Before any payment mechanics, one question settles the rest: who is legally the employer.
There are 3 answers. Your own Philippine entity, which puts every local obligation on you and generally requires around USD 200,000 in paid-up capital under the Foreign Investments Act plus up to 5 months of setup. Compliant employment infrastructure, where a licensed local entity employs the person and you pay a single invoice from abroad. Or a genuine independent contractor relationship, which carries no withholding or contributions precisely because there is no employment.
Each answer produces a different obligation set, a different cost base and a different risk profile. Choosing the structure by asking which is easiest to pay is how companies end up with the third answer for a relationship that is legally the first.
Employment & Compliance
How to pay an employee in the Philippines from the US, UK, Australia, New Zealand, Singapore or Hong Kong
In short
Sending money is the easy part. The obligations that come with employing someone in the Philippines sit locally: withholding tax on compensation, SSS, PhilHealth and Pag-IBIG contributions, 13th month pay, and payslips that meet local requirements. Those obligations exist whether or not you have an entity, and a bank transfer from abroad does not satisfy them.
Most founders ask this question as a payments question. What is the lowest cost way to move money from our account to theirs. The transfer is the trivial part. What actually determines the answer is who is legally the employer, because that decides who withholds tax, who remits contributions, and who is on the hook when something is wrong.
The question that decides everything else
What has to happen locally, regardless of where the money starts
For an employed person in the Philippines:
Withholding tax on compensation is deducted at source and remitted to the Bureau of Internal Revenue.
SSS, PhilHealth and Pag-IBIG contributions are split between employer and employee, deducted and remitted on schedule.
13th month pay is mandatory at 1 twelfth of annual basic salary, under Presidential Decree 851.
Payroll is paid at least twice a month, at intervals not exceeding 16 days.
A payslip showing earnings and deductions is provided.
None of this can be performed from a foreign bank account. It is why the structure question comes before the payments question.
Withholding tax on compensation is deducted at source and remitted to the Bureau of Internal Revenue.
SSS, PhilHealth and Pag-IBIG contributions are split between employer and employee, deducted and remitted on schedule.
13th month pay is mandatory at 1 twelfth of annual basic salary, under Presidential Decree 851.
Payroll is paid at least twice a month, at intervals not exceeding 16 days.
A payslip showing earnings and deductions is provided.
None of this can be performed from a foreign bank account. It is why the structure question comes before the payments question.
Currency, and why it matters more than the exchange rate
Salaries in the Philippines are ordinarily set and paid in Philippine pesos. Paying in a foreign currency is possible in some arrangements but transfers exchange rate risk onto the employee, whose costs are all in pesos.
The practical consequence is retention. A person whose take home moves 5 percent because of a currency swing they did not choose experiences that as a pay cut. Setting pay in pesos and absorbing the currency movement on your side is both simpler and more stable.
The practical consequence is retention. A person whose take home moves 5 percent because of a currency swing they did not choose experiences that as a pay cut. Setting pay in pesos and absorbing the currency movement on your side is both simpler and more stable.
What actually goes wrong
Three failure patterns account for most of it.
Paying a full time team member by invoice, with no withholding and no contributions, on the assumption that a contractor agreement settles the question. It does not, and the exposure is retroactive.
Paying gross and assuming the employee will handle their own tax. Withholding on compensation is the employer's obligation, not a courtesy.
Forgetting 13th month pay in the annual budget. It is mandatory, it is roughly 8.33 percent of annual basic salary, and it falls due in December.
This is general information rather than legal or tax advice. Take advice in your own jurisdiction and in the Philippines before setting up payment for a first hire.
Paying a full time team member by invoice, with no withholding and no contributions, on the assumption that a contractor agreement settles the question. It does not, and the exposure is retroactive.
Paying gross and assuming the employee will handle their own tax. Withholding on compensation is the employer's obligation, not a courtesy.
Forgetting 13th month pay in the annual budget. It is mandatory, it is roughly 8.33 percent of annual basic salary, and it falls due in December.
This is general information rather than legal or tax advice. Take advice in your own jurisdiction and in the Philippines before setting up payment for a first hire.
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