Sample Invoice Breakdown from an Employer of Record Philippines

Executive summary

• Three documents, not one. A one-time initial invoice funds the refundable reserves and the first fee; the recurring monthly invoice covers salary, contributions, the 13th-month accrual, and the fee.
• Most lines are not the EOR's income. Salary and statutory contributions pass through to the employee and the government. The reserves are refundable. The fee is the only line that pays for the service.
• VAT applies to the service fee. Under the VAT rules, amounts earmarked for third parties or handled as documented reimbursements are excluded from the tax base, so the 12% VAT falls on the fee rather than the whole invoice.
• The billing cycle changes timing, not totals. The n/5 and n/20 cycles carry the same monthly amount; they differ in how many days you have to pay, which is a cash-flow choice.

Reading an Employer of Record Philippines Invoice

The structure becomes intuitive once the lines are sorted by what they actually are. A refundable reserve, such as the security deposit, is your own capital held in trust and returned at the end of the engagement; it is not a cost. A pass-through, such as salary and the statutory contributions, is money the EOR collects and forwards to the employee, the SSS, PhilHealth, Pag-IBIG, and the BIR; it would exist under any employer. The service fee is the only line that pays Zero-Ten for being the legal employer, and the VAT is the tax on that fee. Switch between the three invoices below, and adjust the salary, to see how each line moves.

Section I — The Initial Invoice

The first invoice from an employer of record philippines provider is the one that surprises people, because it is the largest and the least like a normal bill. The bulk of it is reserve capital rather than expense. The security deposit and the prepaid payroll together come to two months of salary, and both are essentially your own money: the deposit is held in trust against a lawful exit and returned at offboarding, and the prepaid payroll is the float that funds your first payroll run so the employee is paid on the statutory date without waiting on your transfer. The contingency adds a capped 10% buffer for mid-cycle adjustments. Only the service fee and its VAT are true cost on this invoice. The mechanics of these reserves, and why they are sized the way they are, are covered in the fund-structure guide.

Section II — The n/5 Billing Cycle

From the first month onward, the recurring invoice settles into a steady shape. It carries the employee's gross salary, the employer's share of statutory contributions, the monthly 13th-month accrual, a nominal bank fee, the flat service fee, and VAT on that fee. The employee's own deductions, their statutory share and withholding tax, sit inside the gross figure rather than as separate charges, because the EOR withholds and remits them on the employee's behalf. The n/5 cycle sets payment terms at net five days: the invoice is settled quickly, which keeps the prepaid float fully replenished for the next run. For a worked ₱40,000 salary the recurring total comes to roughly ₱63,669, of which only the fee and its VAT, about ₱15,456, is the price of the service.

Section III — The n/20 Billing Cycle

The n/20 cycle bills exactly the same line items for exactly the same amount; the single difference is that payment is due within twenty days rather than five. This is a cash-flow choice, not a cost difference. Longer terms give your finance team more runway between receiving the invoice and settling it, and because Zero-Ten's prepaid payroll float already covers the salaries, your staff are paid on the statutory payday regardless of which cycle you are on. For most outsourcing Philippines arrangements, choosing between the two cycles comes down to whether you value faster reconciliation or a wider payment window; the total you pay over the year is the same either way.

What Is Actually Subject to VAT

This is the part of an EOR invoice most often misunderstood, and it rewards precision. Value-added tax in the Philippines is 12% and applies to the sale of services by a VAT-registered provider, which any established EOR will be once its receipts exceed the ₱3 million threshold. The question is what the tax applies to. Under the VAT regulations consolidated in Revenue Regulations No. 16-2005 and the Tax Code, the taxable base is the provider's "gross receipts," and that definition explicitly excludes amounts that are earmarked for payment to third parties, or received as reimbursement for payments made on behalf of the client, where those amounts do not redound to the provider's benefit.

Applied to an EOR invoice, that principle is why the 12% VAT is shown on the service fee rather than the entire amount. The salaries are routed to the employee, and the SSS, PhilHealth, and Pag-IBIG contributions are routed to the government, so when they are documented as pass-through items they fall outside the VAT base. The treatment is not automatic, though. It depends on the salaries and contributions being properly identified and documented as reimbursements on the invoice; absent that documentation, the BIR can treat the full amount as consideration for the service and tax it accordingly. This is also where staffing differs from a security agency: a specific circular, RMC 39-2007, confirms the fee-only base for security guards because the law puts the duty to pay their wages on the client, whereas for general manpower and EOR arrangements the favorable base relies on documentation rather than that special rule.

Frequently Asked Questions