How to Pay Offshore Teams: Tools, Methods, and Compliance Tips

You’ve found the perfect offshore team member—skilled, reliable, and cost-effective. But when it’s time to pay them, things suddenly get complicated. What seemed like a simple global hire becomes a potential compliance headache.

According to the IRS, 40% of small businesses are penalized an average of $845 each year due to payroll errors. That number climbs quickly when dealing with international contractors and foreign labor laws.

As global teams become the norm, knowing how to pay offshore teams isn’t just a financial process—it’s a strategic one. From tax forms and exchange rates to labor classifications and payment platforms, getting it right protects your business and keeps your team running smoothly.

At Penbrothers, we’ve helped companies from America, Europe, and Asia navigate these very challenges. Our end-to-end offshore staffing model includes payroll compliance, workforce classification, and country-specific legal handling—so you can scale without second-guessing your payroll decisions.

Let’s walk through what you need to know.

The Realities of Paying Offshore Teams in the Philippines

It’s one thing to hire someone remotely. It’s another thing to pay them legally, and keep your business protected in the process. Most founders underestimate this.

Here’s what you’re actually dealing with when paying staff in the Philippines:

• Legal Compliance: Companies need to follow Department of Labor and Employment (DOLE) regulations, especially if they engage with full-time talent.
• Bureau of Internal Revenue (BIR) obligations: PH-based contractors are required to register as self-employed individuals and file taxes. If you’re not careful, you could trigger permanent establishment (PE) risks, which may lead to unexpected tax liabilities for your business.
• Cultural Norms: Semi-monthly pay is standard for employees. Deviating from this can raise red flags and erode trust.

Non-compliance doesn’t just mean penalties. It signals to your team that you don’t take their work—or your responsibilities—seriously. And in a region where loyalty is earned, that’s a costly mistake.

How You Can Pay Your Offshore Talent

Once you’ve found the right offshore hire, the next question is: how do you actually pay them—legally, efficiently, and in a way that scales?

International payroll isn’t a one-size-fits-all game.
Different structures offer different degrees of control, complexity, and compliance risk.
Let’s break down the four most common payment routes available today.

Set Up a Local Entity

Setting up a legal entity in the Philippines allows you to hire employees directly and operate with full legal presence.
You’ll be able to open bank accounts, register with tax authorities, and manage HR processes under your own corporate name.

This approach is ideal if:

• You’re planning a long-term expansion
• You want to build a significant physical or operational footprint in the country
• You have the resources to handle ongoing admin and compliance tasks

But it’s not for everyone.

Setting up a corporation or branch office in the Philippines involves:

• SEC registration
• BIR tax filings
• Payroll system setup
• Social benefit remittances (SSS, Pag-IBIG, PhilHealth)
• Local legal and accounting support

Add to that the time, capital, and overhead—and you’ll quickly realize it’s a high-barrier option for lean startups or rapidly scaling companies.

Partner With a Local Company

If setting up a local entity is too heavy-handed, partnering with a local staffing firm is a smarter alternative.

With Penbrothers, for example, you can:

• Tap into pre-registered employment infrastructure
• Onboard Filipino talent quickly and legally
• Get HR, payroll, and legal support under one roof

Think of it as “renting” the benefits of a local entity—without the ownership headaches.

This model is ideal if:

• You want to move fast without sacrificing compliance
• You need a partner with local employment expertise
• You’re exploring the market and want flexibility to scale up or down

Added bonus? Penbrothers handles everything from contracts to compliance to compensation, so your team gets paid on time and in full—without fail.

Use an Employer of Record (EOR)

An Employer of Record (EOR) is a third-party organization that legally employs your offshore talent on your behalf.

It’s your shortcut to international hiring—minus the legal minefield.

