Eight Things to Settle Before Your First Hire in the Philippines: Status, Contracts, Contributions, Exit Cost

One and Two: Your Entity, and Whether You Yourself May Legally Work

The order matters, because these two determine whether anything else is even possible.

First: who is the employer. A Philippine employment contract needs a legally existing party on the employer side. So confirm that the company is registered with the SEC (for corporations, including foreign-owned) or the DTI (for a sole proprietorship), registered with the BIR with its books and invoicing authority in place, and holding the local business permit from the city or municipality plus any industry-specific licences. Missing any one of these means you do not yet have an employer capable of signing a lawful contract or issuing a compliant payslip. Entity setup and its annual renewals form a separate process of their own, involving foreign ownership limits, capital requirements and matching your registered activities to what you actually do.

Second: whether you, as a foreign national, may work here. This is the one foreign owners skip most often — busy arranging paperwork for staff while forgetting themselves. Working for a company in the Philippines, including serving on the ground as management, generally requires an Alien Employment Permit (AEP) from DOLE and a corresponding work visa from the BI, most commonly the 9G pre-arranged employment visa, with separate provisional routes for short-term or transitional situations. Running a company day to day on a tourist visa breaches both the immigration and the labour side at once, with penalties, blacklisting risk and knock-on effects on later applications. This step likewise has its own dedicated process and document list.

The practical reason these come first: your own status propagates through everything. An incomplete entity blocks contribution registration; without lawful work status, the many filings that require an officer to appear or sign start to stall.

Three: Are You Hiring Locally or Bringing in Foreign Staff?

This choice puts you on two entirely different tracks, an order of magnitude apart in cost and lead time.

Hiring Filipino staff: no immigration process, mainly labour law plus contribution and tax compliance. More predictable, but it means you carry the full set of employer duties under the Labor Code — contracts, probation and regularization, statutory benefits, hours and overtime, and both the substantive and procedural requirements for dismissal.

Hiring foreign staff, including your own people posted from home: everything above, plus:

• The DOLE Alien Employment Permit (AEP): the core logic is justifying why the role requires a foreign national, typically with publication and an assessment of local availability.
• A BI work visa: usually the 9G pre-arranged employment visa, applied for with the company as petitioner, with provisional work authorisation sometimes bridging the gap.
• Change of employer: a foreign hire moving from another company does not carry their existing visa and permit across automatically; that transfer is its own process.
• Wind-down and departure: at the end of an assignment, visa downgrading, cancellation and exit clearance also follow set procedures. You cannot simply let someone fly out.

Practical advice: treat the question of whether a role genuinely requires a foreign national as a real commercial decision rather than a habit. Every foreign headcount carries ongoing compliance maintenance — annual renewals and reporting on address or position changes. Most established foreign companies end up with the same shape: expatriates in core decision-making roles, everything operational hired locally. It is usually the sensible balance of cost and control.

Four: Contracts and Employment Types — Do Not Reuse the Home-Country Template

The relationship should be established by a written contract covering duties, pay structure, work location, hours, and the probationary terms and regularization standards. Three errors recur:

• Copy-pasting the home-country template: terms below the Labor Code floor are generally void, and the dismissal and non-compete clauses that work at home frequently do not hold here, so signing them buys nothing.
• Choosing the wrong employment type: regular, probationary, fixed-term, project-based and seasonal employment each have distinct rules and tests. What governs is the actual nature of the work, not the label on the contract. Dressing a permanent role as a chain of renewed short contracts is typically found to be continuous employment with the person long since regular.
• No employee handbook: discipline, attendance and conduct rules must be written and properly served. That document is what any later sanction or dismissal rests on; without it, even a solid ground often fails for lack of basis or notice.

One step that gets skipped: regularization standards must be communicated in writing when the employee starts work. Without that, ending probation for failure to qualify rarely holds, and the employee may be treated as regular from the outset. Probation management has its own process and document requirements.

Have your specific clauses reviewed by a licensed Philippine lawyer; this article is not legal advice.

Five and Six: The Three Contributions, and Payslips with Withholding Tax

Five: SSS, PhilHealth and Pag-IBIG registration and remittance. Mind the sequence — the company registers as an employer with each of the three agencies and obtains employer numbers, then reports each new hire, then every month withholds the employee share from pay, adds the employer share, and files and remits before each agency's cut-off. Key points: the duty attaches from the start of employment regardless of probation; the three agencies have separate systems, cut-offs and formats, so paying one is not paying all; and withholding without remitting is the gravest version of getting this wrong. Registration and monthly filing form their own process.

