Contractor or employee? Hiring in the Philippines legally from New Zealand or Australia

You can lawfully work with a genuine freelancer in the Philippines from New Zealand or Australia. The risk starts when the arrangement runs like a job, with set hours, your systems and your direction, because Philippine law decides whether someone is an employee by how the work actually runs, not by what the contract calls them. This guide turns that test into a checklist you can run on your own arrangement, sets out your options if it fails, and lists the questions to take to your accountant.

What are your options for engaging someone in the Philippines?

There are four common routes, and each suits a different situation.

• A genuine freelancer or contractor. Right for project work with a defined result, where the person sets their own hours, uses their own tools and usually has other clients. It is quick to set up, directly or through a marketplace such as Upwork.
• Your own Philippine entity. You register a local company and employ people yourself, taking on payroll, government contributions, statutory benefits and local filings. It tends to pay off once you have a sizeable team there; take local advice on setup and running costs first.
• An employer of record. A Philippine company becomes the person's legal employer: it holds the employment contract, runs payroll and contributions and provides statutory benefits, while you direct the day-to-day work and pay it a fee. It suits one or a handful of full-time people when you do not want a company of your own.
• An outsourcing provider. The provider employs and manages the staff and sells you a service. You get less say over who does the work and how.

Most of the legal risk sits with the first route, because many "contractor" arrangements are full-time roles in everything but name.

How do Philippine courts decide whether a contractor is an employee?

The Supreme Court applies a two-tiered test. The first tier is the four-fold test, which asks whether the business:

1. selected and engaged the person;
2. pays their wages;
3. has the power to dismiss them; and
4. has the power to control how the work is done, not just the end result.

Control matters most. In Mendaros v Lazada E-Services Philippines (G.R. No. 257821), a decision about delivery riders, the Court called control the most essential factor and said the business only needs the right to control the work, whether or not it uses it. Rules that are only general guidelines for getting the work done do not count as control. Where control does not settle the question, the second tier asks whether the worker depends on the business for their continued work in that line, which the Court calls economic dependence. The riders had signed independent contractor agreements. The Court still declared them regular employees who had been illegally dismissed.

Does your arrangement pass? A checklist to run on your own contractor

Answer each question about how the work runs today, not what the contract says. A "yes" points towards employment.

Control: how the work is done

• Do you set their working hours, or expect them online at set times?
• Do you hand out tasks day to day, rather than agreeing a defined piece of work and a deadline?
• Do you tell them how to do the work (the process, tools or templates), not just what result you need?
• Do you review their work as it goes, set targets or hold performance conversations?
• Do they work in your systems, with a company email address, logins or equipment you provide?
• Do they need your approval to take a day off?
• Do they attend your team meetings, or appear to your customers as part of your team?

Selection and engagement

• Did you interview and choose them yourself, for an ongoing role rather than a project?
• Must they do the work personally, with no right to send someone else?
• Is the arrangement open-ended, with no defined scope or end date?

Payment

• Do you pay a fixed amount each month, whatever they deliver?
• Do you pay them for days off, or cover costs such as their internet or power?

Ending it

• Could you end it at will, for performance or conduct, the way you would dismiss an employee?

Economic dependence

• Do they work only for you, full-time, month after month?
• Would losing your work mean losing their livelihood in that line of work?

Signs that point the other way

• They have other active clients and market their services.
• They set their own hours and methods and are paid per project or deliverable.
• They use their own equipment and software and carry their own costs.
• They invoice you and are registered with the Bureau of Internal Revenue as self-employed.

How to read your answers

There is no score. Control carries the most weight, so if you answered yes to most of the control questions, assume a court or labour tribunal could treat the arrangement as employment, whatever the contract says. Yes answers in the other groups add to that. A few signs pointing the other way do not cancel out daily direction of a full-time role.

What happens if a contractor turns out to be an employee?

If the relationship is found to be employment, the protections of the Labor Code and related laws apply. That can lead to claims for:

• 13th-month pay, which rank-and-file employees are owed each year under Presidential Decree No. 851;
• government contributions that were never paid to SSS (Republic Act No. 11199), PhilHealth (Republic Act No. 11223) and Pag-IBIG (Republic Act No. 9679);
• statutory leave and other labour standards; and
• security of tenure: a regular employee can only be dismissed for a cause the law recognises, with due process. Ending a "contract" can be treated as an illegal dismissal, with reinstatement and back wages, as it was for the riders.

Engaging the person through a local agency that is really just supplying labour does not shield you. The labour department's rules on contracting (Department Order No. 174-17) prohibit labour-only contracting, and the business receiving the work can be held solidarily liable with the contractor, meaning the worker can claim the whole amount from either.

How a claim would be pursued against a business with no Philippine presence is a question for a Philippine lawyer. The cost is not only legal, though. Someone paid as a contractor may have no employer contributions, no 13th-month pay and no protection if the work stops, which is a weak footing for keeping a good person.

What can you do if your contractor fails the test?

There are four realistic options. Which is right depends on whether you still need the role and how many people you have in the Philippines.