Here’s how it works:

• The EOR becomes the official employer of record for your remote team
• They handle contracts, payroll, tax withholdings, benefits, and compliance
• You still manage your team’s day-to-day work and KPIs

EORs are especially valuable for:

• Companies hiring in multiple countries
• Founders testing a new market without committing to a local entity
• Teams scaling quickly and wanting predictable compliance support

And in the Philippines? Penbrothers doubles as your local partner and EOR, giving you access to Filipino talent through a legally sound, fully managed solution.

No headaches. No risk. No regulatory missteps. Learn more about how an EOR works in global staffing.

Pay as Independent Contractors

This is the go-to for many early-stage founders.
It’s fast, flexible, and doesn’t require registering a business locally.

If you’re hiring a freelancer or project-based contributor, this might work—but caution is key.

You’ll need to:

• Draft a clear service contract outlining scope, deliverables, and payment terms
• Decide on payment methods (Wise, PayPal, Payoneer, direct transfer, crypto)
• Remind the contractor they are responsible for their own taxes in the Philippines (via BIR Form 1701 and official receipts)

This setup works best when:

• The worker manages their own schedule
• They serve multiple clients (not just your company)
• The relationship is transactional, not ongoing

⚠️ Warning: Misclassifying full-time contributors as contractors can lead to legal trouble. In the Philippines, DOLE takes worker misclassification seriously—violations may result in back pay, penalties, and reputational damage. According to Deloitte, misclassifying workers is one of the top compliance risks for global companies operating internationally.

That’s why startups who want to scale without stepping on landmines often move from contractor setups to formal arrangements using a partner like Penbrothers.

So, Which One’s Right for You?

Here’s a quick side-by-side:

Option	Best For	Pros	Cons
Local Entity	Long-term expansion	Full control, brand presence	Complex, expensive, time-consuming
Partner with Penbrothers	Fast, compliant hiring	Seamless setup, local expertise, payroll support	Less direct control
Use EOR	Global scale, compliance peace of mind	No entity needed, all admin handled	EOR service fees
Contractors	Short-term or project-based work	Fast and flexible	Risk of misclassification, limited engagement

Understand Worker Classification (PH Context)

Hiring someone offshore isn’t just about finding the right skillset.
It’s about classifying them correctly—because getting it wrong can cost you everything. Think: fines, back pay, and even bans from future hiring.

Local vs International Remote Workers

Not all remote workers are the same—especially when it comes to how they get paid.

The key distinction? Local remote workers are in the same country as your business. International remote workers—like those in the Philippines—are not.

That difference impacts everything from payment methods to tax compliance.

Local Remote Workers

• Paid through local payroll systems (e.g., direct deposit, check)
• Taxes are withheld and remitted by the employer
• Benefits and employment protections follow local standards
• Payroll is typically weekly, bi-weekly, or monthly based on national norms

International Remote Workers

• Often paid through global platforms like Wise, Payoneer, or PayPal
• Responsible for handling their own taxes (especially if classified as contractors)
• Payroll frequency can vary—monthly, per milestone, or semi-monthly, depending on local expectations
• FX rates and transfer fees can impact net pay and satisfaction

In the Philippines, it’s standard for full-time employees to be paid semi-monthly.
Paying monthly may work for contractors, but for salaried workers, it’s culturally—and legally—expected to follow local norms.

That’s why Penbrothers manages this for you. We structure payments that are compliant with Philippine labor laws, while also being efficient and transparent for global clients.

The bottom line? When you’re hiring internationally, you’re not just crossing borders—you’re crossing systems. And how you pay reflects how much you respect the people you hire.

Employee vs Contractor

In the Philippines, the line between employee and independent contractor is clearly defined by the Department of Labor and Employment (DOLE) through Department Order No. 174, s. 2017.

Fail to draw that line? You’re inviting penalties, lawsuits, and regulatory headaches.

