As the business world becomes increasingly globalised, outsourcing has become an essential strategy for many companies. Outsourcing involves the delegation of business processes to a third-party service provider, often located in another country.
The Philippines has emerged as a popular outsourcing destination due to its skilled workforce and cost advantages. However, many Australian business owners are concerned about the legal considerations of outsourcing to the Philippines, including labor laws and data protection regulations. In this article, we will explore these concerns and explain why outsourcing to the Philippines is a viable and safe option for Australian businesses.
As the business world becomes increasingly globalised, outsourcing has become an essential strategy for many companies. Outsourcing involves delegating business processes to a third-party service provider, often located in another country.
For Australian businesses, the Philippines continues to stand out as a top outsourcing destination not just for customer service, but across functions like finance, IT, marketing, compliance, and back-office support. According to the IT and Business Process Association of the Philippines (IBPAP), the sector remains one of the country’s most stable and fastest-growing industries. It’s projected to generate over $35 billion in annual revenue, with strong government support and a robust pipeline of skilled talent.
But as offshore expansion becomes more strategic, so do the questions around compliance. Many business leaders hesitate due to concerns about legal risk, especially when it comes to labor laws, data privacy, and intellectual property protection.
This article breaks down those key legal considerations and explains why outsourcing to the Philippines is not only safe but increasingly streamlined for Australian companies.
The Growing Popularity of Outsourcing to the Philippines
Outsourcing to the Philippines has become a popular business strategy for many reasons. The country has a large pool of highly skilled professionals who are fluent in English, making it an ideal location for back-office and customer service operations. Additionally, the cost of labour in the Philippines is significantly lower than in many other countries, making it a cost-effective solution for businesses looking to reduce operational expenses.
The outsourcing industry in the Philippines has grown rapidly in recent years, with an annual growth rate of over 20%. As a result, the country has become one of the top outsourcing destinations in the world. According to the Business Process Association of the Philippines (BPAP), the country’s outsourcing industry generated over $30 billion in revenue in 2020.
Why the Philippines is a Top Destination for Australian Outsourcing
Economic and Strategic Reasons
The Philippines offers a powerful blend of economic value and strategic stability that makes it the go-to outsourcing hub for many Australian businesses.
On the economic side, companies typically realise up to 70% in cost savings by hiring offshore talent in the Philippines. This comes without compromising quality thanks to the country’s deep pool of highly educated, English-proficient professionals. Many teams also provide 24/7 operational coverage, enabling faster response times and better global service alignment.
But beyond cost, compliance matters. Working with registered outsourcing providers accredited by PEZA (Philippine Economic Zone Authority) or BOI (Board of Investments) helps ensure legal clarity and operational continuity. These certifications offer safeguards around data privacy, labor regulations, and tax incentives, giving Australian companies more confidence and control over their offshore operations.
In short: better ROI, less risk.
Popular Outsourced Functions
Australian companies are no longer outsourcing just call centres. The Philippines now supports complex, multi-functional teams across industries and verticals. Common functions include:
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Customer Experience (CX) — voice and non-voice support across multiple time zones
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Finance & Accounting — AP/AR, bookkeeping, payroll processing, and compliance tasks
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IT Helpdesk & Development Support — tiered tech support, QA, testing, and product dev support
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Healthcare & Revenue Cycle Management (RCM) — medical billing, claims processing, and admin
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Data Operations — data cleansing, migration, reporting, and dashboard monitoring
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Back-Office Operations — scheduling, email inbox management, CRM upkeep, and more
Take the example of one Australian NDIS provider: by outsourcing finance, intake, and customer service roles to a Philippine-based team, they cut operating costs by 60% while improving response times and accuracy. That’s workforce re-engineering in action.
Legal Considerations When Outsourcing to the Philippines
When outsourcing to the Philippines, Australian business owners should be aware of relevant labour laws and data protection regulations. The Philippines has several labour laws that protect the rights of employees, including minimum wage and working hours, social security benefits, and leave entitlements. Additionally, the country has data protection regulations, including the Data Privacy Act of 2012, which regulates the processing of personal data.
Business owners may be concerned about the complexities of complying with these laws and regulations when outsourcing to the Philippines. However, outsourcing providers like PeoplePartners can handle these legal considerations on behalf of their clients. PeoplePartners ensures compliance with labour laws and data protection regulations through their outsourcing contracts, protecting both business owners and staff.
Philippine Labor Code
Understanding the Philippine Labor Code is essential for any Australian company considering outsourcing. It defines what “legal employment” looks like in the local context—covering minimum wage, benefits, working hours, termination processes, and mandatory government contributions (SSS, PhilHealth, Pag-IBIG).
Outsourcing partners that employ staff directly under these guidelines offer a layer of legal protection and ensure better workforce stability.
