Do you want to hire staff accountants in the Philippines but don't know whether to hire them as employees or contractors?

In this article, we're diving into the pros and cons of each.

I'll go over the implications for health insurance and taxes and the differences in job security and take home pay. I'll also share a real-life story about a contract team member who chose not to pay for health insurance and then fell sick.

But before we get to the pros and cons of each, I have to make a giant caveat …

At TeamUp, we’re not in the business of giving legal advice! Of course, regulations around employees and contractors differ from place to place.

The Philippines has their own set of regulations, and your country has theirs.  It’s up to you to make sure you’re compliant with any labor laws.

Now with that out of the way, let's talk about hiring someone as an employee …

Hiring A Filipino Accountant As An Employee

You may be wondering how you would go about hiring a Filipino accountant as an employee if you don't have a company in the Philippines.

Good question!

There’s something called an Employer of Record (EOR), which is a company you would contract with in the Philippines that would hire your staff.

The EOR will then handle the payroll, benefits, and all the compliance. You pay them a monthly fee in addition to the employee’s salary.

How Does An EOR Benefit The Employee?

One reason an accountant might prefer to be employed instead of being a contractor is that they’ll receive government benefits.

This includes health insurance through the government, Phil Health, a Filipino housing loan and savings benefit called Pag-IBIG, and the Filipino version of social security, SSS.

Their income tax is withheld and remitted, removing the administration headache from their list of responsibilities.

Also, just like your country, Filipino employees are covered by Philippines employment laws, which gives them practical as well as psychological security and support.

Also, just like in your country, the Philippines has a set of regulations that protects employees. For example, an employer can't just fire an employee at the drop of a hat with no explanation.

Beyond just practical security and support, these laws make employees feel safe, which can be important when starting to work online with foreign companies for the first time.

Other benefits of having employment documentation through a Philippines corporation is that it’s easier to apply for home loans and be approved for visas when they want to travel to other countries.

What Are The Downsides For The Employee?

Let's talk about the downsides of being an employee.

First, your income tax and other benefits are withheld so there's a lower take home pay.

Second, if someone is only willing to work with Filipino entities, it limits their pool of opportunity. There are so many opportunities just waiting for them on a freelancing website!

What Are The Benefits of Being a Filipino Contractor?

Back to our caveat - In most jurisdictions, there's a checklist of legalities to take note of that determine whether someone is an employee or a contractor.

These often include how someone’s time off is handled, whether they provide their own equipment, or choose their own work hours. This is something to be aware of!

Now, the pros of being a contractor is the reverse of what we listed above!

Contractors have more employment options that are open to them. They can go on any number of online job boards to find work - including places like Upwork and other firms.

There's higher take home pay because their taxes and other deductions aren’t being taken out by their employer. Instead, it’s up to the contractor to pay their taxes and government benefits.

You as the contractee won't know whether or not they’re compliant and remitting their taxes or paying for their health insurance.

What Are The Cons of Being a Filipino Contractor?

Income security is a big con for contractors. Freelance contractors often have trouble finding full-time work. They may have many small contracts with various clients, and so by definition, they're a lot less secure.

A major headache is the administration of all those regulated programs listed above. Freelancers are still required to pay into Phil Health, Pag-IBIG, SSS, and of course, their income tax.

And when it comes to Filippino government agencies … let's just say they love their bureaucracy! It’s not a simple process!

Speaking of government healthcare and bureaucracy - a client that we're working with told me a story that happened a while back where they hired someone full-time as a contractor.

Unfortunately, this contractor fell very sick, and our client found out that she hadn't been paying for government health insurance. She had to be out of work for a month or more and the treatment that she had wasn't cheap.This put her and her family in extreme financial stress.

My client didn't know what to do, and although they felt absolutely awful for her, it wasn't their responsibility to provide health insurance.

If you’re hiring a contractor, you won’t have control over what your contractors choose to pay or not pay … and this is something you should be aware of.

So … Filipino Contractors vs Employees?

So, what does this mean for you? We've gone through the pros and cons of each type of relationship.

Here are some things to think about for you as an accounting firm.

First of all - compliance.

What do you want to be involved in? What do you want to handle? Do you want your team to handle it on their own with the Philippines government, or do you want to handle that through an Employer of Record?

Secondly, how do you want to pay your staff? There are payment processors such as Wise that you could use.

Next, think about what type of staff you want to attract.

Some people really like the opportunity of being a contractor. They're in control of their own careers and have higher earning power.  They may have big goals for themselves and see this as the path way of achieving them.

Again, there's no right or wrong here.

There are certain trade-offs when it comes to contractors vs employees and what works for you and your teammates.

At TeamUp, we help accountants and bookkeepers hire directly, whether you want to hire them as employees or contractors.

We recruit the best talent in the Philippines for a flat fee. There are no ongoing fees because it's your team.

And if you want to use an Employer of Record, we can connect you with someone who can handle all the payroll and compliance.

If you want to learn more, sign up to our bi-weekly newsletter where I share my top hiring and management tips for working with staff in the Philippines.  

Or check out some some more resources on hiring in the Philippines here:

• What Processes Do You Need Prior to Hiring Your First Filipino Accountant?
• What Can a Filipino Accountant Do?
• What To Look For When You Hire a Filipino Accountant?

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