How to pay and manage Filipino contractors: A practical guide

If you're paying independent contractors in the Philippines, you need to handle payment, documentation, and understand their tax responsibilities. The payment part is straightforward once you know the right method. The compliance part—verifying tax registration, maintaining contracts, and understanding contractor classification—is where most businesses make mistakes.

This guide walks through what you actually need to do. Then we'll show you where Kontrable helps organize the work.

The main things you need to do

1. Use Wise for payments. It's the cheapest and most reliable way to pay Filipino contractors. Wise costs $3-8 per transfer with mid-market exchange rates. PayPal costs 4.4% + $0.30 per transaction—that's 3-4% more expensive. For $50,000 USD/year in payments, Wise saves you $1,500-2,000 USD.

2. Verify BIR registration. Before paying a Filipino contractor, request their BIR Tax Identification Number (TIN) and Certificate of Registration (COR). This confirms they're registered as self-employed with the Bureau of Internal Revenue. Keep copies for your records.

3. Use a written contract. Document the contractor relationship with a clear agreement covering scope, deliverables, payment terms, IP ownership, and explicit statement that they're an independent contractor (not an employee).

4. Collect invoices for all work. Require invoices for every payment. This protects both you and the contractor and creates a clear payment record.

That's the foundation. Everything else builds on these four things.

Payment methods: What actually works

For paying Filipino contractors:

Use Wise. It's the cheapest, fastest, and most transparent way to pay contractors in the Philippines.

Why Wise is best:

• Lowest fees: $3-8 per transfer (vs 4.4% + $0.30 for PayPal)
• Mid-market exchange rate: 3-4% better than PayPal or banks
• Fast: 1-2 business days to Filipino bank accounts
• Transparent: You see exact fees and exchange rates upfront
• Flexible: Pay in USD or PHP

Cost comparison ($1,000 USD payment):

• Wise: $8 fee + mid-market rate = contractor receives ~₱56,920 PHP
• PayPal: $44 fee + 3% markup = contractor receives ~₱54,200 PHP
• Difference: ₱2,720 PHP (~$48 USD) saved with Wise

For $50,000 USD/year in payments, Wise saves you ~$2,400 USD/year vs PayPal.

How to set up Wise payments:

1. Create a Wise business account (free, takes 5 minutes)
2. Get contractor's Filipino bank details (account number, bank name, SWIFT code)
3. Send USD or PHP to their bank account
4. Wise converts at mid-market rate if sending USD to PHP account
5. Contractor receives money in 1-2 business days

What about PayPal?

PayPal is convenient if the contractor already uses it, but it's expensive. For small one-time payments under $200, the convenience might be worth it. For regular payments, use Wise.

What about bank wires?

Bank wires are expensive ($25-45 per transfer) and slow (3-5 days). Avoid them unless you have a specific reason.

What about Payoneer?

Payoneer charges 2% + $3 per transfer and is useful if the contractor already uses it. Otherwise, Wise is cheaper.

Currency: USD or PHP?

Should you pay in USD or PHP?

Most Filipino contractors prefer USD because:

• Currency stability: USD is more stable than PHP
• International rates: Easier to compare with other clients
• Savings: Can hold USD and convert when rates are favorable
• Professional: USD is standard for international work

The math: If you agree to pay $1,000 USD/month, the contractor knows exactly what they're getting. If you pay in PHP, the amount fluctuates with exchange rates. In 2024, USD/PHP ranged from ₱55 to ₱58—that's a 5% difference in purchasing power.

Recommendation: Agree on a USD rate. Let the contractor convert to PHP locally if they prefer.

What you need from Filipino contractors

BIR Tax Identification Number (TIN). Request the contractor's TIN before the first payment. This confirms they're registered with the Bureau of Internal Revenue.

BIR Certificate of Registration (COR). Ask for a copy of their COR to confirm self-employed status. This protects you if classification is ever questioned.

Written contract. Include: scope of work, deliverables, payment terms, IP ownership, confidentiality, termination clauses, and explicit statement that they're an independent contractor (not an employee).

Invoices. Request invoices for all work completed. Invoices should include:

• Contractor's name and address
• Your company name
• Invoice number and date
• Description of services
• Amount
• Payment terms
• Contractor's BIR TIN

Bank details. For Wise payments, you need their account number, bank name, and SWIFT code.

Tax and compliance requirements

BIR compliance (Bureau of Internal Revenue)

Filipino contractors are responsible for their own tax compliance. You don't withhold tax or file anything with BIR as a foreign client.

What Filipino contractors must do:

• Register with BIR and get a TIN
• File quarterly returns (BIR Form 1701Q)
• File annual return (BIR Form 1701)
• Pay income tax (progressive rates 0-35%)
• Keep records (invoices, contracts, payment proofs)

Your responsibility:

• Verify contractor has a BIR TIN and COR
• Keep invoices and payment records for your own tax purposes
• Ensure contractor is properly classified as independent (not an employee)

Contractor vs employee classification

Philippine labor law distinguishes between contractors and employees. Misclassifying employees as contractors can result in penalties, back taxes, and mandatory benefits.

