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Actionable Guides and Tips for
Successful Offshoring to The Philippines

Labour Costs and Financial Planning in Offshoring

Labour costs are a critical factor in deciding whether to offshore your business operations, as they directly impact your company’s profitability. Offshoring to the Philippines presents a strategic opportunity for many organisations, enabling them to reduce operational expenses while maintaining high levels of efficiency and gaining access to a diverse and skilled talent pool. The country offers competitive labour rates that lead to significant cost savings, all while ensuring the quality of work remains intact. Moreover, the Philippines’ workforce is highly proficient in English and culturally aligned with Western markets, making it an ideal location for businesses seeking seamless integration with their teams. Additionally, offshoring providers like Shore360 support businesses in navigating the complexities of offshore outsourcing, helping them scale operations and optimise processes

While cost savings are often your primary driver for offshoring, managing labour costs effectively requires more than just comparing salaries. You must consider additional expenses such as employee benefits, office infrastructure, training, and compliance with local labour laws. These costs can vary greatly depending on the location and scale of your operations, and failure to thoroughly account for them can reduce overall savings. Without a comprehensive financial strategy that includes these factors, you risk overspending, facing operational inefficiencies, or encountering unexpected regulatory challenges. Proper planning and collaboration with your local partners are crucial to ensuring that the financial benefits of offshoring are fully realised.

Dive into the complexities of labour costs in the Philippines to optimise your offshoring strategies, maximise cost savings, and establish sustainable operations that align with your long-term objectives.

Understanding and Managing Labour Costs in Offshoring

Labour costs are a core factor in the decision to offshore, and proper management is critical to maximising cost efficiency. For businesses like yours considering offshoring to the Philippines, understanding key cost drivers ensures accurate budgeting and compliance with local regulations. Effective labour cost management helps you balance affordability with employee satisfaction and operational productivity, which are essential for sustaining long-term business growth.

Regional Variations in Salaries

The Philippines offers competitive labour costs, but salaries can vary significantly by region, influenced by factors such as the cost of living, infrastructure, and the availability of skilled workers. Please note that the figures mentioned below are projections for entry-level roles and may not represent the actual costs.

Metro Manila (NCR): As the country’s economic hub, salaries in Metro Manila are typically the highest. Professionals in this region command premium pay due to its advanced infrastructure, the presence of multinational companies, and a dense talent pool.
Clark Freeport Zone (Central Luzon): This area was once only an industrial region but is quickly growing into a corporate environment and offers lower salary ranges compared to the NCR, making it an attractive alternative. This area benefits from its close proximity to the capital region with a modern infrastructure and a growing talent pool.
Cebu, Davao, and Ilo-Ilo (Visayas and Mindanao regions): In regional hubs such as Cebu (Visayas) and Davao (Mindanao), average entry-level salaries are even lower. However, infrastructure development in these areas may lag behind that of Metro Manila and Clark Freeport Zone, potentially leading to challenges such as slower internet speeds, less reliable utilities, and limited access to advanced facilities. Despite this, these regions remain attractive for businesses seeking cost-effective solutions and access to a skilled workforce.

Selecting the right region for offshoring can help you reduce costs without compromising on the quality of skilled talent. If your roles don’t require close collaboration with headquarters, regions like Visayas or Mindanao offer a cost-effective solution. However, if you need to strike a balance between affordability, infrastructure, and proximity to the capital, Clark Freeport Zone in Central Luzon is a strategic choice. This location offers strong infrastructure while still providing significant savings.

Per Capita GDP Comparison

Understanding the economic landscape is crucial for businesses looking to grasp the affordability of labour in the Philippines. A major driver of cost advantages is the significant difference in per capita GDP between the Philippines and Western countries. Lower living costs and economic conditions allow businesses to tap into a skilled talent pool at much more affordable rates. For instance, 2023 per capita GDP estimates illustrate this disparity:

United States: $76,400
Australia: $66,400
New Zealand: $54,000
Philippines: $4,300

*These figures are sourced from credible entities such as the World Bank, IMF, and OECD. Businesses are encouraged to verify the most up-to-date data as economic conditions can change.

