The Hidden Payroll Costs of Hiring in the Philippines: How an Employer of Record Can Save You Time and Money
Hiring in the Philippines offers access to top talent at competitive rates—but it also comes with hidden payroll costs and compliance hurdles. From mandatory 13th-month pay to government benefits and tax filings, managing payroll can quickly get complicated for foreign companies.
That’s where an Employer of Record (EOR) comes in. By partnering with a provider like The Company Cebu, businesses can hire Filipino talent legally and efficiently—without setting up a local entity or navigating payroll on their own.
In this article, we’ll break down the true cost of hiring in the Philippines and how an EOR can help you stay compliant while saving time and money.
Which Payroll Costs Should You Plan for When Hiring in the Philippines?
Beyond base salaries, hiring in the Philippines comes with several mandatory payroll components. Many foreign companies focus only on 13th-month pay—but that’s just one piece of the puzzle. Here’s what you need to factor into your budget:
1. 13th-Month Pay: A Mandatory Bonus
One of the most significant payroll obligations in the Philippines is the 13th-month pay, a legally mandated bonus that all employers must provide to their employees. This is not a perk—it’s a requirement under Presidential Decree No. 851.
- What is it? The 13th-month pay is equivalent to one-twelfth (1/12) of an employee’s total basic salary earned within a calendar year.
- Who qualifies? All rank-and-file employees who have worked for at least one month within the year.
- When is it paid? It must be disbursed by December 24 each year.
- Tax implications: The 13th-month pay is tax-exempt up to PHP 90,000 under the TRAIN Law. Any amount exceeding this threshold is subject to income tax.
For companies unfamiliar with Philippine labor laws, miscalculating or failing to provide the 13th-month pay can result in fines, employee dissatisfaction, and legal consequences.
2. Social Security System (SSS)
- Covers disability, sickness, maternity, retirement, and death benefits.
- Employers contribute 9.5% of the employee’s monthly salary.
SSS is one of the core government-mandated benefits in the Philippines. It functions as a safety net for employees, and non-compliance can lead to penalties, interest charges, and legal consequences for employers.
3. PhilHealth
- Provides healthcare coverage.
- Employer share: 4% of the employee’s monthly salary, capped at PHP 5,000.
While private insurance is often used for supplemental coverage, PhilHealth is a government-mandated baseline. Regular contributions ensure employees can access medical care under the national health system.
4. Pag-IBIG Fund
- A national savings and housing loan program.
- Employers contribute 2% of the employee’s salary.
Though it’s less known outside the Philippines, Pag-IBIG is a key part of employee financial security and housing assistance. Contributions are mandatory for full-time staff and form part of a compliant payroll setup.
5. Service Incentive Leave (SIL)
- Employees with at least one year of service are entitled to five paid leave days per year.
While the number may seem low, this entitlement is legally mandated. Employers who fail to grant or compensate unused SIL are liable for claims under labor regulations.
6. Overtime Pay, Holiday Pay, and Night Shift Differential
- Overtime is 125% of the hourly rate (more on special holidays and rest days).
- Night shift differential is 110% of the regular hourly rate for work between 10 PM and 6 AM.
For businesses operating across time zones or with 24/7 teams, these additional pay structures can impact budgeting and scheduling. Factoring them in early helps ensure accurate payroll planning and a fair, motivating compensation model for your workforce.
Why Handling Payroll Alone is a Risky Move for Foreign Companies
Handling payroll internally might seem like a cost-saving approach, but it comes with serious risks:
- Legal Non-Compliance – Philippine labor laws are stringent, and non-compliance can result in legal battles and reputational damage.
- Administrative Burden – Managing payroll, tax reporting, and benefits administration can be resource-intensive.
- Unexpected Costs – Miscalculations and penalties for late payments or incorrect filings can significantly impact your bottom line.
- Limited Local Knowledge – Understanding the nuances of Philippine employment law requires expertise that many foreign companies lack.
This is why many international companies turn to Employer of Record (EOR) services to manage these challenges effectively.
The Company Cebu’s Employer of Record Service: A Smarter Way to Expand
An Employer of Record (EOR) serves as the legal employer for your workforce in the Philippines. This means that while your employees work for you, The Company Cebu handles payroll, benefits, tax compliance, and HR functions on your behalf.
How an EOR Simplifies Payroll and Compliance
- Ensures Compliance with Local Labor Laws
- The Company Cebu stays up-to-date with changes in tax rates, employment laws, and government-mandated benefits, ensuring you never face compliance issues.
- Handles Payroll Processing and Tax Filings
- Timely and accurate payroll processing eliminates risks of miscalculations, delays, or penalties.
- Manages Employee Benefits and Contributions
- From SSS to PhilHealth and Pag-IBIG, all statutory benefits are handled seamlessly.
- Reduces Administrative Burden
- Your HR team can focus on core business activities while The Company Cebu takes care of local employment complexities.
- Provides Fast Market Entry Without a Legal Entity
- No need to set up a Philippine subsidiary—The Company Cebu becomes the legal employer, allowing you to operate quickly and legally.
- Ensures Payroll Accuracy and Transparency
- Employees receive salaries on time, with clear deductions and benefits breakdowns.
- Offers Scalability and Flexibility
- Whether hiring one employee or scaling up an entire team, an EOR allows businesses to expand with minimal risk and maximum efficiency.
Why Remote Employers Choose The Company Cebu
The Company Cebu isn’t just an EOR provider—it’s a partner in your expansion journey. With deep expertise in Philippine labor laws and a commitment to seamless business operations, we help companies establish a strong, compliant presence in the Philippines without the hassle.
- Local Expertise – We understand the ins and outs of Philippine employment regulations.
- Cost Efficiency – Avoid unnecessary legal fees and administrative expenses.
- Speed to Market – Start operations immediately without waiting months to register a local entity.
- Employee Satisfaction – Timely salaries, proper benefits, and a compliant work environment lead to happy employees and higher retention rates.
Simplify payroll through The Company’s EOR service
Expanding into the Philippines is a smart business move, but the complexities of payroll, tax compliance, and labor laws can make it overwhelming. The hidden costs of payroll—13th-month pay, benefits, taxes, and compliance risks—can quickly add up.
By partnering with The Company Cebu’s Employer of Record service, businesses can eliminate these challenges, ensuring a seamless, cost-effective expansion while staying fully compliant with Philippine labor laws.
Let us handle payroll, compliance, and HR, so you can focus on growing your business in the Philippines.
Ready to expand? Contact The Company Cebu today and take the first step toward hassle-free growth.
Frequently Asked Questions About Hidden Payroll Costs and EOR
An Employer of Record (EOR) is a third-party organization that legally hires and manages employees on your behalf. In the Philippines, an EOR handles compliance, payroll, benefits, and HR administration—so you can focus on operations without needing to set up a local entity.
Using an EOR in the Philippines is faster, simpler, and more cost-effective. It helps you avoid complex registration processes, ongoing compliance work, and potential legal pitfalls while still allowing you to build and manage a local team.
An EOR typically manages mandatory costs like Social Security System (SSS) contributions, PhilHealth, Pag-IBIG, 13th-month pay, service incentive leave, and other wage premiums like overtime and night shift differentials. These are factored into the overall service agreement.
Yes, partnering with an EOR is fully legal and compliant. Reputable EOR providers follow Philippine labor laws and ensure that your workers receive all required benefits and protections under local regulations.
Start by reaching out to The Company for a free consultation. We’ll walk you through local requirements, assess your hiring needs, and outline a compliant hiring plan. Once aligned, we’ll draft the employment contract, onboard your chosen talent, and handle payroll and statutory contributions—typically within a few business days.
