their government site. Employees are not required to work on these days, and if an employer requires an employee to work on a Special Non-Working Day, they must pay a rate equal to 130% of their usual daily rate.
At Shield GEO our employees always take Special Non-Working Days off work. Some of these days fall on the weekend, but we count any weekdays against the employees overall entitlement of 20 days annual leave. For 2020 there are nine special non-working holidays, three of these fall on the weekend, which leaves six days that fall within our Monday to Friday workweek. Therefore, in 2020 at Shield GEO, we only count six special non-working holidays towards our employee’s leave total.
What is the 13th month pay entitlement?
Employers are also required to pay, by the 24th of December, a 13th-month payment. This is a payment that is usually 1/12th of the person’s annual pay. If the employee is not full-time, this payment is pro-rated. This should not be confused with a Christmas bonus because a bonus is not obligatory and is at the employer’s discretion. A 13th-month pay is not negotiable.
Can we offer unlimited PTO in the Philippines?
You can, but it is very unusual. You cannot offer untracked leave because of the requirement to pay higher rates if people work on National Regular Holidays or Special Non-Working Days.
Do I have to track annual leave?
Yes, employers should aim to track annual leave accrual and consumption. This is because of the requirement to pay higher rates on certain days and payout leave types that aren’t consumed by the end of the calendar year.
Philippines Payslip Explained
The Philippines payslip must contain the amount paid to the employee for every payday, specifying the type of day it is (e.g. ordinary or public holiday) and all deductions made.
Most companies will have to consider the tax deductions, the Social Security System (SSS), PhilHealth (PHIC), and the Housing Development Mutual Fund (HDMF). The HDMF deduction description can come up as ‘Pag-Ibig’, as that is the name it is more commonly known by.
Something labeled as the SSS Salary Loan may also appear on an employee’s payslip. This is when an employee has taken out a loan from the SSS (which is allowed after 12 months of contribution), and this part of the payslip is the deduction to pay this loan back. It is the employee’s responsibility to tell their employer, and then the employer’s responsibility to deduct this amount.
Social Security in the Philippines Explained
Does the employer have to pay SS? What does it cover?
The US employer has three contributions to consider for Filipino employees. The main social security contribution is towards the Social Security System (SSS), which is to assist an employee’s loss of income relating to sickness, maternity, disability, retirement, death and funeral expenses.
The employer’s social security costs are capped at a maximum of PHP 1,208.70 per month (approx USD 25.00). There is also an employer payroll tax of 1.16%-1.19% (per employee per month), which is not capped.
A summary of the benefits published by the Philippines government can be accessed here.
This contribution table shows what an employer can contribute to the SSS depending on their monthly payment.
Employers also need to contribute to the Home Development Mutual Fund (HDMF) and the PhilHealth contribution. The HDMF exists to assist Filipinos with loans and access to housing programs, and the PhilHeath contribution pertains to the health insurance in the Philippines.
The maximum that an employer can contribute to the HDMF is 100PHP per month and 550PHP per month for the PhilHealth fund.
Does the employee have to pay SS?
The maximum that an employee can contribute to the SSS is 581.30PHP per month. The employee also contributes to the HDMF and the PhilHealth contribution. The maximum that an employee can contribute to the HDMF is 100PHP per month. The maximum contribution to the PhilHealth fund is 550PHP per month.
Employees can refer to this table to ascertain how much SSS an employee can pay.
What is the 401K equivalent for remote employees in the Philippines?
The Social Security System is similar to the 401K in the US.
In 2016, a new voluntary form of the 401K was introduced in the Philippines called the Personal Equity and Retirement Account (PERA).
Shield GEO does not contribute to the PERA fund, but employees can find more information here.
Do Filipino employees need health insurance? What does it typically cost?
There is a public health system in the Philippines, which is funded by the PhilHealth contributions (max PHP 550 per month employer cost).
Many employees prefer to have private health insurance to ensure the best treatment. Private health insurance can cost up to USD 2000-2500 per year for top-level whole family coverage.
Employers typically pay the insurance cost annually and upfront. Whether this is considered a taxable benefit or not is based on whether the employer offers group insurance for their employees.
At Shield GEO, we offer our employees a Health and Well Being Allowance. Most choose to apply a portion of these funds towards private health insurance coverage for themselves and their family members.
Terminating Remote Employees in the Philippines
Are there probation periods in the Philippines?
A US employer does not have to provide a probation period to their Filipino employees; however, if they do decide to provide one, the maximum length of the period is six months. During the probation period, an employer can terminate at will.
Is there termination at will in the Philippines?
There is termination at will in the Philippines, but the US employer must adhere to different rules depending on why they are terminating the employee.
If the US employer is terminating with a just cause, which includes matters such as:
- Serious misconduct;
- Willful disobedience of employer’s lawful orders connected with work;
- Gross and habitual neglect of duty;
- Fraud or breach of trust;
- Commission of a crime or offense against the employer, employer’s family, or representative; and
- Other analogous causes,
They will not need to provide notice.
If the termination of the employee is not for a just cause, but for reasons such as:
- Installation of labour-saving devices; and
- Retrenchment to prevent losses,
The US employer will then have to provide 30 days of notice in writing.
Are there exceptions to the notice period?
A notice period is not required if the employer is letting go of their Filipino employee with a just cause. If they do not have a just cause, they will legally have to provide 30 days of notice, but the US employer can quicken the process by giving notice in lieu pay instead.
Do you have to pay severance?
If the US employer is terminating with cause, they may waive the employee’s right to statutory severance pay.
If the termination is without a just cause, the US employer is required to pay severance pay.
The US employer also needs to pay the 13th-month pay, which employees usually expect in December. If the employer terminates the employee before December, they will need to receive that 13th month pay pro-rated along with their final payroll.
Is it difficult to terminate in the Philippines?
It is relatively easy to let go of employees in the Philippines. However, employers must meet the statutory conditions. While in the US, you can usually terminate with no need to provide notice, in the Philippines, even if an employer terminates at will, they will still need to provide notice.