Can Foreign Companies Hire in the Philippines without a Legal Entity?

Under Philippine law, hiring employees generally requires you to have a legal entity registered with the Securities and Exchange Commission (SEC). Not only do you need to apply for permits and business licenses, you need a USD 200,000 minimum paid-up capital to establish a foreign-owned entity in the company. The incorporation process alone can at least take 1.5 to 2 months to complete.

Fortunately, there are alternatives that allow you to hire and pay Filipino staff legally. This article explores the legal framework, compliance obligations, and practical options for foreign companies that want to hire in the Philippines without forming a local company.

Ways to Hire Employees without a Legal Entity

It is crucial to understand that regardless of whether you register a legal entity or not, you need to to adhere to key labor, tax, and social security compliance:

• Labor Law Compliance: Contracts must comply with Philippine labor standards regarding minimum wage, benefits, working hours, leave entitlements, and termination. Employees must generally be engaged under proper employment contracts, not disguised as independent contractors unless they genuinely meet the criteria.
• Tax Obligations: Employers must withhold income tax on employee salaries and remit these to the Bureau of Internal Revenue (BIR). Failure to withhold or remit taxes may trigger penalties.
• Social Security Contributions: Contributions to the Social Security System (SSS), PhilHealth (health insurance), and Pag-IBIG Fund (housing) are mandatory for regular employees. Employers must register and remit contributions, even if the employer is foreign.

Even if you don’t establish your own company to hire employees, you should maintain compliance with the country’s labor rights, tax, and social security contributions. This will help you minimize legal risk, protect employee rights, and uphold your reputation as an employer in the Philippines. 

Employer of Record (EOR) Model Explained

One of the most popular solutions for foreign companies to hire employees in the Philippines is with an EOR. The EOR is a third-party provider registered locally who officially hires and pays the Filipino employees on your behalf. 

The EOR assumes all legal responsibilities required by Philippine law, including:

• Handles employment contracts compliant with Philippine labor laws.
• Processes payroll, ensuring timely and accurate salary payments.
• Withholds and remits income taxes to the authorities.
• Manages mandatory social security contributions to SSS, PhilHealth, and Pag-IBIG.
• Ensures compliance with labor standards and benefits administration.
• Provides HR support, managing employee relations and queries.
• Assists with work permits and visa processing for expatriates.
• Manages employee onboarding and offboarding processes smoothly.

This model allows you to have control of your staff’s day-to-day work and performance while outsourcing legal compliance to the EOR. The advantages are straightforward compliance, faster hire-to-pay timelines, and reduced administrative burden. 

An EOR is ideal for swift market entry for pilot projects, contract roles, or quick market testing in the Philippines. This makes it ideal for startups and SMEs looking for a low-risk, cost-effective way to hire without incurring entity setup and operational costs. An EOR gives you the space to test out the market before making the move to set up a permanent entity in the Philippines.

Engaging with a Business Process Outsourcing (BPO) Provider

Another way you can hire employees in the Philippines is through a BPO. BPOs are another popular model where a third-party company performs specific business functions or processes on its behalf. These are typically non-core business activities that support the company’s main operations. 

In the Philippines, some of the most common back-office functions are customer service, sales, and technical support. These roles leverage the country’s young, tech-savvy, English-speaking work force. 

Unlike an EOR,  BPOs may act as contractors providing services performed by their staff. This arrangement may be suitable for project-based work but is less common when the foreign company wants direct control over employee tasks. 

Hiring Freelancers and Independent Contractors

A freelancer or independent contractor is a self-employed individual who provides services on a project or contract basis. They operate with greater autonomy and control their work schedule, methods, and tools, and get paid based on deliverables or milestones. Unlike employees working with EORs or BPOs, freelancers are responsible for their own taxes and benefits.

Hiring contractors in the Philippines is ideal if you need an employee with specialized skills for specific projects or short-term tasks without committing to full employment. However, you must ensure that you provide an employment contract that clearly defines the freelance nature of your work relationship to avoid future disputes and liabilities. 

When to Consider Establishing a Legal Entity

Although it can be a complex and time-consuming process, there are practical reasons why you should establish a legal entity. This step is mostly for companies who plan to have a permanent establishment in the country. Despite alternatives, here’s when you should opt for incorporating a company instead:

• Scale and Duration: If you are planning to scale up your staff or intend to establish a long-term operational presence.
• Legal and Contractual Relationships: Direct contracts with clients or suppliers, owning property, or other commercial activities require an entity.
• Regulatory Compliance and Benefits: Certain government incentives, permits, and compliance advantages are only attainable with an established legal presence.

Until you’ve established a legal entity, you can always hire Filipino workers in as quickly as 3 days with RecruitGo. By acting as the legal employer, we can help with recruitment, onboarding, payroll, employee benefits, tax compliance, in accordance with Philippine labor laws.

Hire employees in the Philippines legally with RecruitGo! Fill out the form below for a free consultation with our local HR experts in the country.

FAQs About Hiring in the Philippines Without a Legal Entity

Penalties may include fines, back taxes, and legal claims by employees for unpaid benefits. The Bureau of Internal Revenue and Department of Labor and Employment can impose sanctions for non-compliance.

Employers must register with the BIR for tax purposes, with SSS, PhilHealth, and Pag-IBIG for social security contributions, and comply with local labor standards and contracts.

Labor law requires salaries paid in lawful Philippine currency (pesos) to employees working in the Philippines.

Entity formation typically takes 1 to 3 months depending on the type of entity and completeness of documentation.