Are you a foreign company or employer looking to hire a skilled worker for a temporary and remote role? Thanks to the booming ‘gig economy,’ finding top international talent has never been easier. Freelance marketplaces and job boards provide instant access to a global pool of independent contractors, including highly qualified workers from talent-rich countries like the Philippines.

But where do you begin? Before you onboard an independent contractor—especially one based overseas—it is important to understand various legal, logistical, and practical considerations. Read on as we discuss all of these in detail in this complete guide. 

Why Hire Local Filipino Talent?

The Philippines is a hot spot for tech outsourcing. It has nurtured a tech-savvy workforce that is always on top of the latest trends. Aside from the tech industry, other emerging industries where Filipinos shine include customer service, healthcare, and business outsourcing. 

As an international employer, you can benefit from high-quality talent at a fraction of the cost. You can get a premium deal of top-notch services without the premium price tag. Equally, Filipino workers are globally recognized for their exceptional skills, adaptability, and strong work ethic. Such attributes are deeply rooted in the Filipino culture that places a great emphasis on hard work, dedication, and respect for authority.

Filipinos are also proficient in English, both in speaking and writing, which means that they can easily communicate with teams around the world, understand complex instructions, and even lead international projects.   

Employees Versus Independent Contractors

Now, if you’ve decided to expand your workforce with talent from the Philippines on a remote work arrangement, you may directly engage them as independent contractors or as full-time employees through an Employer of Record (EOR). Let’s have a close contrast between these two employment outsourcing solutions. 

Control and Autonomy

In a foreign employer—local talent setup, employees typically work exclusively for you, as their employer, under set hours and direct control. Independent contractors, however, enjoy more autonomy, set their own schedules, and may even serve multiple clients. Hence, there is a big difference in terms of control, exclusivity, and work flexibility. 

Compensation and Benefits

Employees receive regular salaries and mandatory benefits like SSS, paid leave, and 13th-month pay. Independent contractors, on the other hand, are paid per contract—either hourly or by milestone—and are not entitled to these benefits. Any government contributions are typically their own responsibility.

Tax Laws and Obligations

As their employer, you are responsible for withholding income taxes from your employees and remitting them to the Bureau of Internal Revenue (BIR). Conversely, it is the independent contractors who register themselves as self-employed with the BIR and make the necessary tax filings.

Employment Security

Your employees are protected under the Labor Code, require due process for termination, and enjoy legal protection against unfair dismissal. On the other hand, independent contractors rely on contractual terms for security and may have fewer legal safeguards. 

How to Hire and Manage Independent Contractors from the Philippines

As a foreign employer, you may have already considered hiring independent contractors because you need specialized skills for specific projects, want cost-efficiency without the long-term commitment of full-time employment, or just seek to diversify your workforce. 

To add, independent contractors may be classified as consultants who provide expertise and advice on specific projects, freelancers who perform specific tasks on a project-by-project basis, and specialists who hold expertise in specific areas such as web development or digital marketing.

1. Understand the Labor Laws in the Philippines.

In the Philippines, contracting is governed by DOLE Department Order 174, series of 2017, which prohibits labor-only contracting. While this does not apply to hiring independent contractors, you, as a foreign employer, must still ensure your arrangements do not create an employer-employee relationship. The four-fold test, independent contractor test, and economic dependency test outlined in D.O. 174 remain relevant for determining proper classification.

2. Get Familiar with the Tax and Statutory Obligations of Contractors. 

Independent contractors are responsible for registering with the BIR and other agencies like SSS, PhilHealth, and Pag-IBIG Fund for taxes and contributions. However, as a foreign employer, it is a proactive approach to ensure their full compliance to avoid legal issues that could lead to turnover, project delays, or loss of work.

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3. Prepare Clear and Comprehensive Contractor Agreements.

As a foreign employer, the independent contractor agreement is your key legal safeguard. It ensures that your contractors will comply with local tax and regulatory requirements, secures IP ownership, protects trade secrets, sets clear schedules and expectations, and serves as evidence of a valid independent contractor relationship.