Explore this breakdown of Labor Law PH
Contractor vs Employee:
The Labor Code also distinguishes between direct employees and independent contractors. This matters because misclassification can expose companies to legal disputes. Partnering with a reputable provider ensures roles are correctly classified and documented.
Legal resource: Labor Law PH on Contractors
DOLE Department Order No. 174
DO 174-17 was issued by the Department of Labor and Employment (DOLE) to regulate contracting and subcontracting arrangements. It outlines the responsibilities of service providers and protects workers from exploitative arrangements.
For foreign employers, the key takeaway is clear: only work with DOLE-compliant BPOs. These providers must be properly registered and meet documentary requirements (e.g., service agreements, proof of financial capacity, tax clearance). This ensures you avoid co-employment risks and potential liabilities under Philippine labor laws.
You may check the full details of the Department Order No. 174 here
Checklist to Request from Your BPO:
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DOLE registration certificate
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Proof of tax compliance
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Employment contracts or sample templates
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SSS/PhilHealth/Pag-IBIG registration proofs
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Standard service level agreements (SLAs)
Data Privacy Act of 2012 (DPA)
The Data Privacy Act (DPA) governs all personal data processing in the Philippines, including cross-border transfers. It applies to offshore outsourcing relationships where personal or sensitive information is handled.
To stay compliant, Australian companies should work with providers who follow the DPA and its Implementing Rules and Regulations (IRR). Additionally, incorporating Model Contractual Clauses (MCCs) aligned with Australian Privacy Principle (APP) 8 can help satisfy both AU and PH data protection requirements.
Read more from the National Privacy Commission
What to Include in Your DPA Stack:
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Signed DPA compliance agreements
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Cross-border data transfer policy
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Risk assessment or DPIA (if handling sensitive data)
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Privacy notice alignment (AU/PH standards)
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Breach notification procedures
Tax & Business Registration
Choosing the right outsourcing provider also means checking their business structure. Reputable partners in the Philippines are typically registered with PEZA (Philippine Economic Zone Authority) or BOI (Board of Investments). These registrations offer:
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Tax incentives for BPO services
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Flexibility for remote or hybrid setups (especially under CREATE and CREATE MORE laws)
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Stability and continuity planning for long-term contracts
Before committing, request proof of up-to-date registration, a list of current tax incentives, and whether the provider is eligible for future programs under the evolving CREATE framework.
Why Businesses Don’t Need to Worry
Outsourcing to the Philippines through a reputable provider like PeoplePartners ensures that all legal considerations are covered. PeoplePartners has a team of legal experts who are well-versed in Philippine labour laws and data protection regulations – helping ensure they’re compliant with all legal requirements, reducing the risk of disputes or penalties.
Outsourcing contracts provide additional protection for business owners and staff. These contracts specify the responsibilities of both parties, including compliance with labour laws and data protection regulations. They also provide legal recourse in the event of disputes or breaches of contract.
Furthermore, outsourcing to the Philippines allows businesses to focus on their core competencies while leaving non-core processes to experts. This can increase operational efficiency and productivity, resulting in cost savings and increased revenue.
How to Structure a Legally Compliant Outsourcing Agreement
Must‑Have Clauses in Your Contract
Scope & SLAs: Clearly define the services being provided (e.g., CX, finance, back‑office) and set measurable service level agreements (SLAs) such as response time, accuracy, availability. This prevents scope creep and ensures alignment.
Data & Security: Include a dedicated clause for data handling, security standards, cross‑border transfers, and compliance with the Data Privacy Act of 2012 (DPA). Should reference the obligation of the processor to abide by documented instructions, confidentiality, audits.
Compliance Warranty: The vendor should warrant that it is compliant with the Labor Code of the Philippines (i.e., lawful employment, correct classifying of workers, statutory remittances such as SSS, PhilHealth), plus that it will cooperate with audits. This gives you protection and recourse.
IP & Confidentiality: Ensure the contract states that all intellectual property created belongs to you, and includes confidentiality obligations, non‑use/non‑disclosure, return or destruction of materials post‑termination. Refer to commentary on IP risk in outsourcing Philippines.
Governance & Audits: Incorporate rights for you to audit vendor compliance (labor, data, security), governance mechanisms (steering committee, escalation), periodic reporting, security attestations.
Dispute Resolution & Termination: Define mechanisms for dispute resolution (mediation, arbitration, law/venue), termination rights (for breach of compliance, change in control), exit‑management (handover of data, staff transition), and consequences of termination (liquidated damages, service continuity).