This significant gap in per capita GDP clearly explains why salaries in the Philippines are much lower than in developed countries, yet local professionals enjoy a good quality of life. For example, a virtual assistant in Australia earning AUD 45,000 annually can be hired for just AUD 7,000–10,000 per year in the Philippines for freelancers. It is best to use an offshoring partner rather than freelancer. Costs with an offshoring partner can vary, but the price you pay is ensured of labour compliance, and data security, you are not exposed to your home country’s tax implications, and there is staff oversight through the help of onsite account managers. These offshore talents often have comparable skills and expertise with their Western counterparts. Similarly, positions like customer support specialists, graphic designers, and IT professionals can be filled at highly competitive rates, providing substantial savings for your business without sacrificing quality.

Retention and Turnover Management

While cost savings are a key driver of offshoring decisions, high turnover can quickly diminish these benefits due to increased recruitment and training expenses. To retain top talent, you need to focus on creating a competitive and supportive work environment built from top-notch staff retention and engagement programmes.

- Market-Competitive Salaries: Aligning salaries with regional benchmarks is key to retaining your employees and preventing them from seeking better opportunities elsewhere. By offering performance incentives, allowances, and bonuses, you can boost job satisfaction and foster greater loyalty within your team.
- Employee Engagement Programmes: Engagement initiatives, such as wellness programmes, mentorship, and recognition schemes, foster a positive work culture. Recognising contributions and prioritising employee well-being helps you build trust, improve retention, and enhance overall job satisfaction.
- Career Development: Clear growth pathways, regular upskilling, and training programmes show your employees their future within the company. Transparent promotion tracks and cross-training opportunities will help you keep them engaged and motivated.
Positive Work Environment: A collaborative and inclusive workplace, combined with flexible work arrangements, will encourage loyalty and job satisfaction, helping you reduce turnover risks.

Breakdown of Labour Expenses in the Philippines

Offshoring labour expenses in the Philippines extends well beyond base salaries and includes several key cost components that businesses must consider. A detailed breakdown of these projected offshore expenses ensures accurate financial planning, helping companies maximise savings while maintaining smooth, compliant, and efficient operations.

Base Salaries by Role and Industry

The Philippines offers cost-effective salaries across a wide range of roles, making it an attractive destination for offshoring. Salary variations depend on factors such as industry, location, and the level of expertise required.

Disclaimer: Salary ranges are estimates based on Shore360’s current offshoring pricing, which includes paying for 1 full-time dedicated team member, business facilities, technology & hardware, statutory benefits, and the Shore360 support team. Published pricing may change without prior notice. Contact Shore360 for further discussion at info@shore360.com.

Salaries mentioned across major industries are based on mid-range talent with 2 to 3 years of work experience; prices still depend on the role, experience, and final salary agreement between the offshore staff and the offshoring client. (Prices are in Philippine Pesos and Australian Dollars.)

Customer Service Industry

Total Monthly Cost (PHP): 59,936.01 PHP
Total Monthly Cost (AUD): $ 1,650 AUD
Total Annual Cost (AUD): $ 19,798 AUD

Information Technology (IT)

Total Monthly Cost (PHP): 61,049.33 PHP
Total Monthly Cost (AUD): $ 1,680 AUD
Total Annual Cost (AUD): $ 20,165 AUD

Accounting and Finance

Total Monthly Cost (PHP): 78,862.67 PHP
Total Monthly Cost (AUD): $ 2,171 AUD
Total Annual Cost (AUD): $ 26,049 AUD

Marketing and Digital Marketing

Total Monthly Cost (PHP): 67,729.33 PHP
Total Monthly Cost (AUD): $ 1,864 AUD
Total Annual Cost (AUD): $ 22,372 AUD

Engineering

Total Monthly Cost (PHP): 67,729.33 PHP
Total Monthly Cost (AUD): $ 1,864 AUD
Total Annual Cost (AUD): $ 22,372 AUD

Healthcare and Medical Services

Total Monthly Cost (PHP): 67,729.33 PHP
Total Monthly Cost (AUD): $ 1,864 AUD
Total Annual Cost (AUD): $ 22,372 AUD

Development

Total Monthly Cost (PHP): 75,522.67 PHP
Total Monthly Cost (AUD): $ 2,079 AUD
Total Annual Cost (AUD): $ 24,946 AUD

Design

Total Monthly Cost (PHP): 75,522.67 PHP
Total Monthly Cost (AUD): $ 2,079 AUD
Total Annual Cost (AUD): $ 24,946 AUD

Mandatory Employee Benefits

In the Philippines, mandatory employee benefits based on local labour laws typically add 15–20% to base salaries. These statutory benefits, required by Philippine labour laws, protect employees’ welfare and contribute to workforce stability. Employers must comply with the following key requirements:

13th Month Pay:

Employers are mandated to provide an additional payment equivalent to one month’s salary, paid annually on or before December 24. This benefit serves as a year-end bonus and is a legal right for employees who have worked for at least one month during the calendar year. The 13th-month pay is an important factor in enhancing employee satisfaction and boosting morale during the holiday season.