Signs of a proper independent contractor:

• Works for multiple clients (not just you)
• Controls how, when, and where work is done
• Uses their own equipment and tools
• Work is project-based or deliverable-based
• No employee benefits (health insurance, paid leave)
• Invoices you (not on payroll)
• Bears financial risk (can profit or lose)

Red flags for misclassification:

• Contractor works exclusively for you (100% of income)
• You set specific working hours or require daily check-ins
• You provide equipment, software, or workspace
• Contractor is integrated into your team structure
• Work is ongoing and indefinite (not project-based)
• You provide training or professional development

If you're unsure, document the relationship carefully with a written contract that explicitly states independent contractor status.

Time zone considerations

The Philippines is UTC+8 (Philippine Standard Time). Here's how it compares:

• US Pacific: 15-16 hours ahead
• US Eastern: 12-13 hours ahead
• UK: 7-8 hours ahead
• Australia: 2-3 hours behind

Working with the time difference:

• Filipino contractors often work US evening hours (their night shift)
• Async communication works well—use Slack, email, project management tools
• Schedule overlap hours for meetings—early morning US = evening Philippines
• Use tools like World Time Buddy to coordinate schedules

Common mistakes and how to avoid them

Mistake 1: Using PayPal for regular payments. Problem: You pay $5,000 USD/month to a Filipino contractor via PayPal. PayPal charges 4.4% + $0.30 = $220.30 per payment. That's $2,643.60/year in fees.

Solution: Use Wise. For the same $5,000 payment, Wise charges ~$8. That's $96/year in fees. You save $2,547.60/year per contractor.

Mistake 2: Not verifying BIR registration. Problem: You hire a Filipino contractor who isn't registered with BIR. They don't file taxes. Later, tax authorities investigate. You face potential liability and the relationship becomes complicated.

Solution: Always request contractor's BIR TIN and Certificate of Registration before the first payment. Keep copies for your records. This demonstrates due diligence.

Mistake 3: Treating contractors like employees. Problem: You require a Filipino contractor to work 9am-5pm Manila time, use your company laptop, attend daily standups, and work exclusively for you. Labor authorities determine they're actually an employee. You owe back taxes, mandatory benefits (13th month pay, SSS, PhilHealth, Pag-IBIG), and penalties.

Solution: Ensure contractors control their work methods, use their own equipment, work for multiple clients, and are engaged on a project basis. Use written contracts that clearly specify independent contractor status.

Mistake 4: No written contract. Problem: You hire a Filipino contractor with just verbal agreement or Slack messages. Scope creep occurs, payment disputes arise, or IP ownership is unclear.

Solution: Always use a written independent contractor agreement. Include scope, deliverables, payment terms, IP ownership, confidentiality, termination clauses, and explicit statement of independent contractor status.

Frequently asked questions

Q: Do I need to register a business in the Philippines to pay contractors? A: No. You're paying independent contractors for services, not hiring employees. You don't need a Philippine business entity, SEC registration, or BIR registration. The contractor handles their own tax compliance.

Q: What's the difference between a contractor and a freelancer? A: The terms are used interchangeably in the Philippines. Both refer to self-employed individuals who provide services. The key distinction is contractor vs employee.

Q: Can Filipino contractors invoice in USD? A: Yes. Filipino contractors can invoice in USD for international clients. They report the income to BIR in PHP (converted at the exchange rate on the date of receipt) for tax purposes.

Q: What are mandatory benefits for Filipino contractors? A: None. Independent contractors are not entitled to employee benefits like 13th month pay, SSS (social security), PhilHealth (health insurance), or Pag-IBIG (housing fund). If you provide these, they may be reclassified as employees.

Q: How do I handle invoices from Filipino contractors? A: Request invoices for all work completed. Include contractor's name, your company name, invoice number, date, description of services, amount, payment terms, and contractor's BIR TIN. Keep all invoices for your tax records.

Q: What if a Filipino contractor doesn't have a bank account? A: Most have bank accounts or e-wallets (GCash, PayMaya). If not, they can open a free account at major banks (BDO, BPI, Metrobank) or use Wise to receive payments directly to their mobile wallet.

Q: Do I need tax advice for hiring Filipino contractors? A: It depends on your country's tax laws. Consult a tax professional in your country about reporting contractor payments. Your responsibility is to your own tax authorities, not BIR.

Getting started

If you're paying Filipino contractors, here's the process:

1. Request contractor's BIR TIN and Certificate of Registration
2. Create a written independent contractor agreement
3. Set up Wise for payments
4. Agree on USD or PHP payment (most prefer USD)
5. Request invoices for all work completed
6. Keep records for your own tax purposes
7. Maintain contractor contact and documentation

Kontrable helps with steps 1, 3, 4, 5, 6, and 7 by organizing contractor information, tracking payments, managing invoices, and storing contracts. You stay in control of your payment method and use Wise directly.

If you're managing a few contractors, a spreadsheet works. If you're managing dozens or coordinating across a team, Kontrable saves time and keeps contractor data organized.

Ready to get organized?

[Start a free trial of Kontrable] – Get invoice workflows, payment tracking, and contract storage. Try it free.