Working With a Legally Registered BPO Provider
When selecting your provider, request key documents to ensure they are legitimately registered and compliant:
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Philippine Economic Zone Authority (PEZA) or Board of Investments (BOI) certificate of registration
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Department of Labor and Employment (DOLE) registration for contracting/subcontracting under DO 174
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National Privacy Commission (NPC) filings or proof of data protection officer/registration
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Security certifications or attestations (e.g., ISO 27001, SOC 2)
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Verified work‑from‑home (WFH) or hybrid setup permissions if required
By verifying these, you reduce risk of vendor instability, compliance breaches, or service interruption.
Risk Mitigation Strategies
Legal Audits: Conduct pre‑engagement audits of the vendor (labor practices, contractual setup, statutory remittances) and schedule periodic audits. The vendor should permit access and reporting.
Privacy Program: Ensure your vendor has a documented privacy program: data processing agreement (DPA), DPIA/data‑impact assessments, breach notification procedures, MCCs and APP 8 cross‑border treatment if dealing with Australian data.
Operational Resilience: Include redundancy planning, business continuity & disaster recovery, service escalation paths, staff turnover management.
Onshore Reps: Maintain a local on‑shore representative or liaison (Australia) who ensures alignment with your business, monitors vendor performance, supports governance, and escalates issues.
Penalties and Risks of Non‑Compliance
Philippines (Labor): Vendors or principals may face DOLE sanctions if contracting arrangements violate DO 174‑17, or if workers are misclassified (labor‑only contracting). This can lead to regularisation orders, back‑pay claims, and reputational damage.
Philippines (Privacy): Under the DPA and associated IRR, processors must comply with outsourcing contracts (Section 44, Rule X). Non‑compliance may trigger NPC investigations, fines or sanctions.
Australia (Privacy): If you transfer Australian personal data offshore, you must comply with the Privacy Act 1988 and in particular the Australian Privacy Principles (APP 8). Poor vendor controls may lead to OAIC investigation and fines.
Ethical Sourcing: Beyond legal risks, failing to follow compliant outsourcing practices can damage your employer brand, stakeholder trust, and client relationships particularly in regulated sectors or government contracting.
Best Practices for Australian Companies Outsourcing to the Philippines
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Use experts on both sides: Engage Philippine legal and labour advisors plus Australian advisors to ensure both jurisdictions’ compliance.
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Formalise privacy from day one: Build your data‑processing agreement (DPA) early, map data flows, ensure cross‑border transfers are contractualised and aligned with APP 8.
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Vendor due diligence: Perform detailed vendor reviews of registrations (PEZA/BOI), compliance certifications, financial strength, SLAs, audit access.
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Classify roles correctly: Ensure outsourced staff are employed by the vendor, correctly classified, covered by remittances and benefits. Avoid linkages that may expose you to co‑employment risk.
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Contract for resilience: Include clauses for transition out, exit rights, data handover, service continuity, vendor change without disruption.
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Review and test: Periodically review contract performance, compliance certificates, conduct mock audits, test breach response.
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Track policy changes: Monitor labour, data protection, and outsourcing policy changes in the Philippines and Australia. Update your contracts and vendor arrangements proactively.
How Outsourcing Through PeoplePartners Can Benefit Australian Businesses
PeoplePartners is a leading outsourcing provider with extensive experience in serving Australian clients, making them an ideal partner for businesses looking to outsource to the Philippines.
Outsourcing through PeoplePartners can provide numerous benefits for Australian businesses, including cost savings, increased efficiency, and improved customer satisfaction.
Conclusion
Outsourcing to the Philippines has proven to be a reliable and cost-effective strategy for businesses looking to remain competitive in today’s globalised market. While legal considerations such as labour laws and data protection may seem daunting to Australian business owners, outsourcing through a reputable provider like PeoplePartners can ease these concerns. With their legal expertise and comprehensive outsourcing contracts (Master Services Agreement (MSA), businesses can rest assured that they are compliant with all legal requirements. Furthermore, outsourcing to the Philippines through PeoplePartners can provide numerous benefits for Australian businesses, including cost savings, increased efficiency, and improved customer satisfaction. As the outsourcing industry in the Philippines continues to grow, businesses that take advantage of this trend can remain competitive and thrive in their respective industries. Contact us today to learn how to build and manage a thriving Filipino team.
FAQs
Yes. Outsourcing to the Philippines is completely legal. By working with a reputable provider like PeoplePartners, Australian businesses can be confident that all labour and data protection laws are properly followed.
The Philippines has strict labour laws that protect employee rights, as well as the Data Privacy Act of 2012, which ensures personal data is handled safely. Trusted outsourcing companies make sure these rules are met at all times.
Choose an outsourcing provider that already complies with data privacy laws and has strong security systems in place.
A good outsourcing contract clearly states the responsibilities of both parties, including compliance with labour laws and data protection rules. It also outlines terms for dispute resolution and performance expectations.
Working with a non-compliant provider can lead to disputes, penalties, or data issues. Partnering with a trusted company like PeoplePartners helps ensure your business stays protected and fully compliant.
