How much should you pay for a Filipino employee?

chrisAustralian Chris Moriarty works in the Philippines, where his company Flat Planet supplies local labour to Australia. In this column, he explains how much you should pay Filipino workers.

How much should you pay for a Filipino employee?

There are many possible ways to answer this question.

First – what is the minimum salary in the Philippines. This is the same as asking ‘What is the cheapest?’ I reject this approach. My first trip to Asia as an adult was on my Honeymoon an eon ago. My wife and I were bartering for a handbag. We were determined not to get screwed. In the end the seller said no and walked away. She looked genuinely upset. We walked away and also felt bad. I realised that what we had be haggling over was a glass of beer at an RSL Club to me, but food on her kids table for two days for her.

If your goal is to go to Asia and just exploit the place and screw everyone you meet then it is possible to do so. In the Philippines, official Government figures state 40% of the population doesn’t have enough food on its table. That is why it is possible for a big fat sweaty old bloke (maybe even fatter and uglier than me) to sleep with a gorgeous 22-year-old girl for $50 or less.

I would put it to you that if you are paying too little to your staff in the Philippines, leveraging their disadvantage and desperation against them, then you are not that different from the fat old guy. There is one bloke in Australia with a blog on this stuff and a huge following. He says that if you pay more than $250 a month you are being ripped off.

In my view he is a pimp of the desperate.

There are minimum wage levels in the Philippines. It varies by municipality moving roughly in line with cost of living. The most expensive is Makati . It is about $10 a day plus on-costs probably taking it up to about $11.50.

Regions are cheaper – some much cheaper. Cebu for instance is about $8 a day as is Porta Giuelera.

The people in these minimum wage jobs are unskilled labourers and kids working in supermarkets. You can’t live on $10 a day – think about it as the equivalent of a young kid working for McDonalds earning whatever they earn – where it is only possible for them to work if their mum and dad pay for all their living expenses.

Another way to ask the question on how much to pay is to look at some kind of lifestyle equivalence. How much does it cost a Filipino to live in a clean apartment with basic amenities, pay their electricity bill, clothe and feed their kids, send them to school, get to work each day, dress well, own a mobile phone and buy lunch in a food court and be able to visit their home province at least twice a year?

It is hard to say. I have seen no study on this, but my guess is the number is somewhere between $600 and $1000 a month – maybe more depending on where they live. If it was a dual income house and they were pulling $1500 to $2000 a month they would be living very well – maybe even own a small car.

This by the way is in Makati – the most expensive part of the Philippines. In the provinces life is much less expensive but the provinces have less infrastructure (data links, computer support, reliable electricity supply etc).

If you employ them properly then there are on-costs like contributions to a national health scheme, a housing scheme and a compulsory 13th month salary.

A third way to ask the question is simply around what are the rates on the street?

Like any market it varies but if you want a good experienced worker then you have to pay for them. I know high level Executive Assistants who earn around $50k a year (an EA for a CEO of a major bank) and HR Directors who earn $100k a year. Some IT people can earn the same if not more. That said, $10-$12k is much more normal.

There are also questions around staff loyalty and retention levels. If you pay right on the market rate then your turn-over tends to be higher. If you pay a premium then you get more loyalty. It is no different from Australia.

The next thing to consider is infrastructure.

If you have a worker they need somewhere to work and tools to work with.

The work from home model is problematic. Filipinos live in small spaces often with extended families. Electricity is expensive and sometime unreliable. Internet connections can be dodgy in some areas. They may not have the money to own a late-model computer or to run properly licensed software applications. Flooding might be a problem.

(My electricity bill for a three bedroom condo is around $100 a week. I have my wife and two kids living there and we use the air conditioning almost constantly.)

Also, many businesses choose home workers primarily because they are cheap. You can do the maths and pretty quickly realise that the only way the worker can reasonably afford to do it is to run multiple jobs simultaneously (unless they are happy to live like a church mouse). How do they keep up with the workload of two or more simultaneous jobs? They live in extended families and quite often the extended family members are doing your work – so what you are actually getting is a 15-year-old school girl.

The alternative is to provide office accommodation.

Computer equipment is about the same if not slightly more expensive than Australia. Furniture and fittings appear to be more expensive – there is a 30% import duty on desks, chairs etc.

Office space varies significantly. If you want a decent building that sits on a fibre loop with reasonable access to public transport and properly maintained emergency power generators you might pay $300 - $350 a square metre. If you follow the regulations then you need to allow seven square meters per person including common areas – so it is $200 plus per person per month just for rent.

You need security guards, a proper ID system (either a scanner or a full time person just to check badges) and data communications (just as expensive as Sydney for a decent service) plus a redundancy layer. You need either a full time network administrator or a facilities management contract (preferable as decent network specialists are constantly poached and taken offshore on good money by the Chinese and the Arabs – so keeping them can be difficult).

Last, but certainly not least you need management and payroll administration. Payroll in the Philippines is non-trivial. Like Australia there are several government departments that require payments to be made to them on behalf of employees. A law-abiding supplier will expect to be audited at least once a year (in fact, it is a requirement and you have to pay for a licensed accounting firm like KPMG to do it).

So far as ex-pat management is concerned you should cost that at about $200k a year and maybe add about $1000 per month per child for school fees at a decent International school that would enable the children to still be eligible for entrance into an Australian University. The ex-pat will enjoy the benefits of maids and drivers, but will have the expense of travelling back to Australia once or twice a year to visit friends and family.

So when you add all this up, if you want to pay a decent salary to a skilled worker that is non-exploitative and provide them with a professional office environment and professional management the cost per employee can vary between a low of $2k a month up to around $4k. Very highly skilled executive staff or, say civil engineers, might cost a bit more.

Yes, you can get staff over the web for $600 or less a month... but you can’t be naïve about what you are getting.

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