4. Source Qualified Contractors. 

With the competitive job market in the Philippines today and the global technological access, you may simply post job announcements on freelance and talent marketplaces, such as LinkedIn, Upwork, and Fiverr, conduct screening through portfolios, interviews, and trial tasks. You may also make the process more streamlined by partnering with local recruitment agencies and background check service providers as part of due diligence. 

5. Conduct Formal Onboarding Process.

Having formal onboarding is crucial to making the hired independent contractors feel valued and welcome. During the process, it is important to clarify their roles, responsibilities, timelines, project expectations, and quality standards, among others. This will also help accelerate their integration into the foreign team.    

6. Establish Effective Communication and Collaboration Channels.

Given the remote work arrangements, it is important to ensure that independent contractors can work effectively with the rest of the team, access shared resources, and stay aligned with project goals. Establishing effective channels includes setting up regular check-ins, using project management tools to track progress, and establishing email or messaging protocols.

7. Set Up Invoicing and Payment Processes.

Independent contractors are not paid a regular salary. They invoice your company and bill for their services. Thus, you can use various payment methods—bank transfers, international money orders or wire transfers, PayPal, and SWIFT transfers—that are secure, efficient, and compliant with the relevant regulations in both countries.

8. Complete Offboarding Procedures.

Offboarding of independent contractors when the project ends or as the circumstance requires is as important as onboarding. This process often involves confirming final deliverables, processing final payments, revoking access to company accounts and tools, securing intellectual property, conducting exit discussions if necessary, and closing the contract formally.    

Common Mistakes Foreign Employers Should Avoid When Engaging Independent Contractors

It’s clear from the very start of the discussion that independent contractors are different from employees and that particular labor laws govern contracting. To avoid potential implications, costly settlements, and legal issues, you must avoid the following common mistakes when engaging independent contractors:

Misclassifying Workers

Misclassification occurs when a contractor is treated like an employee, regardless of what the contract says, which often results from a lack of understanding of legal distinctions. If raised before the Department of Labor and Employment (DOLE), it can lead to reclassification and liability for unpaid taxes and employee benefits.

No Clear Contracts or Agreements

Agreements are the legal backbone of any contractor relationship. These should clearly cover the scope of work, payment terms, duration, termination, dispute resolution, IP rights, data protection, and restrictive clauses. Without these, parties are at risk of disputes, financial liabilities, and legal complications.

Poor Communication and Unclear Expectations

Without clear project instructions and timelines, contractors may struggle with deliverables and expectations. Cultural norms may also lead to avoiding confrontation or admitting confusion, which compounds the issue. Clear briefs, regular check-ins, and performance feedback, however, can help ensure alignment.

Exerting Too Much Control

Requiring contractors to work on fixed hours, use specific company tools, or follow detailed instructions may resemble an employer-employee relationship under local law. As an employer, you should just define work or project outcomes, not daily routines or methods.

Ignoring Local Tax and Compliance Obligations

Though your independent contractors are the ones who handle their own taxes (under a BIR-registered self-employed setup), you may still be liable under certain interpretations. Thus, it is a best practice to request BIR tax documentation and confirm compliance. 

Immigration Violations for Foreigners

Employing expat workers in the Philippines without the appropriate visa and work permits is illegal, and your company will also pay the penalties. As an employer, you should ensure that your expat contractors have the necessary compliance with the local immigration and labor requirements.  

Overlooking Payment Logistics and Currency Issues

International transfers can be delayed, incur high fees, or result in losses due to unfavorable currency exchange rates. To ensure smooth transactions and maintain trust, you should clarify preferred payment methods, use reliable platforms, and account for local banking practices and currency conversions.

… and you might just need our assistance.

Need help with the management of your independent contractors or looking for a reliable Contractor of Record in the Philippines? Set up a consultation with FilePino today! Call us at (02) 8478-5826 (landline) and 0917 892 2337 (mobile) or send an email to info@filepino.com.