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As your company grows, you may encounter certain projects that require specialized talent. Working with independent contractors allows for greater agility in scaling your workforce based on project needs without the extended employment hiring process; however, while hiring independent contractors in the Philippines can be beneficial for your company, there are also risks and responsibilities to be aware of.

Hiring independent contractors in the Philippines

Contractors and employees are separate worker types. It’s essential to understand the difference between these designations to avoid the risks associated with misclassification.

Independent contractors vs. employees

The country’s labor code regarding independent contractors defines this position as an individual who provides services to an organization. Common characteristics of independent contractors include:

  1. They apply their own schedule, method, or manner to complete a project.
  2. They provide the capital to carry out the job, including investments in tools and equipment.
  3. They are free from employer control or direction regarding performance.

Employees, in contrast, are under the discretion of an employer’s direction and performance requirements. In return, the employer provides the tools and space to carry out the job. The employer must also deduct taxes and social security contributions from employee wages.

Penalties for misclassification

Employers must register independent contractors with the Department of Labor and Employment (DOLE). If at any point a contractor perceives their working relationship is more similar to that of an employee, they can report it to the DOLE.

The primary penalty for misclassification is the requirement to hire the contractor as an employee and pay taxes and contributions for the individual. The DOLE may also require back payments for missed contributions and taxes.

How to hire independent contractors in the Philippines

There are 3 basic steps to follow when hiring an independent contractor.

1. Carefully conduct interviews.

While there is no one-size-fits-all way of conducting interviews, handling them with care can prevent any confusion among candidates. Employee interviews often involve questions about character traits to gauge how a candidate may contribute to company culture. Since contractors will not be an integral part of your company, it’s best practice to avoid these questions.

Instead, treat these interviews like business transactions. Find out how a candidate can complete a job by learning about their skills and experience related to the project.

2. Create a service agreement.

A service agreement outlines the conditions and requirements for both parties to successfully complete the project. This agreement should include:

  1. Pay rate and arrangements
  2. A description of the project and due date
  3. Termination terms

3. Introduce necessities.

Training and onboarding can signify employer control, which doesn’t apply to independent contractors. Instead, focus on introducing necessities for the project. These necessities might include providing important company contacts or introducing any workflows the contractor needs to complete the project.

How to pay independent contractors in the Philippines

Rather than receiving wages, independent contractors charge for their services. The service agreement should outline the payment arrangement between both parties, but the contractor is responsible for providing an invoice for all payments.

Employers are not responsible for deducting income tax or social security benefits from contractor payments.

Terminating independent contractors

Independent contractors do not have protections and requirements for termination as employees do. Instead, the independent contractor and the company can define specific grounds for termination in the service agreement.

Turn to G-P when hiring independent contractors in the Philippines.

As a part of our #1 suite of global employment products, G-P Meridian Contractor™ allows companies to hire and pay global contractors faster, with self-service workflows and a wide set of flexible payment options. Whether you’re hiring employees or contractors, our platform streamlines the process with a single solution for your global workforce.

Contact us to learn more.


THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). G-P does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect G-P’s product delivery in any given jurisdiction. G-P makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.

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