Here’s how DOLE distinguishes between the two:

Criteria	Employee	Independent Contractor
Control	Employer controls work hours, tools, and how tasks are done	Contractor sets their own hours and methods
Tools & Equipment	Provided by employer	Provided by contractor
Permanence	Usually long-term or indefinite	Often project-based or time-bound
Integration into Business	Core to the company’s operations	Not integral to the business structure
Benefits & Contributions	Entitled to SSS, PhilHealth, Pag-IBIG, 13th month pay	Not entitled to statutory benefits
Tax Responsibility	Withheld and remitted by employer	Handled by contractor (BIR Form 1701, etc.)

DOLE’s “Four-Fold Test” helps determine worker status based on:

1. Selection and engagement
2. Payment of wages
3. Power of dismissal
4. Control of conduct

In short, if you’re managing the what, when, and how—you’re probably dealing with an employee, not a contractor.

What Happens If You Misclassify?

A lot can go wrong. Fast. If the BIR or DOLE determines that a contractor is functioning like an employee, your business may face:

• Government penalties and sanctions
• Mandatory remittance of back pay and benefits
• Legal disputes from current or former workers
• Damage to your employer brand and public trust

You might also risk triggering permanent establishment, which can expose your business to local corporate tax obligations in the Philippines—even without a registered entity.

Why Classification Is Especially Critical for Offshore Teams

Unlike domestic hires where you’re familiar with the legal system, offshore hiring introduces jurisdictional blind spots.

Some founders assume hiring through Upwork or Fiverr means zero legal exposure.
Others treat all freelancers as “safe” to pay ad hoc.

But in the eyes of Philippine regulators, if it walks like an employee and talks like an employee—it is an employee. No matter what you call them on paper. According to Deloitte’s Global Payroll Benchmarking Survey, managing payroll across borders—including issues like payment delays and currency conversion—remains one of the top three challenges for multinational companies expanding offshore.

Payment Frequency: What Filipino Workers Expect

Payment isn’t just about money—it’s about trust, stability, and professionalism.
And in the Philippines, how often you pay is as important as how much you pay.

Before you set a payroll schedule for your offshore team, ask:

• Is this a full-time role or a project-based contract?
• Are they classified as an employee or a contractor?
• What are the cultural norms and legal expectations in the Philippines?

Let’s break this down.

For Full-Time Employees: Semi-Monthly is the Norm (and the Law)

In the Philippines, the Labor Code mandates that employees be paid at least twice a month—usually on the 15th and 30th/31st.
This is known as semi-monthly or bi-monthly pay.

Why does this matter?

Because Filipino workers:

• Budget on a per-cutoff basis (groceries, bills, family needs)
• Associate semi-monthly pay with legitimate employment
• Expect timeliness and consistency from their employers

Delaying salaries or switching to monthly payouts without warning can:

• Shake employee confidence
• Hurt retention
• Damage your employer brand

At Penbrothers, we handle payroll according to local expectations so your team feels secure—and stays engaged.

For Contractors and Freelancers: Flexibility Is Key, But So Is Clarity

Contractors and project-based hires operate under more flexible arrangements.
Here, payment frequency depends on the nature of the engagement:

• Milestone-based: Ideal for design, dev, or content projects. Pay after deliverables.
• Monthly or weekly: Better for long-term contractors with regular workloads.

The golden rule? Set expectations from day one.
Include clear terms in your service agreement, outlining:

• Payment intervals (weekly, milestone-based, end-of-month, etc.)
• Invoice deadlines
• Payment processing methods

Even freelancers value structure—it helps them plan their lives, budget properly, and prioritize your work.

Cultural Nuance: Why This All Matters

In Western markets, monthly payroll is standard.
In the Philippines, frequency signals reliability.

Workers are used to:

• 15th and end-of-month cutoffs
• Regular payout notifications
• Zero delays in processing

Employers who follow this rhythm—especially those offshore—are seen as professional, respectful, and serious about their team.

Those who don’t? Risk looking like side hustles, not long-term partners.

