How to Pay Contractors in the Philippines: Complete 2025 Guide

Why This Guide Is Different

The Philippines is one of the top countries for hiring remote contractors—especially for customer support, virtual assistance, software development, and creative work. Filipino contractors are highly skilled, English-proficient, and cost-effective.

However, payment methods matter significantly. Using PayPal instead of Wise can cost you 3-4% more per payment. For $50,000 USD/year in contractor payments, that's $1,500-2,000 USD wasted on fees.

This guide covers payment methods, currency conversion, BIR tax requirements, and contractor management specifically for Filipino contractors.

Payment Methods Compared

Recommended: Wise for Most Payments

Why Wise is best for Filipino contractors:

• Lowest fees: $3-8 per transfer (vs 4.4% 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 example ($1,000 USD payment):

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

Pro tip: Most Filipino contractors prefer receiving USD because it protects against PHP currency fluctuations. They can convert to PHP locally when needed.

Currency Considerations (USD vs PHP)

Should you pay in USD or PHP?

Most Filipino contractors prefer USD for these reasons:

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

Exchange rate example:

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.

Tax Requirements (BIR Compliance)

Filipino contractors are responsible for their own tax compliance with the Bureau of Internal Revenue (BIR). As a foreign client, you don't withhold tax or file anything with BIR.

What Filipino Contractors Must Do

• Register with BIR: Get a Tax Identification Number (TIN)
• File quarterly returns: BIR Form 1701Q (quarterly income tax)
• File annual return: BIR Form 1701 (annual income tax)
• Pay income tax: Progressive rates from 0% to 35%
• Keep records: Invoices, contracts, payment proofs

Your responsibility:

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

Pro tip: Request contractor's BIR Certificate of Registration (COR) to confirm they're registered as self-employed. This protects you if classification is ever questioned.

Contractor vs Employee Classification

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

Signs of a proper independent contractor relationship:

• Contractor works for multiple clients (not just you)
• Contractor controls how, when, and where work is done
• Contractor uses their own equipment and tools
• Work is project-based or deliverable-based (not hourly supervision)
• No employee benefits (health insurance, paid leave, etc.)
• Contractor invoices you (not on payroll)
• Contractor 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

Time Zone Considerations

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

• US Pacific (PST/PDT): 15-16 hours ahead
• US Eastern (EST/EDT): 12-13 hours ahead
• UK (GMT/BST): 7-8 hours ahead
• Australia (AEST): 2-3 hours behind

Working with the time difference:

• Filipino contractors often work US hours (night shift in Philippines)
• Async communication works well (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 Large 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, Philippine authorities investigate and determine they should have been classified as an employee. You face potential liability.

Solution: Always request contractor's BIR Certificate of Registration (COR) and TIN before 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. Philippine 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 a 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 of work, deliverables, payment terms, IP ownership, confidentiality, termination clauses, and explicit statement that contractor is not an employee.

Tools for Filipino Contractor Management

For payments:

• Wise (best for most payments, $3-8 per transfer)
• PayPal (if contractor prefers it, but higher fees)
• Payoneer (if contractor already uses it)

For contractor management:

• Spreadsheets (free but error-prone and time-consuming)
• Deel or Remote.com ($60-120 per contractor per month, built for EOR not contractors)
• QuickBooks or Xero (accounting software, not contractor-specific)

For contractor operations:

Kontrable is built specifically for managing independent contractors, including Filipino contractors:

• BIR TIN and COR verification and storage
• Payment tracking (works with Wise, PayPal, any payment method)
• Invoice management and approval workflows
• Contract storage and e-signatures
• Time zone management and scheduling
• Compliance documentation

Frequently Asked Questions

Get Started

Hiring Filipino contractors?

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

Want to automate this?

Kontrable launches Q1 2026 with contractor management tools built for international contractors. BIR TIN verification, payment tracking, invoice workflows, contract storage, and compliance documentation. $99/month for up to 25 contractors.