One easy element to fall out of compliance with is payroll. You have to learn a new country's employment laws, hire employees, and decide which payroll option is best for your company — all while trying to run a new business location. Globalization Partners’ Service Provider Model takes the hassle of having to hire and set up payroll in the Philippines and instead enables you to obtain requisite services and complete projects in the Philippines with the support and assistance of designated Professionals without being burdened with legal, HR, payroll, tax, and compliance matters.
One easy element to fall out of compliance with is payroll. You have to learn a new country’s employment laws, hire employees, and decide which payroll option is best for your company — all while trying to run a new business location. Globalization Partners’ Service Provider Model takes the hassle of having to hire and set up payroll in the Philippines and instead enables you to obtain requisite services and complete projects in the Philippines with the support and assistance of designated Professionals without being burdened with legal, HR, payroll, tax, and compliance matters.
Taxation Rules in the Philippines
The Philippines has a social security system that is a mandatory benefit to all employees. In the country, payment of these mandatory benefits is a shared responsibility between the employer and employee.
The Philippine Social Security System, strengthened by the provisions of the Republic Act No. 8282 or the Social Security Law, is the country’s social insurance program and consists of the following bodies:
Social Security System (SSS) – The SSS was created to provide private employees and their families protection against disability, sickness, old age, and death. The Government Service Insurance System (GSIS) is the equivalent system for Philippine government employees.
Home Development Mutual Fund (HDMF) – The HDMF, also known as the Pag-IBIG Fund, is a provident savings system supplying housing loans to private and Philippine government employees, and to self-employed persons who elect to join the Fund.
Philippine Health Insurance Corporation (PhilHealth) – PhilHealth is administered by the Philippine Health Insurance Corporation and provides employees with a practical means of paying for adequate medical care in the Philippines.
Employers and employees must contribute to all three of these funds. For 2022, the total contribution rate is currently at 17.92% of an employee’s monthly salary that did not exceed Php25,000. That rate gets divided among employers and employees, so employers pay 11.02%, while employees contribute 6.90%.
Philippines Payroll Options for Companies
There are four main Philippines payroll options to choose from, including:
Remote: In a remote payroll situation, the parent company will add employees in the Philippines to the overall payroll with employees in another country. While this option can streamline payroll, the two sets of employees will be under different regulations.
Internal: If you operate a larger company that’s committed to the Philippines, instituting an internal payroll may make sense for your daily operations. However, this option requires a larger staff and budget.
Outsourcing: You can choose to work with a Philippines payroll processing company that will run your payroll for you. Your company will still be held liable for all matters of compliance with this option.
Globalization Partners: Alternatively, you can work with Globalization Partners under the Service Provider Model.
How to Set Up a Payroll in the Philippines
Before you can set up payroll in the Philippines, you have to establish a subsidiary in the country. The process depends on the location and type of entity you choose for your subsidiary, but it could take weeks or months before you can hire employees and start your payroll. You also have to set up a bank account in the Philippines to start paying employees.
We recommend drafting a strong employment contract with entitlement and termination terms before setting up your Philippines payroll. Since Filipino termination law is extremely complicated, it’s a good idea to have everything in writing that an employee signs. As an employer, you can dismiss workers for just cause, which includes several different scenarios and involves the two-notice rule. Dismissing employees due to authorized causes requires you to pay severance.
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