Dollars vs. Pesos: How Currency Choices Affect Your Team

Welcome to the Secret Sauce of Outsourcing podcast that's dedicated to making you better at outsourcing to the Philippines. This is episode 429. Should you pay in Filipino pesos or in your currency? So I'm going to go into a kind of a deep dive into currencies today and talk about how to pay. And because we've had some interesting experiences recently and I want to cover it, I think it's important. So let me start with some, like, some background information here just to set the stage. So when you pay your people, no matter what happens, they're going to receive their money in Filipino pesos. They're going to get their money into their Filipino peso bank account in the Philippines. They most likely only have an account in the Philippines. They're unlikely to have a US Dollar bank account or a bank account in the US Or Australian bank account. They're unlikely to have any of that stuff. It's possible. It's just unlikely. So what they are likely to have is an account in the Philippines at their local bank, and it could be a national bank. BDO is a common one. Or there's like 10 banks that are really, really prevalent in the Philippines. So you're going to pay them. No matter how you pay them, it's going to get converted into Filipino pesos and it's going to show up in their bank account in Filipino pesos. So here's the question that we had recently with our team. We asked them, and this came from them asking us to ask them, would you like to be paid in US Dollars or in Filipino pesos? Meaning we can set your salary at US$900 per month, or we can set it at 40,000 Filipino pesos per month. I don't actually know the conversion number there. That's probably totally wrong. But we can set it at either one you want. We set it at US dollars. You're gonna receive US$900 per month. Or we set it at 40,000 Filipino pesos. You're gonna receive 40,000 Filipino pesos per month. Here's the difference. If we set it in Filipino pesos, they're going to. We're going to send the appropriate amount of US dollars. So they receive 40,000 Filipino pesos every month. There's no fluctuation for them. There's fluctuation for us. If we set it in US dollars, if we say we're going to pay you US$9,900 per month, the amount they receive is going to fluctuate according to the exchange Rate. Now, here's why this is relevant. When I first started hiring people in 2005, the Exchan 50 Filipino pesos to one US dollar within a couple months. Within a year, it went to 38 Filipino pesos to one US dollar. And I had no idea. I wasn't paying attention. I didn't really know. I didn't know anything about it. And one day one of my team members says, hey, sir, I have a problem. The exchange rate is 38 to 1. And so I've lost over 20% of my salary in the last year because of the exchange rate fluctuation. The US Dollar was super weak at the time. And so I was still sending him US$500 or whatever it was at the time. I think it was about US$500. And he was now receiving only the equivalent of US$400 because the exchange rate had changed so much. Today when I set a salary at $900 or $1000 and the exchange rate years ago went back up to 50, and then the US dollar got really, really strong over the last five years and it went from 50 to 55 and it went to 58 even. And it's been 58 for a couple years now. And so people in the Philippines who are getting US Dollars, you're. I'm going to change my salary calculations because it's way easier if I, if I set your salary to $1,000 a month. He was getting initially 50,000 pesos. At $1,000, 50. 50 to 1 is 50,000 pesos. When it went to 38 to 1, he was only getting 38,000 pesos. That's a really big difference. When it goes back up to 50, he's getting 50,000 pesos. Again, I'm still paying $1,000. Well, when it goes to 58 and I'm paying $1,000 now, he' which is, oh, 10%. It's like a, like a 18% increase, a 17% increase, something like that. Without, without any change from me. It's been really awesome for people in the Philippines to have it at 58. But recently the dollar weakened a little bit and it went to 56. So here's the sequence of events that happened and why I'm talking about this. So we sent an email saying, what do you guys want? Do you want to get paid in US Dollars? You want to get paid in Filipino pesos? Everybody responded, said, I want to get paid in US Do. And that's probably because the dollar is so strong they're getting more money, right? So they're getting 58 Filipino pesos for every dollar we send them. But it's been that way for a couple years now, even though historically 50 to 1 was the benchmark. So they've been really happy for the last couple years. As soon as it went down to 56, which happened in September, I think we got an email from one of my people in the Philippines that said, hey, is that offer still on the table? Can you set my salary in Filipino pesos? And then the question was, what do we set it at? Do we set it at 56? Do we set it at 58? Do we set it at 50? Was the question. And, you know, they're trying to play the currency exchange game, which I get. It totally makes sense. You take a 20% cut or a 20% raise, and that that's a really big deal, especially when it's based on currency fluctuation. Okay, so here's a little bit more of this discussion for you. If you're going to send their set their salary in Filipino pesos, it just means that every month you have to do a slight calculation, or if you're using EasyPay OnlineJobs ph EasyPay, then you don't have to do a calculation. It's just going to change how much you pay, how much you're required to pay them every month. So at EasyPay, you can say, oh, send 40,000 pesos. It'll automatically tell you how much you're paying them and it'll take that out of your bank account. Same thing with US Dollars at Easy Pay. If you say, oh, I'm going to send you this many pesos or I'm going to send you this many US dollars, I'm going to set your salary at 1,000 US dollars a month. Well, I just go in and say, I'm going to send you US$1,000. It's going to take a thousand US dollars out of your account. Now, one way is good for. There's not one way that's good for you or for them. Just depends on which way the currency fluctuates. One way is easier for you and, and one way is easier for them, especially if you're going to use PayPal to pay or if you're going to use Wise to pay or something else. Where now you have to do a calculation so that you know how much money they're going to get, and that's the difference. One way you're just knowing you're setting the salary in your currency. You don't have to do any calculation, you send that currency the other way. You have to do a calculation based off of how much money are they going to get. Now I need to figure out how much of my currency to send, so. So in the end, there's not an answer to what to do here. I'm not trying to tell you one way is correct or the other way isn't. Most of my team has chosen to stick with US dollars. One person is now exploring the option of setting it Filipino pesos. And he's like kind of trying to do risk management of is the US dollar going to get worse? Because he knows if he sets it in Filipino pesos at the current rate 56 and it goes back up to 58, well, then he's losing. He's leaving money on the table. On the other hand, if he sets it at 56 and it goes down to 50, well, then he's making quite a bit more and he locked in at that higher rate. Right. So the point of all this is you should probably just discuss this with the people on your team and see what they think, see what they want to do. The other point here is you should probably pay attention to the exchange rate at least occasionally. Or ask your team members, your staff, your ofs to tell you when it changes. Because they're paying attention to it. I guarantee you they're paying attention to it. I don't pay attention to it very often, but I hear about it when it changes. A last part of this, since we're talking about money, is inflation has been rampant in the Philippines the last couple years. Significantly more, I think, than in the US, where US's inflation was quite a bit inflation in the Philippines, really high. And I'll have an upcoming podcast talking about that because unfortunately, wages have gone down. Like purchasing power in the Philippines has gone down quite a bit with inflation. And it's just something you should be aware of. So I'll talk about that in an upcoming episode.