How Penbrothers Gets It Right

We don’t just process payroll. We design it to fit the Filipino context.
Whether you’re onboarding full-time employees or managing contractors, we:

• Align your payment schedule with PH norms
• Handle all required documentation and remittances
• Provide consistent communication and support

The result? A local team that feels supported—even if their employer is half a world away.

How Much to Pay: Wage Expectations in the PH

One reason founders outsource to the Philippines is cost savings. But chasing the lowest possible rate is a strategic error that can backfire quickly.

Yes, the cost of living in the Philippines is lower. You can hire great talent for far less than in the U.S. or Australia. But make no mistake—Filipino professionals know their worth, and the best ones expect to be compensated fairly for the value they deliver.

Lowball offers often result in disengagement, high turnover, and the need to constantly rehire. Instead of saving money, you end up wasting time.

The smarter move? Pay competitively within the local market. Doing so attracts top talent, boosts morale, and builds long-term loyalty. Filipino workers don’t just look at the paycheck—they value companies that offer stability, benefits, and opportunities to grow. These are the employers they stick with.

💡 Pro tip: Pay for value over cheap labor. You’ll get loyalty, output, and long-term ROI.

Not sure where to start? Our Philippine Salary Guide outlines benchmark salaries across different roles and experience levels—so you can make informed compensation decisions that are both fair and strategic.

Tax & Compliance Must-Knows

Hiring offshore is exciting—until tax and compliance come knocking.
Paying international workers, especially in the Philippines, comes with its own set of legal obligations and financial risks. Ignore them, and you risk more than just penalties—you risk losing the trust of your team, and possibly, the ability to do business abroad.

Let’s break down what global companies need to know, especially if you’re based in the U.S. and hiring Filipino talent.

U.S. Employers: Understand the W-8BEN Form

If you’re a U.S.-based company paying an offshore contractor or employee, one of the most important documents you’ll need is the W-8BEN form—Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.

This form is used to:

• Confirm that the individual is a non-U.S. person
• Ensure U.S. taxes are not incorrectly withheld
• Declare that the income is for services rendered outside the U.S.

The worker must fill it out completely—name, address, date of birth, country of residence, and tax ID (if applicable).

This form protects both parties: it shows the IRS that you’re in compliance, and it assures the contractor they won’t be subject to double taxation. Here’s a quick guide to the W-8BEN form for offshore workers.

Filipino Contractors: Local Tax Obligations

Once you start paying someone in the Philippines, you’re entering BIR (Bureau of Internal Revenue) territory.
And even if you’re not legally registered there, your contractors are.

Here’s what Filipino independent contractors are legally required to do:

• Register as self-employed with the BIR
• File annual income taxes using Form 1701
• Issue official receipts for services rendered
• Pay quarterly tax dues, including percentage tax or VAT, depending on income level

Many overseas companies are surprised to learn that official receipts (not invoices) are required in the Philippines for tax-deductible services. Without them, expenses may be considered non-compliant by local standards.

Permanent Establishment Risk: What Most Founders Miss

Here’s the kicker:
Even if you’re not operating a formal business in the Philippines, you can still be taxed there if the government believes you have a permanent establishment (PE).

This can happen when:

• You hire a full-time worker who only works for your company
• You control their hours, tasks, and outputs like a traditional employee
• You make payments regularly without going through a legal employer or agent

If flagged, your business may be liable for:

• Local corporate income tax
• Penalties for non-registration
• Payroll tax and benefit contributions

That’s why misclassifying contractors as employees—and vice versa—isn’t just a paperwork issue. It’s a financial and legal risk.

The Penbrothers Solution: Compliance, Covered

Managing international tax and labor compliance on your own is risky, especially without local expertise.
At Penbrothers, we absorb the complexity so you don’t have to.

Here’s how we help:

• We act as Employer of Record (EOR)—legally employing your talent in the Philippines
• We handle tax remittances, government contributions, and payroll on your behalf
• We ensure contractor relationships are properly classified and guided by DOLE regulations
• We mitigate your permanent establishment risk by structuring employment through our registered local entity

When you work with Penbrothers, you’re not just outsourcing payroll—you’re outsourcing risk, compliance, and hours of admin you never wanted in the first place.

