Are you looking to expand or outsource your business in the Philippines, and find the right talent for the job? Or maybe you have a specific project that requires just the right kind of expertise? Hiring independent contractors could constitute the flexible solution that you need to meet your business needs.
This guide will walk you through the process of hiring Independent contractors while giving you a better look at the advantages and disadvantages of this approach versus hiring regular contract employees.
How does hiring independent contractors differ from regular contract employees in the Philippines?
What is an independent contractor?
Labor law in the Philippines defines an independent contractor as an individual who provides their services/expertise to another party in the form of a paid business agreement. As such, an independent contractor is not considered an employee of the purchasing party.
The main distinction between an employee and an independent contractor is that an employee represents your company and performs tasks based on an employment contract that you have established with them upon hiring. An independent contractor represents themselves and is providing you with a specific service that you have purchased.
If you are curious about finding more information regarding employment contracts in the Philippines, look at our guide to hiring in the Philippines.
A simple and flexible approach to acquiring talent in the Philippines
Hiring an independent contractor in the Philippines offers you a more flexible approach to handling your business needs in the country with many advantages:
- Enhance flexibility and productivity: Many independent contractors thrive in remote environments and can adjust their work schedules to maximize their output, leading to better results and productivity.
- Agile workforce solutions: Independent contractors are ideal for covering temporary needs or specific projects
- Cost-effective solution: Hiring independent contractors avoids expenses associated with employee benefits, healthcare, equipment, and other standard requirements.
- Reduced administrative burden: Hiring independent contractors simplifies the payment process compared to managing payroll. Tax reporting, calculations, and paycheck distributions are often optional.
- Broader talent pool: Hiring independent contractors expands your access to a diverse pool of skilled professionals. You can tap into specific expertise and find the perfect talent match for your project requirements
Consider the challenges of hiring independent contractors in the Philippines
Despite some of the alluring benefits mentioned above, hiring independent contractors also comes with some drawbacks that should be taken into consideration:
- Limited influence on the process: While you can outline goals and expectations, the specific methods used may differ from your envisioned approach, meaning less direct control over how tasks are executed
- Potential for fluctuating schedules: The nature of contract work can lead to irregular availability or variations in output, especially if the contractor works with multiple clients.
- Reduced access to learning and upskilling: Compared to full-time employees, contractors typically receive less focused training on company-specific workflows or processes.
- Higher turnover risk: Dependence on contractors for critical tasks might result in a faster turnover rate, as contracts have defined durations and may not necessarily guarantee long-term commitment.
- Still includes legal requirements: you must make sure contracts and paperwork are in order, as it could lead to legal issues.
Legal requirements to hire independent contractors in the Philippines
Navigating labor laws for hiring contractors
The Philippines has specific laws that apply to hiring independent contractors. It is important to stay informed about these to ensure compliance and avoid costly legal ramifications. It is also best practice to actively review your arrangements for adherence to these regulations.
When considering hiring independent contractors, familiarize yourself with Department Order No. 174 (DO 174) issued by the Department of Labor and Employment (DOLE). DO 174 establishes crucial guidelines for contracting and subcontracting, especially for foreign companies hiring in the Philippines.
Ensure your engagement complies with DO 174 and avoids prohibited practices, the most prominent of which being labor-only contracting, which is defined as:
- The contractor does not possess substantial capital or does not have investments in the form of tools, equipment, machinery, supervision, work premises, etc.
- The contractor’s employees are performing duties directly related to the main business of the principal.
- The contractor does not exercise the right of control over the performance of the work of its employees.
Philippines tax laws for freelancers
While local employment laws may not directly apply to freelancers, other important regulations remain. For instance, registration with the Bureau of Internal Revenue (BIR) and mandatory reporting throughout the year are essential for independent contractors.
Although it is the contractor’s responsibility to file taxes, the hiring party must ensure proper compliance, as they may have to submit tax compliance forms regarding their expenses, especially if hiring from abroad, specifically from the US.
Failure to comply with these measures can lead to legal complications and project delays for your company. Prioritize ensuring proper freelancer tax compliance when hiring independent contractors in the Philippines.
Safeguarding your business through a strong contractor agreement
Despite not being quite as complex as an employment contract, it is still important that you prepare a contractor agreement to be agreed upon and signed by both parties when hiring an independent contractor. Improperly drafted contracts can lead to disputes and legal ramifications.
These are the main points that constitute a strong contractor agreement:
- Always use a written contract to formalize the business relationship
- Clearly define terms of engagement and deliverables
- Include compliance clauses regarding taxes and labor laws
- State payment terms
- Indicate the duration of the agreement
- Confidentiality clauses
- Acceptance and signature of involved parties
It is advisable to consult with legal professionals familiar with freelancer contracts to ensure your agreement adheres to all relevant laws and regulations, both in your own country and the independent contractor’s.
Where to source your talent in the Philippines
Consider a reputable talent acquisition partner
Independent contractors offer a flexible solution to hiring in the Philippines, especially when you are seeking a specific type of expertise for a shorter-term project. That being said, finding the right candidate for your specific field and project can be challenging in a competitive and unfamiliar market.
Instead of going it alone, consider partnering with a talent acquisition service that is established in the Philippines. RecruitGo’s team of experts can assist you in finding trustworthy contractors tailored to your specific needs. You can simply send us your exact requirements, and we can find the perfect candidates through our extensive network of skilled talent.
Through our recruitment service, you get to retain control over picking the right fit for your needs. Once you have chosen the candidate(s), you don’t have to worry about the complicated bureaucracy; our experts will take care of the paperwork.
Employer Of Record: a more comprehensive approach to hiring
If you are looking to expand your operations more significantly in the Philippines, or for more permanent employees, you can also consider the Employer Of Record (EOR) service. If establishing your presence in the Philippines is something you are interested in, take a look at our article on foreign-owned company registration.
An EOR also gives you the advantage of retaining your talent by providing them with full-time employment. Independent contractors may eventually seek more stability and access to employee benefits. By enrolling your staff through RecruitGo’s EOR service, you’ll be able to offer them the same advantages as traditional employees.
With RecruitGo as your EOR partner, you can also directly hire full-time employees through our network for all your operational needs. Similarly to our talent recruitment service, our team will handle compliance, payroll, and benefits, giving you a flexible and cost-effective approach to hiring in the Philippines. Contact our experts today for a free consultation!
