Published: January 2026
The Philippines has become a go-to destination for Australian businesses looking to build capacity without the cost of local hires. Virtual assistants, bookkeepers, customer support staff, and finance professionals are all readily available at a fraction of Australian salary rates.
The appeal is obvious. English proficiency is high. The time zone overlap with eastern Australia is manageable at two to three hours. Cultural alignment with Western business practices makes onboarding smoother than many other offshore destinations.
According to Matchboard data, the Philippines topped Australian outsourcing searches in 2025 with 29% of preferences, ahead of Fiji at 23% and India lower again. For communication-heavy roles and general business support, it remains the dominant choice.
But there is a catch. Many Australian businesses get the setup wrong, exposing themselves to compliance risks in both countries. Understanding the rules before you engage your first contractor can save significant headaches down the track.
The most common mistake Australian businesses make is treating someone as a contractor when the working arrangement looks more like employment.
Philippine labour laws are strict on this point. If a worker follows your schedule, uses your tools and systems, works full-time hours exclusively for you, and has no real ability to work for others, authorities may reclassify them as an employee. This can trigger back-pay for benefits, penalties, and ongoing obligations you did not anticipate.
The Australian Tax Office also pays attention to these arrangements. If a contract is "principally for labour" and the contractor works primarily for your business, you may have superannuation obligations even though the worker is overseas. This is an area where enforcement has increased in recent years.
The key indicators of a genuine contractor relationship include:
If your arrangement does not fit this profile, you may be creating an employment relationship whether you intended to or not.
One of the advantages of engaging a genuine contractor in the Philippines is simplicity around tax. As an Australian business, you generally do not need to withhold tax from payments to Filipino contractors. They are responsible for their own tax filings with the Bureau of Internal Revenue (BIR).
However, you should still take steps to protect your position:
Filipino contractors earning above PHP 250,000 (approximately $7,000 AUD) are subject to income tax. They can choose between graduated rates of 0% to 35% or a flat 8% tax on gross income up to the PHP 3 million threshold. Above PHP 3 million annual gross receipts, they must also register for and charge 12% VAT.
This is their responsibility, not yours. But having documentation that they are handling their obligations properly protects you if questions arise later.
There are three main ways Australian businesses engage Filipino workers:
1. Direct contractor engagement. You contract directly with the individual. They invoice you, you pay them, and they handle their own tax and compliance. This is the simplest and cheapest option for genuine contractor relationships. The risk is that if the arrangement is later reclassified as employment, you bear full responsibility.
2, Agency or outsourcing provider. You engage through a Philippine staffing agency or Business Process Outsourcing (BPO) provider. They employ the worker and handle all local compliance. You pay a fee that covers the worker's salary plus the agency's margin. This reduces your compliance risk but adds cost and a layer of separation from the worker.
3. Employer of Record (EOR). Similar to an agency, but the EOR becomes the legal employer of the worker while you direct their day-to-day activities. This is increasingly popular for roles that look more like employment than contracting. Major providers include Deel, Remote, and Oyster.
Many Australian SMEs start with direct contractor arrangements for virtual assistants and support roles. As teams grow or roles become more integral to operations, they often shift to an EOR model to reduce misclassification risk. This trend has accelerated with increased enforcement attention in both countries.
Paying contractors in the Philippines is straightforward with modern payment platforms. Common options include:
Most contractors prefer to receive payment in Philippine Pesos (PHP) to their local bank account. Wise and Payoneer both handle the conversion automatically. Agree upfront whether you are paying a fixed PHP amount or an AUD equivalent, as exchange rate fluctuations can create confusion.
Payment terms vary, but fortnightly or monthly payments aligned with your normal pay cycle are common. Net-30 terms may work for project-based arrangements.
A clear written agreement protects both parties. Key elements include:
The IP clause deserves emphasis. If your contractor creates content, code, designs, or other work product for your business, you need a written assignment or you may not own what you paid for.
Successful offshore contractor relationships require deliberate management. Some practical considerations:
Communication rhythms. Establish regular check-ins, whether daily standups or weekly reviews. Async communication via Slack or Teams works well given the time zone overlap, but scheduled video calls help build rapport.
Clear expectations. Document processes, provide training materials, and be explicit about quality standards. What seems obvious to you may not be to someone working in a different cultural context.
Performance feedback. Provide regular feedback, both positive and constructive. Filipino work culture tends toward deference and harmony, so direct but respectful communication about performance issues is important.
Tools and systems. Decide upfront who provides equipment and software. True contractors typically use their own tools. If you provide everything, it starts to look more like employment.
Time tracking. For hourly arrangements, use a time tracking tool and agree on how hours are reported and approved.
An EOR makes sense when:
EOR costs typically run $500 to $600 USD per employee per month with providers like Deel and Remote, plus the employee's salary and statutory benefits. This adds up, but it buys compliance certainty.
Many Australian SMEs use a hybrid approach: genuine project-based contractors engaged directly, while more embedded team members go through an EOR.
Misclassification. The biggest risk. If your contractor works exclusively for you, follows your schedule, and uses your systems, you may have an employment relationship regardless of what your contract says.
Inconsistent payments. Unreliable payment damages trust and retention. Set up automated payments and stick to the agreed schedule.
Lack of documentation. Keep records of contracts, invoices, payments, and evidence of the contractor's independent business registration. You may need these if questions arise.
Ignoring IP. Always include an IP assignment clause. Do not assume you own work product just because you paid for it.
Underestimating management time. Offshore contractors still need onboarding, training, feedback, and oversight. Budget time accordingly.
No. As an Australian business paying a genuine independent contractor in the Philippines, you generally do not withhold tax. The contractor is responsible for their own BIR filings and tax payments. However, you should request proof that they are registered with the BIR and keep records of payments.
Key factors include who controls how and when work is done, whether the worker can work for multiple clients, who provides equipment and tools, and whether the worker bears commercial risk. If the arrangement looks like employment (fixed hours, exclusive relationship, you provide everything), it may be classified as employment regardless of your contract.
You may be liable for back-pay of employee benefits, penalties from Philippine authorities, and potentially Australian superannuation obligations if the contract was "principally for labour." This can be costly and time-consuming to resolve.
Major EOR providers like Deel and Remote typically charge around $599 USD per employee per month for their base service. Additional costs include statutory benefits, insurance, and potential onboarding fees. For a full breakdown, request quotes from multiple providers.
Under Philippine law, the contractor owns IP they create unless there is a written agreement assigning it to you. Always include an IP assignment clause in your contractor agreement to ensure you own the work product you pay for.
Wise is generally the most cost-effective option, offering low fees and mid-market exchange rates. PayPal is widely used but charges higher fees. Direct bank transfers work but are slower and may incur fees at both ends. Agree with your contractor on currency and payment timing upfront.
Scale Suite supports Australian businesses building offshore finance teams.
We work with businesses across Australia who are scaling their operations without scaling their costs. If you are considering hiring in the Philippines or other offshore locations, we can help you get the structure right from the start.
Contact us at hello@scalesuite.com.au or visit scalesuite.com.au.
This article provides general information about engaging contractors in the Philippines. It is not legal, tax, or employment advice. We recommend consulting qualified professionals for your specific circumstances. Information is current as of January 2026; check official sources for updates.
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