The Philippines has spent three decades employing Filipinos on behalf of American companies. Payroll, benefits, compliance, night shifts, all of it handled locally so a business in the US never had to think about it.
Hiring an American puts your company on the other side of that arrangement for the first time.
Someone you hire in the US needs a US payroll that withholds federal and state tax correctly, health insurance that meets what Americans expect, and a W-2 in January. Your payroll in Manila cannot produce any of it, and the IRS does not treat a Philippine parent as a reason to skip the requirement.
The question worth settling early is whether you need a US company to do this. For most Philippine businesses making their first American hire, the answer is no.
Do You Actually Need a US Company?
Two separate things get bundled together, and they should not be.
Incorporating in the US gives you a legal presence: a Delaware entity, a bank account, a balance sheet in dollars. It makes sense when you are committing to the market long term.
Employing an American gives you a person on payroll. That does not require a US company at all, and treating it as though it does adds months and cost to a decision that could take days.
Philippine companies often reach for incorporation first, partly out of habit and partly because a US entity feels like proof of seriousness to American clients. It is worth separating the two questions. A US corporation impresses nobody if it takes four months to stand up and your competitor already hired the salesperson you wanted.
What the BSP Expects When You Fund a US Entity
If you do incorporate, moving capital out of the Philippines runs through the foreign exchange rules in the BSP's FX Manual, and the news here is better than most people assume.
Residents may purchase foreign exchange from authorized agent banks for outward investments up to USD 60 million per investor per year without prior BSP approval. For a company funding a small US subsidiary, that ceiling is not a constraint. It is a number you will never approach.
Registering the outward investment with the BSP is generally optional. It becomes relevant when you expect to repatriate capital or remit earnings back to the Philippines using foreign exchange bought from the banking system, since unregistered investments lose access to that channel.
Your real friction sits with the bank rather than the regulator. Authorized agent banks ask for the subscription documents, board resolutions authorizing the investment, incorporation papers for the US entity, and beneficiary details before releasing funds. Coordinating with your bank early is what prevents a two-week delay at the moment you actually need the money to land.
This is materially lighter than what neighbors face. A company hiring US employees from India works through a full overseas investment framework with annual reporting obligations that continue for the life of the entity. Philippine rules ask for documentation at the point of transfer and little after.
None of it applies if you use an Employer of Record. Paying for employment services is a current account transaction, not an outward investment, so the FX Manual provisions on investments do not come into play. Confirm your position with your bank or corporate counsel, since the rules are detailed and specific facts matter.
Employing the American: Your Three Options
Hiring Through an Employer of Record
An Employer of Record is a US company that employs your hire for you. It runs their payroll, withholds federal and state taxes, files with the IRS and the state, enrolls them in health cover and other benefits, and holds the legal employment relationship. Your managers direct their work exactly as they would anyone in Manila.
You pay salary, employer-side taxes, and a per-employee fee. No incorporation, no capital transfer, no state registrations in your company's name.
This fits a business hiring one to fifteen Americans that wants them working within days. It fits less well once twenty or more people sit in a single state, and the US has become permanent, since at that scale the fee starts losing to your own entity.
The trade is distance. The EOR holds the employment contract, so terminations, contract changes, and unusual benefits requests route through them.
Incorporating in the US
You register a US company, usually a Delaware LLC or C-corp, obtain an Employer Identification Number, open US banking, register as an employer in every state where somebody lives, build payroll, and appoint a US accountant.
The incorporation is the cheap, fast part that everyone quotes. A Delaware LLC files in about a day, and the EIN issues quickly for under $100. Everything downstream is where the cost sits: state-by-state employer registration, multi-state payroll, federal and state filings, and US benefits administration. Realistic all-in setup runs $5,000 to $40,000 depending on how many states you touch, plus the bank documentation above, plus obligations that continue indefinitely.
Worth doing when the US is a committed market and headcount in one state is climbing past ten or fifteen. If your finance team already handles payroll in more than one country, the mechanics will feel familiar.
One thing to rule out early: a US PEO cannot help you here. PEOs work on co-employment and assume you already own the US entity. With no US company, a PEO has nothing to co-employ alongside. An EOR does the whole job.
Engaging a Contractor
A contractor arrangement is fast and cheap, and legitimate when the relationship genuinely is contracting: their own hours, their own equipment, other clients, invoices for deliverables, their own tax. You collect a Form W-9, pay invoices, and issue a 1099 at year-end.
It stops working when the person is a full-time employee in everything but name: exclusive to you, on your schedule, using your systems, reporting to your manager. The IRS applies one test, individual states apply others, and California's ABC test treats most full-time workers as employees, whatever the paperwork says. Misclassification brings back taxes, unpaid overtime, penalties, and the employer contributions you skipped.
Philippine employers sometimes read US classification rules as looser than the four-fold control test at home. The tests differ, the enforcement is real, and a foreign parent gets no leniency.
One Country, Fifty Rulebooks
Employment in the US is regulated at the state level as well as federal, which catches Philippine companies out because Philippine labor law is national. The Labor Code applies in Cebu the same way it applies in Makati.
The US does not work that way. Your account executive in Austin sits under different tax, wage, and leave rules than your engineer in Seattle. A third hire in New York means three employer registrations, three state tax regimes, three unemployment insurance accounts, and in some states a separate paid-family-leave contribution.
Incorporating does not fix this. A Delaware entity makes you a US employer; it does not register you in the states where your people live. You file in each one either way.
The consequence for a small US team: five people in five states is five sets of obligations, which is a disproportionate amount of administration for a headcount you could manage on one spreadsheet.
What It Costs Next to a Philippine Payroll
The employer-side numbers will look low.
