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How to Pay Filipino Employees for SG Companies
Learn how to process payroll for remote employees in the Philippines correctly to avoid fines or legal action from the BIR. Find out the best ways to compensate international independent contractors without high exchange fees.
Updated Jul 18, 2024
How to Pay Filipino Employees for SG CompaniesProcessing payroll for remote employees in the Philippines for the first time? It's essential to do it correctly. Any errors could lead to hefty fines or even legal action from the Bureau of Internal Revenue (BIR).
With English and Filipino as official languages and a booming BPO, tech, and other sectors, the Philippines is an attractive destination for Singaporean companies to hire employees, particularly for tech/VA/BPO roles. While finding qualified workers may be straightforward, paying foreign contractors can be complex.
In this article, we explore some of the most common methods for Singaporean companies to pay foreign independent employees residing in the Philippines.
Step 1: Decide on Creating an Account or Using an Employer of Record (EOR)
To employ and pay staff in the Philippines, your first decision is whether to create a local business entity or utilize an Employer of Record (EOR).
Employers of Record manage employment and payroll through their own entities. They handle tax calculations and withholdings, ensuring compliance with the Bureau of Internal Revenue (BIR).
Why and when do companies opt for an EOR?
When expanding operations globally, companies often choose EOR services like Deel or Papaya Global to handle payroll, benefits, and international compliance. Setting up your own entity can be time-consuming and administratively intensive, especially for smaller businesses lacking the resources.
Why and when do companies establish their own entity?
Establishing your own entity replaces the need for an EOR, making your entity legally responsible for hiring and payroll. Companies typically choose this route when the costs of using an EOR outweigh the benefits.
Setting up a Philippine entity involves paying filing fees, registering with the BIR for an Employer Identification Number (EIN), and complying with government agencies such as:
- Social Security System (SSS)
- Philippine Health Insurance Corporation (PhilHealth)
- Home Development Mutual Fund (HDMF or Pag-IBIG Fund)
Step 2: Select a Global Payroll Software Solution
There are two main types: global payroll processors and aggregators.
Global payroll processors manage payroll processing, fund transfers, tax filings across multiple countries using their software. This simplifies paying international employees alongside local staff in one payroll cycle.
Global payroll aggregators consolidate local payroll providers globally, transmitting payroll data manually to each provider.
Step 3: Determine Employment Status
Before onboarding, classify workers as employees or contractors according to Philippine law. Misclassification can lead to significant fines.
The Philippine Supreme Court uses tests such as the level of control, ongoing or per-project work basis, and reasons for termination to determine employment status.
Step 4: Collect Payroll Information
Gather essential information from new hires to ensure accurate payroll processing. This includes:
- Name (matching the account for pay deposits)
- Date of birth and hire
- Contact information (including mailing address)
- Bank account details
- Salary amount in PHP
- Tax Identification Number (TIN)
- SSS number
- PhilHealth number
- Home Development Mutual Fund (Pag-IBIG) registration
Step #5: Decide on Currency for Payments: Local or Philippine Pesos (PHP)
Paying employees in the Philippines from outside the country can present several challenges, primarily related to currency exchange.
The exchange rate between your local currency and PHP can fluctuate, which might mean paying more SGD to cover your employee's salary when the rate is unfavorable. Additionally, these fluctuations can complicate financial statements and accounting processes.
Common Payment Methods for SG companies hiring independent employees in the Philippines:
1. SWIFT Bank Transfers
SWIFT (Society for Worldwide Interbank Financial Telecommunications) is a global network used by financial institutions to send international payments. It allows secure fund transfers from your company's bank to your contractor's bank.
- Pros: Secure and widely used by banks.
- Cons: Expensive for both companies and contractors. Payments are routed through multiple banks, each deducting a fee (typically $20 to $40 USD). Additionally, local banks may charge a 3% to 6% markup for converting USD to PHP, potentially resulting in $20 to $50 in fees and markups on a $400 USD payment, reducing the contractor's net amount.
2. Online Money Transfer Companies
Online platforms like Xoom (owned by PayPal), Remitly, and Wise (formerly Transferwise) are popular for sending money to the Philippines.
- Pros: Generally offer better exchange rate markups than banks.
- Cons: Still charge percent-based or markup fees (1% to 3% or more). Contractors may incur withdrawal or transaction fees if they need to withdraw money from the service or use the service's debit card.
3. Traditional Money Transfer Companies
Companies like Western Union and MoneyGram have both online services and physical locations in the US and the Philippines.
- Pros: Offer both online and in-person pick-up options. Often provide better exchange rate markups than banks.
- Cons: Charge percent-based or markup fees for currency exchange, so exchange rates may still not be optimal.
4. Cryptocurrencies
Paying contractors in cryptocurrency is becoming increasingly popular in the Philippines.
- Pros: Avoids exchange rate and fiat money transaction fees.
- Cons: Both parties need to be set up for cryptocurrency transactions. Converting cryptocurrency to PHP may still involve exchange rates and fees. Compliance with local tax laws on cryptocurrency transactions is necessary.
Step #6: Run Payroll
With your entity established (either through your own setup or an EOR) and your global payroll system in place, it's time to run payroll. This involves several detailed steps to ensure accuracy and compliance. Here's the step:
1. Collect Employee Information
Ensure you have all necessary details (name, birthdate, contact information, bank account details, TIN, SSS number, PhilHealth number, HDMF registration).
2. Calculate Gross Pay
Determine the total earnings for each employee, including salaries, bonuses, and any other compensation.
3. Deduct Statutory Contributions
Subtract the required amounts for income tax, social security, health insurance, and housing development funds.
4. Process Payments
Transfer the net pay to employees' bank accounts, ensuring that all statutory deductions have been accounted for.
