Minimizing Labor Costs: Should You Do Incorporation or Staff Leasing?
Numerous foreign companies outsource their business processes like customer support, administrative and technical tasks, and back-office functions to countries like the Philippines. The Philippines is known for its low labor costs and an overwhelming number of workforce that other nations can collaborate with. However, when it comes to outsourcing, there are two things that a foreign organization can do. They can either choose incorporation or staff leasing.
What’s the difference between the two options? And, how can you establish any of these choices in the Philippines? Let’s understand more below.
Understanding Incorporation for Business Outsourcing
For foreign companies who want to save for their labor costs, in the long run, incorporation is a favorable decision. Incorporation is the process where a foreign company files for an article of incorporation in the Philippines and employs Filipinos for business functions. Furthermore, incorporation allows a foreign company to focus on its in-house transactions while maintaining control and management in its operations in the Philippines.
However, setting up for incorporation in the Philippines can be lengthy and outright expensive. A foreign enterprise must prepare a minimum paid-in capital of $94.00. Aside from this expense, the foreign organization must prepare for a building, office set-up, and equipment associated with its operations.
In the Philippines, company incorporation is governed by the Securities and Exchange Commission (SEC). Plus, you’ll have to comply with the requirements as mandated by other government agencies.
Discovering Staff Leasing as Outsourcing Option
For these particular arrangements, a foreign company or the client will have to tie up with a service provider (staff leasing provider) to do human resource functions. The service provider (staff leasing provider) utilizes its recruitment, payroll, HR, and even office facilities to perform tasks for the client.
With staff leasing, the client starts to collaborate with a service provider and determines the personnel requirements for their organization. Then, the provider sources for qualified applicants. Once potential candidates are interviewed (either by staff leasing provider or client), hiring decisions are made.
Depending on the agreement of the client and the employee, staff leasing providers can give an avenue for employees to work, such as office facilities or equipment. But, employees will be managed by the client through virtual arrangements. The staff leasing provider is only responsible for their payroll and HR tasks.
When it comes to costs, a foreign company must pay monthly fees not only for the salaries of the employees but for the amenities for the operations. In the long run, staff leasing may not be a viable solution for a foreign company that intends to maximize the Filipino labor force.
Points for Decision-Making: Incorporation or Staff Leasing?
Before we wrap this discussion, we’ll provide you with multiple considerable points to decide objectively and beneficially to your company.
1. Depending on how long your application for incorporation is reviewed, you can start operating after 3-5 months.
2. For start-up costs, expect to spend up to a minimum of $10,000-$50,000.
3. When it comes to workflow and software tools, the owners (incorporators) have full control.
4. At the same time, the incorporators take part in the administrative functions of the corporation in the Philippines.
1. As soon as the agreement between the staff leasing provider and the client is completed, the operations can commence.
2. Expect to spend around $300 – $1000 for the initial agreement.
3. Staff leasing service provider has control for the utilization of software tools and the HR aspect of the workflow.
4. The staff leasing provider handles human resource functions.
How 3E Accounting Can Help
Business expenses can be a hassle at times. The good thing is, your company can work together with an organization in the Philippines for labor force needs. If you have a hard time deciding whether incorporation or staff leasing is more advantageous to you, 3E Accounting can help.
We offer business consultancy services such as company registration in the Philippines to guide you in decision-making for a thriving and sustainable enterprise. Send us a message now, and we’d be more than happy to be of service to you!