John Jonas explains why Online Filipino Specialists hired by US employers without a Philippine company should be classified as independent contractors, not employees. US tax forms like W-2s don't apply. Philippine law treats them as self-employed, with voluntary social contributions unless there's a local employer entity.
Questions this video answers
Episode 199
No — the host says they must be treated as independent contractors unless the employer has a legal entity in the Philippines.
Chapters
Welcome to the Secret Sauce of Outsourcing podcast that's dedicated to making you better at outsourcing to the Philippines. This is episode 199. Is your OFS an employee or an independent contractor? So I talked about this in a recent podcast episode a little bit, but I get asked this question a lot. So here's an email that I got from Karen recently that I wanted to share. So she says, my business partner is concerned about hiring an OFS directly instead of using an agency out of concerns that this is going to be classification as employee versus independent contractor. Is there a service that we can use as the main employer instead of hiring someone as an employee? So we don't offer that service. But here is what I can tell you. The Philippines doesn't have a treaty with the United States to make this person an employee, which is what it would require really to make them an employee is they have to have a treaty with a country to country treaty where they say, oh, if the person is like this and like this and like this, then they're an employee. I've talked with five or six different accountants or attorneys over the years about, hey, what's the situation with this person? Every single one of them has said, this is an independent contractor. There's nothing we can do to make this person an employee. Then I've had thousands of employers come to me and say, hey, I think this person's an employee. And I'm gonna go talk to my accountant about it. Like, great, that's awesome. Please talk to your accountant about it. Please talk to your attorney about it. I've never once had one of them come back to me and said, see, this is an employee. They're an independent contractor. So I don't know what you would do to make them an employee. You can't submit a W2, they don't have a US tax ID number. You can't even submit a 1099 for them because there's no responsibility for them with the US government. They don't have any sort of tax ID number with the US government. And I cover this for you at onlinejobs.ph taxes, how we handle it next on the Philippines side. So you, you can't make this person an employee unless you have a legal entity in the Philippines, which you probably don't. I don't have a legal entity in the Philippines, which means there's no way for you to consider this person an employee. In fact, according to the Philippines, legally, you cannot consider them an employee. They are. They have to be considered an independent contractor. They pay taxes as an independent contractor. That's how they're required to pay their taxes if they work for a foreign employer like this. So even if you offer them benefits like SSS or philhealth or poggibig or whatever it is, those contributions are required by required to be voluntary contributions. They're not coming from an employer, they're not an employee. So they have to be independent contractor, voluntary contribution. So if you've been putting off hiring someone because you're worried that it's going to change your status or that you're going to have an employee, you're going to have employee laws to deal with, that's not the case. Hiring an OFS in the Philippines. They are an independent contractor every time unless you have a legal entity in the Philippines, which I would say that 99.9% of our customers do not have a legal entity in the Philippines. So they're an independent contractor. Just hire someone. Hire someone. See see how it goes. See, see what happens when you hire them and see how they feel about you and and see how it change.