Six: payslip structure and withholding tax. A compliant Philippine payslip is not a bank transfer. It must break out basic pay, each statutory premium (overtime, rest day, night differential, holiday), statutory deductions for the employee contribution shares, withheld income tax, and any voluntary allowances or benefits. The employer is the statutory withholding agent for employee income tax, filing and remitting to the BIR on schedule, issuing the corresponding annual certificates, and completing the year-end reconciliation step.

Why both must be settled before anyone starts:

• Registrations and account setup take time. Start on the employee's first day and you will miss month one.
• A payslip structure that is wrong at the start reproduces the same error every month, and the accumulated shortfall is recoverable backwards.
• Gaps in contribution records surface exactly when an employee files a medical or maternity claim, which is where most disputes in this area begin.

Seven: Price the Cost of Letting Someone Go Before You Hire Them

This is the item foreign owners neglect most and the one that costs the most. In the Philippines, ending an employment relationship is far harder than starting one, and the price is largely fixed at the moment you hire.

The distinction to internalise is that lawful dismissal splits into two families with completely different cost profiles:

• Just cause, tied to employee fault: serious misconduct, gross and habitual neglect, fraud or wilful breach of trust, commission of a crime. Generally no statutory separation pay, but the twin-notice rule is mandatory: a first written notice stating the specific charges and factual basis with reasonable time to answer in writing, a genuine opportunity to be heard in between, then a second notice setting out the findings.
• Authorized cause, tied to business need: redundancy, retrenchment, closure, installation of labour-saving devices, disease. Statutory separation pay generally applies, and advance written notice to both the employee and DOLE is generally required.

Three realities to hold onto:

1. The burden of proof is on the employer. The employee does not have to prove unfairness; you have to prove legality. So evidence must be created as events happen — written warnings, employee acknowledgments, appraisal records, investigation notes. Documents assembled after the fact contradict themselves on dates and logic.
2. Valid ground with defective process is not a free pass. The usual outcome is not reinstatement, but the employer separately owes nominal damages. Do not assume that because the person really did it, the procedure can be skipped.
3. Pushing someone to quit is usually more expensive. Importing forced-ranking culls, demotions, pay cuts and sidelining until the person resigns often amounts to constructive dismissal — still your dismissal in law, and one without valid cause. Likewise, deducting losses from wages or holding an employee's identity documents are plainly unlawful and detonate an otherwise manageable dispute.

So the pragmatic move is to carry potential exit cost as its own line in the people budget: when statutory separation pay applies, the time cost of resolving disputes, and the handling cost once an employee files at the mandatory conciliation stage (SENA). Dismissal has its own procedure and document requirements. For your specific facts, consult a licensed Philippine lawyer; this article is not legal advice.

Contracts and a handbook that will not hold up the day you let someone go? → local hiring and employment compliance

Eight: Direct Hire, or Employer of Record and Outsourced Staffing?

Having read the seven items above, most owners ask the same question: do I really have to carry all of this myself? It depends on which stage you are at.

An Employer of Record (EOR) or outsourced staffing usually fits when:

• You are validating the market, need only a handful of people, and are unsure about staying long term.
• The entity is not registered yet, or is mid-registration while the work has already started.
• The engagement is a short project where standing up a full HR and payroll function is not worth it.
• Your own work visa has not issued, limiting what you can sign and file as the employer.

Building your own entity and hiring directly usually fits when:

• You are committed long term, headcount will keep growing, and unit cost drops over time.
• The business must contract, invoice, bid or hold industry licences in its own name.
• The roles involve core technology, customer relationships or anything you want under direct control.

When evaluating an outsourced provider, get clear on: whether they are a properly licensed provider, exactly which entity carries the employment relationship in law, who funds and files contributions and statutory benefits such as 13th month pay, how liability is allocated if a labour dispute arises, and what happens to the staff at contract termination. Treat any promise of guaranteed approval or a guarantee that no labour dispute will ever arise as a disqualifying signal — labour cases are decided by the NLRC and the courts, and no provider can guarantee that outcome.

If you have decided to build a team in the Philippines but are unsure which step comes first, you can have Yixing's visa and HR team map the sequence against your business stage, covering entity, your own status, hiring model and budget in one pass, so you do not pay for doing the steps out of order.

Disclaimer: this is general introductory guidance for employers. All amounts, rates, deadlines and thresholds are governed by the current rules of DOLE, BI, BIR, SEC and the other agencies concerned. For your specific situation, consult a licensed Philippine lawyer; this article is not legal advice.