Step #7: File Taxes in the Philippines
Once payroll is running smoothly, you must withhold and remit local taxes to the Bureau of Internal Revenue (BIR). Employers are responsible for calculating and withholding the following:
1. Income Taxes: Based on employee salary brackets:
Filipino employee income brackets for SG companies 2024
2. Social Security Contributions: Contributions to the Social Security System (SSS), covering retirement, unemployment, and paid leave.
3. Health Insurance Contributions: Payments to the Philippine Health Insurance Corporation (PhilHealth).
4. Housing Fund Contributions: Contributions to the Home Development Mutual Fund (Pag-IBIG Fund) for affordable housing.
Tax Filing Requirements
Monthly Reporting
Submit monthly tax returns and payments for withheld income tax, social security, and health insurance contributions.
Annual Reporting
File annual tax returns by mid-April, detailing total taxes withheld and remitted for the preceding year.
Compliance and Penalties
Ensure accurate and timely tax filings to avoid penalties, interest charges, and legal consequences from the BIR.
Practical Steps for Tax Filing
- Prepare Documentation: Compile payroll records, including earnings, deductions, and remittances.
- Calculate Taxes: Apply the appropriate tax rates to determine the total taxes due for each employee.
- Submit Returns: File monthly and annual tax returns through the BIR’s online portal or designated tax offices.
- Remit Payments: Ensure prompt payment of all taxes owed to maintain compliance and avoid penalties.
FAQs about Running Payroll in the Philippines
What are the employer costs for full-time employees in the Philippines?
Employers must deduct specific contributions from their employees' paychecks, including social security, health insurance, and contributions to the Pag-IBIG Fund, which supports affordable housing loans and financial assistance for Filipino citizens. The employer costs are as follows:
- Social Security System (SSS): 9.5% of the employee’s monthly salary
- Philippine Health Insurance (PhilHealth): 2.5% of the employee’s monthly salary
- Home Development Mutual Fund (Pag-IBIG): 2% of the employee’s monthly salary
- Provident Fund: PHP 42.50 to PHP 425, depending on salary
What is the average salary for employees in the Philippines?
The average monthly salary for a Filipino employee is PHP 44,600, although this can vary widely based on industry, occupation, and experience level.
Top 5 Salaries in the Philippines by Industry and Experience Level:
- Communication Service: Entry Level - PHP 19,500 (SGD 488); Supervisor - PHP 55,000 (SGD 1,375); Manager - PHP 80,500 (SGD 2,013)
- Consulting: Entry Level - PHP 19,000 (SGD 475); Supervisor - PHP 62,500 (SGD 1,563); Manager - PHP 70,000 (SGD 1,750)
- IT: Entry Level - PHP 19,550 (SGD 489); Supervisor - PHP 75,000 (SGD 1,875); Manager - PHP 80,000 (SGD 2,000)
- Insurance: Entry Level - PHP 17,000 (SGD 425); Supervisor - PHP 45,000 (SGD 1,125); Manager - PHP 75,000 (SGD 1,875)
- Electronics: Entry Level - PHP 17,000 (SGD 425); Supervisor - PHP 40,250 (SGD 1,006); Manager - PHP 67,500 (SGD 1,688)
What are the minimum wages in the Philippines?
Minimum wage rates in the Philippines are set by regional wage boards and vary across regions. As of June 2023, daily minimum wages range from PHP 533 to PHP 610 (approximately SGD 13 to SGD 15) in Metro Manila and from PHP 306 to PHP 470 (approximately SGD 8 to SGD 12) in rural areas.
Current Daily Minimum Wage Rates (2023)
- Metro Manila: Non-Agriculture - PHP 610 (SGD 15); Agriculture - PHP 573 (SGD 14)
- Cordillera Administrative Region: Non-Agriculture and Agriculture - PHP 430 (SGD 11)
- Ilocos Region: Non-Agriculture - PHP 402-435 (SGD 10-11); Agriculture - PHP 415 (SGD 10)
- Cagayan Valley: Non-Agriculture and Agriculture - PHP 435 (SGD 11)
- Central Luzon: Non-Agriculture - PHP 493-500 (SGD 12); Agriculture - PHP 454-470 (SGD 11-12)
- Calabarzon: Non-Agriculture - PHP 520 (SGD 13); Agriculture - PHP 479 (SGD 12)
- Mimaropa: Non-Agriculture and Agriculture - PHP 369-395 (SGD 9-10)
- Bicol Region: Non-Agriculture - PHP 395 (SGD 10); Agriculture - PHP 365 (SGD 9)
- Western Visayas: Non-Agriculture - PHP 450-480 (SGD 11-12); Agriculture - PHP 440 (SGD 11)
- Central Visayas: Non-Agriculture and Agriculture - PHP 458-468 (SGD 11-12)
- Eastern Visayas: Non-Agriculture - PHP 405 (SGD 10); Agriculture - PHP 375 (SGD 9)
- Zamboanga Peninsula: Non-Agriculture - PHP 381 (SGD 9); Agriculture - PHP 368 (SGD 9)
What are payroll taxes in the Philippines?
Employers must withhold income tax, social security, health insurance, and housing development contributions from employees' paychecks. Detailed employer cost tables provide a comprehensive view of these obligations.
What are the late tax filing penalties in the Philippines?
Penalties for late tax filing include:
- Surcharge: 25% of the tax due for failing to file a return.
- Interest: 20% annual interest on unpaid taxes.
- Compromise: Fines up to PHP 20,000 (SGD 502) and possible imprisonment for 1 to 10 years for late filing, inaccurate information, or failure to withhold necessary tax deductions.
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Herdina Ika
Digital Marketer
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