Direct hire vs EOR vs contractor

Once you have found the right person in the Philippines, you have to decide how to engage them. There are three common structures. This page explains how they differ. It is general information, not legal or tax advice. The right answer depends on the role, how you will work together, and your own circumstances. Speak to a Philippine employment lawyer and your Australian accountant before you sign.

TODO(tarino) legal review: have a Philippine employment lawyer review this page before it is published.

The three structures

Independent contractor. The person runs their own business and supplies services to you under a services agreement. They invoice you, and they are responsible for their own tax and contributions.

Direct employment. You hire the person yourself. Philippine employment law then applies to the relationship, including the regional minimum wage, 13th month pay, holiday pay and statutory contributions.

Employer of record (EOR). A local company hires the person on your behalf. The EOR runs payroll, contracts and statutory contributions. You choose the person and direct their work, and you pay the EOR a monthly fee.

Side by side

	Contractor	Direct employee	Employer of record
Legal relationship	Services agreement with you	Employment with you	Employment with the EOR
Who pays the person	You, against invoices	You, through payroll	The EOR, funded by you
13th month pay, holiday pay, contributions	Not as an employee entitlement, if the contract is genuine	Your obligation	The EOR’s obligation, charged to you
Payroll and compliance admin	Low	You, or a payroll provider	The EOR
Monthly provider fee	None	None (payroll provider fees if used)	Yes
Control over the work	Results, not methods	Full	Full, day to day
Main risk	Misclassification	Getting obligations wrong in another country	Cost, and the EOR’s quality

Cost structures

Contractor. You pay the agreed fee and any transfer costs. There is no monthly provider fee.

Direct employee. You pay salary plus statutory items. The 13th month pay alone adds one-twelfth of basic salary each year. Holiday premiums apply on Philippine public holidays, and employer contributions apply on top of salary. You may also need a local payroll provider or adviser.

Employer of record. You pay employment costs plus the EOR’s fee. As one published example, Team Up Now lists an EOR fee of A$300 per employee per month, separate from salary and statutory contributions, with an optional A$2,000 recruitment fee. Over 24 months, that fee alone is A$7,200, or A$9,200 with recruitment.

Recruitment is a separate decision from structure. A direct-hire recruiter such as Tarino ($5,000 excl. GST, one-time) finds the person, and you can then engage them under any of the three structures. Some recruiters say the same. Hunt St, for example, says talent may be engaged as independent contractors or through an EOR.

Misclassification risk

Philippine courts decide whether someone is an employee by looking at the substance of the relationship, not the label in the contract. The Supreme Court uses a four-fold test:

1. who selected and engaged the person;
2. who pays their wages;
3. who has the power to dismiss them; and
4. who has the power to control their conduct.

The Court has described the power to control as the most important of the four. Put simply, the question is whether you control only the result of the work or also the means and methods of doing it.

A full-time staff member who works set hours, uses your systems, follows your processes and reports to your manager can look a lot like an employee, whatever the contract says. If a relationship labelled as a contract is found to be employment, the worker may be owed employee entitlements. TODO(tarino) legal review: confirm the consequences and any Australian-side considerations with a lawyer before publishing.

Ways to reduce the risk include:

• choosing the structure that matches how you actually intend to work, not the cheapest one;
• writing a contract that reflects the real relationship;
• getting Philippine legal advice on the contract before the start date; and
• using an EOR if you want a full employment relationship without becoming the employer yourself.

Which one suits you

• Contractor may suit defined, project-based or part-time work where the person genuinely runs their own business and controls how the work is done.
• Direct employment may suit a long-term, full-time team member where you are prepared to meet Philippine employer obligations, usually with a local payroll provider.
• An EOR may suit a full-time role where you want the person on a proper local contract but do not want to be the employer of record yourself, and you accept the monthly fee.

Whichever you choose, the recruitment is the same. Tarino finds and screens the candidate. Typically we screen 1,000+ per role and send 3 to 4 finalists in about two weeks. You decide the structure with your own advisers.

See direct hire vs offshore staffing agency for the cost comparison with managed providers, and how to hire Filipino staff from Australia for the full process.