Should You Handle Payroll In-House or Use a Partner?

Hiring offshore talent is one thing—paying them legally, on time, and in full compliance is something else entirely.
At some point, every founder or HR lead expanding into the Philippines faces this question:

Do we build payroll internally, or do we partner with a local expert?

Let’s unpack what’s really involved in each option—because how you pay is just as critical as who you hire.

Benefits of In-House Payroll

Managing international payroll in-house gives you direct control over how your global team is compensated.
You can tailor pay schedules, policies, and processes to match internal systems and cash flow.

In-house payroll may be right for you if:

• You have an internal legal, finance, and HR team with international experience
• You already operate entities in the countries where you’re hiring
• You want full visibility and control over every part of the payroll cycle

Advantages:

• Customize pay cycles and methods
• Internal control over data, processes, and reporting
• Flexibility to shift payroll policies as you grow

However, it comes with major challenges—especially in countries like the Philippines:

• You’ll need to navigate BIR tax codes, DOLE labor laws, and mandatory government contributions (SSS, Pag-IBIG, PhilHealth)
• You must stay updated on compliance regulations that frequently change
• You risk misclassifying workers, triggering penalties or permanent establishment

What starts as “control” can quickly turn into complexity, cost, and compliance risk.

Benefits of Using a Partner Like Penbrothers

This is where a local payroll partner—or more specifically, an Employer of Record (EOR)—makes a real difference.

Penbrothers acts as the legal employer for your Filipino talent, handling:

• Payroll processing in PHP or USD
• Compliance with tax, labor, and statutory benefit requirements
• Worker classification aligned with DOLE and BIR standards
• Onboarding, contract issuance, and government reporting

What does that mean for you?

• You get to focus on managing performance, culture, and growth
• We take care of the local legalities, filings, and pay cycles—end to end

Advantages of Penbrothers as your payroll partner:

• Built-in compliance: No need to interpret labor codes or tax laws yourself
• Zero misclassification risk: We vet all worker arrangements through DOLE standards
• Predictable pricing: Flat fees, no surprise penalties or audit headaches
• Faster onboarding: Get your hires working in days—not months

Whether you’re scaling fast or hiring one key role, we make sure your team is paid accurately, legally, and on time—without the friction of running it all yourself.

Side-by-Side Comparison

Feature	In-House Payroll	Penbrothers EOR/Payroll Service
Control	Full control	Full compliance
Cost	Higher in the long run (staff, legal, tech)	Predictable and scalable
Expertise Needed	Must manage local tax, labor, and benefits	Built-in Philippine HR and legal expertise
Compliance Risk	High, especially with misclassification or PE	Zero misclassification risk
Admin Load	Time-consuming and complex	Fully managed by Penbrothers

If you’re building an offshore team in the Philippines, don’t let payroll slow you down or trip you up. Yes, you can run it in-house. But should you?

We’ve helped hundreds of global companies hire and pay top-tier Filipino talent—without them lifting a finger on tax, payroll, or compliance.

From onboarding to payout, we make payroll invisible—in the best way possible.

Final Thoughts

Global hiring is no longer optional—it’s a growth strategy.
But if your payment systems aren’t built for offshore operations, you’re walking a compliance tightrope.

Here’s what we’ve learned at Penbrothers:

• Paying offshore teams is about more than tools—it’s about legal protection, cultural alignment, and cost efficiency.
• Misclassifying talent can derail your global plans.
• The right payroll partner doesn’t just make payments—they make growth frictionless.

Whether you’re scaling fast or just testing the waters—Penbrothers helps you hire, manage, and pay your Filipino team legally, seamlessly, and at scale.

Ready to make offshore hiring easy and compliant?

Talk to us today and let’s build something global together.