US employer contributions run to FICA at 7.65% of wages, made up of 6.2% Social Security up to the annual wage cap and 1.45% Medicare, with federal unemployment adding a small amount per head. State unemployment insurance and workers' compensation sit on top and vary by state and by role.
Set that against a Manila payroll carrying SSS, PhilHealth, and Pag-IBIG contributions plus mandatory 13th month pay by 24 December, and the US statutory burden is genuinely lighter.
Health insurance is where it changes. There is no national system funded by employer contributions and no PhilHealth equivalent. American candidates in professional roles expect employer-sponsored medical cover as a baseline, and for a small team it can be the largest line after salary. An EOR gives you access to group rates that a Philippine company with three US employees could not negotiate alone.
Salaries themselves are the bigger adjustment. A US sales hire costs a multiple of the equivalent role in Manila, and no structural cleverness changes that. It helps to compare what a hire costs across countries before you fix the role's location, since the same job can sit in several places.
If you use an EOR, add the fee. Ours is $579 per employee per month, flat, with no deposit and no pre-funding. Some providers hold a deposit worth a month of salary or charge a percentage of payroll, so ask for the full structure rather than the headline rate.
The Shift Nobody Has to Work
Manila sits at UTC+8, which puts you twelve to thirteen hours from New York and fifteen to sixteen from the West Coast. On paper, that is the same awkward gap the BPO industry has lived with since the nineties.
In practice, something changes. For thirty years,s the overlap problem has been solved by Filipinos working nights so American clients could work days. Hiring an American reverses it. Your US employee works their own business hours, and the question becomes how much of your Manila team's day needs to touch theirs.
For a US-facing sales or account role, often very little. They work American hours with American customers and sync with Manila in a narrow window. That is a lighter arrangement than what your organization is already running, and it is worth saying out loud, since teams sometimes plan for a coordination problem that does not exist.
Where it does bite is anything requiring daily collaboration, product and engineering in particular. Companies hiring into the US from elsewhere in Asia hit the same wall, and the answer is the same: decide the working pattern before the offer, not after.
Where US Employment Will Feel Wrong
At-will employment. Most US states let either side end the relationship at any time, with no statutory notice and no severance. After Philippine security of tenure, where dismissal needs just or authorized cause plus the two-notice process, and separation pay follows authorized causes, this reads as an absence of law rather than flexibility. Notice is something you put in the contract, or you do not have it.
No 13th month pay. There is no US equivalent, statutory or customary. What you save there goes into health insurance and often a 401(k) match, so the total does not fall as much as the missing line suggests.
No regularization. There is no six-month probationary period converting into permanent status with protections attached. US employment starts and continues at will from day one, and "probation" in a US offer letter is a management convention rather than a legal category.
A US salesperson can create a tax question. If someone in the US is concluding contracts for your company, that can create a taxable presence there, separate from anything to do with employment. Worth raising with your tax adviser before the first large contract, not after.
How Most Companies Phase This
Start on an EOR for the first hires. It skips incorporation and the FX documentation entirely, and puts someone on payroll in days. If the US market does not develop the way you hoped, you end a service agreement rather than winding up a company and repatriating capital.
Incorporate once the answer is clear: one state past roughly ten people, revenue that carries the compliance overhead, and a decision that the US presence is permanent. Then run the entity for the concentrated team and keep scattered remote employees on the EOR, which is where most companies end up regardless.
Use contractors only where the work is genuinely independent. A full-time role labeled as contracting costs more than it saves once a US state disagrees with the label.
If you are past the route decision and comparing providers, our breakdown of EOR providers operating in the United States covers pricing, onboarding speed, and compliance coverage across twelve platforms.
Frequently Asked Questions
Can a Philippine Company Hire a US Employee Without a US Entity?
Yes. An Employer of Record employs the person through its own US entity and handles federal and state payroll, tax withholding, benefits, and compliance while your team directs the work. Incorporating is the alternative, and it takes longer, costs more upfront, and brings foreign exchange documentation that paying an EOR does not.
What BSP Rules Apply to Funding a US Subsidiary?
Buying foreign exchange from authorized agent banks for outward investment is permitted up to USD 60 million per investor per year without prior BSP approval, which is well above what funding a small US entity requires. Registering the investment with the BSP is generally optional, though it matters if you later expect to repatriate capital or remit earnings using bank-sourced foreign exchange. Expect your bank to ask for board resolutions, subscription documents, and the US incorporation papers before releasing funds.
Can We Pay a US Employee From Our Philippine Payroll?
No. Someone working in the US is employed under US federal and state law, with US tax withholding, FICA, and US benefits. A Philippine payroll system cannot produce a W-2 or remit to the IRS, and paying a full-time worker by invoice risks reclassification, back taxes, and penalties in whichever state they live in.
How Much Should We Budget Above Salary for a US Hire?
Employer-side FICA is 7.65%, plus state unemployment and workers' compensation, which vary by state. That is lighter than SSS, PhilHealth, Pag-IBIG, and 13th month pay combined. Health insurance is the offsetting cost, since it is employer-funded in the US with no PhilHealth equivalent and American candidates treat it as standard. Add either an EOR fee or the setup and ongoing cost of a US entity, which starts around $5,000 and reaches $40,000 depending on state coverage.
How Long Does It Take to Get an American Working?
Days through an EOR, once documentation is complete. Through your own entity, weeks to several months, covering incorporation, banking, state registrations, payroll setup, and the bank documentation for any capital transfer.
Does Our US Hire Need Sponsorship?
Not if they are a US citizen or already authorized to work in the US and are staying there. You are employing an American where they already live, so no immigration process applies. Sponsorship only arises if you relocate someone into the US, which is a separate exercise with its own timeline.