Social Security System (SSS)

The SSS is a government-mandated insurance programme that provides financial protection to employees through pensions, disability benefits, maternity leave support, and death coverage. Employers are required to contribute 7.37% of an employee’s monthly salary to this fund, while employees contribute a smaller percentage. For employees and their families, the SSS provides financial stability, particularly during difficult times.

PhilHealth

PhilHealth provides employees with access to affordable healthcare services through a national health insurance system. Contributions are calculated based on an employee’s salary bracket and shared between employers and employees. This benefit covers hospitalisation, outpatient services, and other medical needs, ensuring that employees and their dependents can access healthcare without significant financial strain.

Pag-IBIG Fund

The Pag-IBIG Fund is a government programme aimed at supporting employees in securing affordable housing loans and saving for the future. Both employers and employees are required to contribute a fixed PHP 100 each per month. Employees can access low-interest housing loans and savings programmes, helping to improve their long-term financial stability and prospects for homeownership.

Recruitment and Onboarding Costs

The effective hiring process in the Philippines involves various costs that businesses must consider to ensure efficient workforce planning. Understanding these expenses helps in creating a realistic recruitment strategy that balances quality and budget.

Recruitment Platforms

Businesses use online platforms like JobStreet, LinkedIn, and Indeed to attract talent through both free and paid options. JobStreet offers Lite Ads for free, providing unlimited job listings with 30-day visibility, while Premium Ads start at PHP 5,000–PHP 10,000 for enhanced visibility and priority placement. LinkedIn allows free posting of one job with limited reach, but businesses can use Sponsored Jobs under a pay-per-click (PPC) model, where costs depend on competition, location, and job title. For example, a daily budget of $10 over 30 days would total $300. Similarly, Indeed provides free basic job ads with limited visibility, while Sponsored Posts follow a PPC model, allowing employers to set budgets based on role demand and market competitiveness. These platforms give businesses the flexibility to balance costs and visibility when hiring talent.

Agency Fees

Recruitment agencies simplify the hiring process by pre-screening candidates, ensuring skills alignment, and expediting the search for specialized or hard-to-fill roles. Agencies typically charge 10–15% of the annual salary as a placement fee. While this is a higher upfront cost, it saves businesses time and resources, especially when hiring for senior positions or time-sensitive roles.

Onboarding and Training Costs

Once candidates are hired, effective onboarding and role-specific training are crucial for ensuring productivity and alignment with company standards. Onboarding programs, which include orientation sessions, employee handbooks, and initial training, typically cost PHP 5,000–PHP 10,000 per employee for administrative roles, with higher expenses for technical positions due to their complexity. Specialised role-specific training can range from PHP 10,000–PHP 20,000, such as IT certifications in platforms like AWS or cybersecurity, or CRM and soft skills training for customer service teams. Onboarding costs also include equipment setup, including computers, software access, and system logins, which are vital for a smooth transition into the team. Partnering with an offshoring provider can help reduce these expenses by leveraging their facilities, expertise, and network to deliver efficient training and equipment support, allowing you to streamline your processes and save resources.

Indirect Costs

Recruitment and onboarding also involve indirect costs that are often overlooked. One such cost is time spent by HR personnel, which includes resources dedicated to interviewing, screening, and training candidates. HR teams must carefully assess applicants, conduct multiple interview rounds, and manage the onboarding process, which can divert attention from other priorities. Additionally, productivity dips during onboarding are common, as new employees take time to adjust to their roles, systems, and company culture. This transition period often leads to temporary reductions in performance, particularly in customer-facing roles or positions requiring specialised skills, potentially impacting overall team efficiency.

