How to Pay International Contractors in Philippines [2025]

Global companies can hire contractors from the Philippines to tap into the country’s skilled workforce. But when it’s time to pay them, what steps do you need to take to comply with all of the Philippines' complex labor and tax laws?

Before you receive your first invoice, read on to learn what you need to know to correctly classify contractors, onboard them, and pay them according to the Philippines' labor laws. We broke it down in steps.

Step #1: Classify your workers

Classifying Filipino workers correctly is crucial. Misclassifying employees as contractors can result in penalties including:

• Back pay and benefits

• Court-ordered damages of up to PHP 500,000, plus associated attorney fees

•  Back payment of unpaid taxes and social security, plus additional fines and penalties

• Separate monetary fines and possible prison sentences for employers who don’t make necessary contributions to entitlement programs such as the Social Security System (SSS), the Home Development Mutual Fund (also known as the Pag-IBIG fund), and the Philippine Health Insurance Corporation (PhilHealth)

To help employers determine whether a hire meets the criteria for an employee or independent contractor, the Philippines has created what it calls a "four-fold" test. The tests are:

• Selection and engagement of the worker, meaning the contractor has been engaged by the employer because they have unique skills or talents not possessed by average employees.

• Payment of wages, meaning the contractor invoices for their work after it is completed. Employees, on the other hand, are paid regular salaries or wages at intervals.

• Power of dismissal, meaning employers can only discipline and dismiss employees; contractors can only be terminated according to the termination clause in their work contract.

• Power of control, meaning the contractor should have control over when, where, and how they perform their work, and not be under direct supervision or control of the employer.

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Step #4: Ensure your contractor has the right tax information 

Employers aren't required to withhold and pay income taxes for contractors in the Philippines. However, some employers make voluntary agreements with their contractors to make tax payments on their behalf. If so, you need to send the contractor a Bureau of Internal Revenue (BIR) form 2307 to specify what you’re withholding. 

Self-employed workers need to pay their own taxes if they make more than PHP 250,000 per year, and are also responsible for paying their own premiums for social security agencies. Filipino freelancers making more than PHP 3,000,000 have to pay an additional 12% tax. 

Independent contractors in the Philippines need to register with the BIR to get a Tax Identification Number. Then they can file the necessary tax forms, including:

• Form 1701Q for quarterly income taxes

• Form 1701 or 1701A (depending on whether contracting is a worker’s sole source of income) and Form 0605 for annual income tax payments

• Form 2307 if an employer decides to voluntarily withhold tax payments on your behalf

For US employers, it’s also worth noting that if a Filipino contractor travels to the country for work, their trip-based earnings are taxed by the US. So make sure you send them IRS forms W-8BEN or W-8BEN-E. 

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Expanding your international workforce has never been easier. With Rippling, you can pay international contractors in the Philippines and around the world.

FAQs about paying contractors in the Philippines

Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.