1. Make it a genuine contract, if the work allows it. Some roles really can run as projects: agreed deliverables, a fixed price, the person's own hours and tools, and freedom to work for others. If that is how you are prepared to work, change the arrangement in practice, not only in the paperwork. If you still need someone in your systems during your hours, this option is not open to you.
2. Employ them through your own Philippine entity. This gives you full control, but you register a company, register as an employer with SSS, PhilHealth and Pag-IBIG, and run payroll, contributions, 13th-month pay and filings every month. It usually only pays off with a larger team.
3. Employ them through an employer of record. The provider becomes the legal employer and runs the employment; you keep directing the work and pay a fee. Check that the provider's Philippine employer is a registered local company and not just a name on a contract (the ConnectOS case below shows why), and compare what each quote includes with this checklist for comparing offshore hiring quotes.
4. End the arrangement. If you no longer need the role, end it fairly, with real notice and everything owed settled. If the relationship could be employment, ending it can be challenged as an illegal dismissal, so take advice from a Philippine employment lawyer first.

If you keep the person, the move to employment can happen without a break: the employment contract starts the day after the contractor agreement ends, on the same work. Set the salary knowing they will now have their own share of contributions and income tax deducted, so their take-home pay does not drop by surprise. The move does not settle the period before it. If you are worried about past contributions, 13th-month pay or leave, ask a Philippine lawyer how to deal with it.

Does New Zealand or Australian tax apply when the work is done in the Philippines?

Check the details for your business, but here is what the official guidance says.

New Zealand. Inland Revenue says a contractor who provides their services from outside New Zealand and has no presence here is not a non-resident contractor for New Zealand tax purposes, so the non-resident contractors' tax rules do not apply to them. If your New Zealand business employs someone in the Philippines directly, check with your accountant what that means for PAYE and your other employer obligations.

Australia. The ATO says whether you must withhold from a payment to a foreign resident employee working outside Australia depends on the employee's individual circumstances. For super, section 27 of the Superannuation Guarantee (Administration) Act 1992 excludes salary or wages paid to a non-resident employee for work done outside Australia.

Neither country's employee-or-contractor test is the one Philippine labour law applies. An arrangement your accountant is comfortable with at home can still be employment in the Philippines.

What have Australia's Fair Work rulings said about offshore staff?

The case most worth knowing is Pascua v Doessel Group. A paralegal worked from her home in Manila for a Brisbane business, on an independent contractor agreement, at a rate below the Australian minimum wage. When the business ended the arrangement by email, she took an unfair dismissal claim to the Fair Work Commission.

The business argued she was a contractor outside Australia's system. The Commission disagreed: the contractor label did not reflect how the work really ran, and she was not running a business of her own (ABC News). On appeal, the Full Bench upheld that finding and said nothing prevents an Australian employer engaging an employee to work overseas, while noting the Act has territorial limits. In 2025 her dismissal was found harsh, unjust and unreasonable, and she was awarded $10,800, reported as about 15 weeks' pay. How far the Act reaches overseas work in general was left undecided.

A short follow-up: in ConnectOS ([2026] FWC 3379), an outsourcing provider argued that its Philippine "regional headquarters" employed a worker serving Chemist Warehouse businesses. The President of the Commission was not satisfied it was separate from an Australian company. The claim failed only because the worker was engaged in the Philippines to work there, and the President said he would have preferred a broader reading of the Act.

The lessons: a contract label will not protect you, who the real legal employer is matters, and the law on how far the Fair Work Act reaches is still moving.

Could someone working for you create a taxable presence in the Philippines?

This is the permanent establishment question. Under the tax treaties between the Philippines and New Zealand and Australia, as published by the Bureau of Internal Revenue, a permanent establishment is a fixed place of business through which your business is carried on, such as an office. A person who habitually concludes contracts on your behalf in the Philippines can also create one, and both treaties have rules about furnishing services there over a period of months. Where there is a permanent establishment, the Philippines can tax the profits that belong to it.

Whether one person working from home for you creates a permanent establishment depends on the facts. It helps to know which activities the treaties point to, such as an office or someone signing contracts in your name, when you decide what a role there will do.

What should you ask your accountant?

Take these to your accountant with a short description of the role, the hours and how you pay the person. The answers depend on your facts.

New Zealand

• If we engage this person directly, are the payments contractor payments or salary and wages for our tax purposes, and do we have PAYE or other employer obligations in New Zealand for someone who lives and works in the Philippines?
• Is the cost deductible, and how should we record payments made in pesos or US dollars?
• Does GST on imported services (the reverse charge) apply to us?
• Could anything this person does, such as negotiating or signing contracts, create a permanent establishment in the Philippines under the tax treaty?
• If we use an employer of record instead, how is its fee treated for income tax and GST?

Australia

• Do we need to withhold PAYG from payments to this person, given the ATO says it depends on a foreign resident employee's circumstances?
• Does the superannuation guarantee exclusion for non-resident employees working outside Australia apply here?
• Does state payroll tax apply to anything we pay them?
• Does GST on imported services (the reverse charge) apply to us?
• Could their work create a permanent establishment in the Philippines under the tax treaty?
• If we use an employer of record, how is its fee treated for income tax and GST?

Two questions belong with a lawyer rather than an accountant: whether the person could be your employee under Philippine law, and, for Australian businesses, whether the Fair Work Act could reach the arrangement.

Ramp Remote is a New Zealand business with its own registered company in the Philippines, which is the legal employer of every person we place, so an employer of record is one of the options above that we provide. If that is the route you are weighing, talk to us about your situation.

Last checked 17 October 2026. This guide is general information, not legal or tax advice. Check your situation with a Philippine employment lawyer and your accountant.