Strategic Financial Planning for Labour Costs

Effective financial planning is crucial for your business to maximise the benefits of offshoring in the Philippines while managing labour costs efficiently and maintaining high-quality standards for your offshore team. A well-structured financial strategy not only ensures compliance with local laws but also helps your company optimise its budget for long-term success. Key tactics to accomplish this goal are listed below:

Conduct a Comprehensive Cost Analysis

Before establishing your operations in the Philippines, conducting a detailed cost analysis is essential to identify all potential expenses. These include direct costs like base salaries, mandatory benefits, and recruitment fees; indirect costs such as infrastructure setup, training, and retention programmes; and hidden costs like currency fluctuations, compliance penalties, or turnover-related expenses. Calculating these factors in advance allows you to create an accurate financial roadmap, minimising the risk of unexpected budget strains.

Optimise Recruitment and Onboarding Practices

Reducing recruitment costs and onboarding time is crucial for managing initial labour expenses. Partnering with local recruitment agencies, often integrated with offshoring providers, can provide bulk hiring discounts and faster talent access for your company. Building an internal referral system with incentives encourages employees to recommend qualified candidates, reducing hiring time and costs. Additionally, implementing structured onboarding programmes helps new hires adapt quickly, minimising downtime and accelerating productivity.

Invest in Retention Programs

Retention strategies are key to reducing the high costs of frequent turnover while fostering a stable, motivated workforce. Effective measures include performance-based incentives such as bonuses tied to employee KPIs, comprehensive benefits packages that offer non-mandatory perks like life insurance or mental health support, and clear career development pathways through certifications, promotions, and internal mobility opportunities. These initiatives not only save on rehiring expenses but also boost loyalty, leading to higher productivity and improved service delivery. Partnering with an offshoring provider in the Philippines with proven engagement strategies can ensure your retention programmes are well executed and impactful.

Monitor Exchange Rates and Inflation

The Philippines’ economy is subject to currency and inflation fluctuations, which can affect labour costs. To mitigate these risks, businesses can hedge against currency fluctuations by locking in favourable rates through forward contracts. Additionally, regularly reviewing and adjusting salaries to keep pace with inflation ensures competitive compensation, helping to retain talent and maintain workforce stability.

Explore Flexible Work Arrangements

Remote work or hybrid setups can greatly reduce operational costs by minimizing the need for large office spaces. Key benefits include lower infrastructure expenses, such as utilities, office rentals, and equipment maintenance, and increased employee satisfaction due to flexible work arrangements. This flexibility not only enhances work-life balance but also improves retention, leading to a more stable and engaged workforce.

Partner with Local Experts

Partnering with local consultants or outsourcing providers can simplify the complexities of labour laws, compliance, and payroll systems in the Philippines. Local experts help businesses avoid penalties by ensuring adherence to employment regulations, stay updated on changes in benefits contributions or tax structures, and streamlining administrative processes like payroll management. This support allows companies to focus on core operations while maintaining compliance and operational efficiency.

Implement Financial Tracking Systems

Continuous monitoring of labour expenses is vital for effective long-term financial planning. Implementing cloud-based HR and payroll systems automates calculations for salaries, benefits, and taxes, reducing manual errors and improving efficiency. Additionally, regularly reviewing financial reports helps identify trends and areas for cost optimisation, enabling businesses to make data-driven decisions to manage expenses effectively.

Benchmark Costs Against Industry Standards

Regular benchmarking against competitors and industry standards ensures your compensation and benefits remain competitive, helping you attract and retain top talent without the risk of overpayment. By implementing these strategies—optimising labour costs, maintaining compliance, and refining financial planning—your business can achieve sustainable success and maximize the benefits of offshoring in the Philippines.

Conclusion

Strategic management of labour costs is essential for businesses to fully realise the advantages of offshoring to the Philippines. The country’s competitive salaries, skilled workforce, and regional cost variations provide significant opportunities for savings without compromising quality.

Understanding mandatory employee benefits, accounting for recruitment, infrastructure, and retention expenses, and leveraging cost-efficient regional hubs, businesses can develop a sustainable and realistic financial plan. Combining these strategies with local expertise and ongoing expense monitoring ensures compliance and operational efficiency.

When approached thoughtfully, offshoring to the Philippines allows businesses to optimise costs, access high-quality talent, and position themselves for sustainable growth in a competitive global market.

Start your offshoring journey today by starting with one staff. Visit https://www.shore360.com/staff-lease/ to learn more!