Offshore hiring can reduce employment costs, but lower labor costs should not mean lower employment standards. The important question is whether companies are paying workers fairly for their skills and responsibilities while meeting the employment obligations of the country where they work.

For US and international companies hiring in the Philippines, evaluating offshore compensation requires more than comparing salaries. Employers must consider local salary benchmarks, statutory benefits, working schedules, payroll obligations, and the responsibilities of the legal employer.

The distinction between cost efficiency and exploitation comes down to how these factors are managed.

When Does Offshore Compensation Become Exploitative?

Hiring internationally because of lower operating costs is not inherently unethical. It becomes problematic when employers use differences in labor markets to justify unfair compensation or avoid employment responsibilities.

Common warning signs include:

• Below-market compensation: Salaries are based primarily on the lowest available offer rather than the employee's qualifications, experience, and responsibilities.
• Unclear benefits: Employees are not informed about statutory entitlements, company benefits, or conditions attached to compensation.
• Unpaid employment obligations: Applicable holiday pay, overtime, night-shift differential, or mandatory contributions are overlooked.
• Misleading agreements: Salary, working hours, deductions, and employment responsibilities are not clearly documented.

A critical distinction is that meeting minimum wage requirements does not automatically make compensation competitive. A specialized developer, accountant, or operations manager should have compensation evaluated against the actual demands of their position.

How Should Employers Determine Fair Offshore Pay?

A responsible compensation assessment should consider four areas.

1. Role-specific salary benchmarks

Compare the proposed salary with similar positions in the Philippines. Account for technical specialization, years of experience, qualifications, and management responsibilities. Comparing a senior professional with an entry-level position simply because both have the same job title produces an unreliable benchmark.

2. Applicable regional minimum wages

Philippine minimum wages vary by region, industry, and applicable wage classification. (source) Employers should consult the National Wages and Productivity Commission (NWPC) and the relevant Regional Tripartite Wages and Productivity Board rather than relying on outdated salary articles.

Reference: NWPC – Official Regional Wage Rates.

3. Total employment compensation

Calculate more than the basic monthly salary. Include applicable statutory benefits, government contributions, paid leave, and additional company benefits. This gives employers a more realistic view of the cost of employing someone in the Philippines.

4. Written compensation terms

Document the agreed salary, benefits, working schedule, applicable allowances, and conditions that affect pay. Employees should understand these terms before starting work.

What Philippine Employment Obligations Affect Offshore Payroll?

International employers sometimes calculate staffing costs using base salary alone. This can create budgeting problems when local employment requirements are not included.

Three important considerations are:

Holiday pay: Under Article 94 of the Philippine Labor Code, covered employees generally receive their regular daily wage for regular holidays, even when they do not work, subject to applicable rules and exceptions. (source) Employees required to work on a regular holiday generally receive 200% of their regular wage for the first eight hours.

Night-shift differential: Under Article 86, covered employees are entitled to at least an additional 10% of their regular wage for every hour worked between 10 p.m. and 6 a.m.

13th-month pay: Under Presidential Decree No. 851 and its implementing rules, covered rank-and-file employees who have worked for at least one month during the calendar year are entitled to 13th-month pay, generally calculated as one-twelfth of their total basic salary earned during that year. (source)

These obligations should be considered when preparing employment budgets and agreeing on client pricing.

Official references:

• DOLE – Labor Code, Book III
• NWPC – Workers' Statutory Monetary Benefits Handbook

How Does Montani Manage Offshore Employment and Payroll?

In Montani's employment model, the client and Montani have distinct responsibilities for compensation approval, employment administration, and salary disbursement.

The process works as follows:

1. Compensation approval: The client approves the compensation allocated to the position.
2. Employment administration: Montani serves as the legal employer under the agreed employment arrangement.
3. Monthly billing: The client receives an invoice based on the agreed commercial terms.
4. Salary disbursement: Montani payroll sends the employee's salary directly to their bank account.

This arrangement makes the division of responsibilities clearer. The client approves the agreed compensation, while Montani handles the employment and payroll process.

However, a structured payroll arrangement is only one part of responsible offshore staffing. It does not automatically establish that compensation is fair. Salary levels, employee entitlements, and working conditions must still be evaluated independently.

Knowing who approves compensation and who administers employment helps employers budget accurately.

A Practical Checklist for Reviewing Offshore Compensation

Before approving a Philippine-based position, employers should verify:

• Salary benchmarks for the employee's actual role and experience.
• Applicable regional minimum wage requirements.
• Statutory benefits and mandatory government contributions.
• Company-provided and client-specific benefits.
• Holiday, overtime, and night-shift compensation.
• Written employment and compensation agreements.
• Clear responsibilities for employment administration and payroll.