It is no surprise that the Philippines have staked its claim on a large slice of the outsourcing pie, all the while reshaping the world’s perception of the industry as a whole. However, following recent legislative changes, the question arises whether outsourcing is set to outgrow the thriving freelancer community.
The difference between freelancing and outsourcing
At first glance, independent freelancers and outsourcing companies have a lot in common. Both are third-party services that enable a company to give specific tasks over to someone else, while they tend to the functions within their organization that will increase their productivity or curb their expenses. By tapping into skill sets from a talent pool that they normally don’t have access to, companies can expand their footprint without the accompanying HR complications.
The main difference between the two pertains to the type of engagement and the relationship with the rest of the in-house team.
Freelancers are professional individuals operating as a one-man business by completing tasks on an hourly or per-project basis. They are not employed by the company and are therefore not obliged to adhere to company policies and procedures. Since independent freelancers quote and/or invoice for services rendered, they are often subject to tax as a business entity. There is often a disconnect from the company culture because the company that engaged the freelancer has no control over their working environment, their working ethic or their working process. They give them a task and a deadline, then assess the task afterwards.
When using a Business Process Outsourcing (BPO) company, there is still a measure of involvement or control over the choice of company used to facilitate the required services. Should the company’s interests be to operate in an ethical, impact-driven manner, then this is an opportunity for them to use an outsourcing partner that is aligned with their values. It’s important to note that BPOs are no longer limited to the conventional notion of CX call centers. Outsourcing of IT, manufacturing, and project management functions, have become popular over the years, especially during seasonal peaks.
The numbers: freelancing vs outsourcing
In 2006, the Government rolled out a plan to make the Philippines one of the primary BPO destinations in the world. This helped tremendously with post-pandemic recovery planning, because they already had processes in place to accommodate unprecedented growth. Now, with more than 1000 BPOs operating in the Philippines, many industry specialists believe the country has achieved its goal to be the BPO capital of the world.
The Philippine outsourcing sector grew to $29 billion in 2021 (10% up on 2020), thereby surpassing an already retargeted 2022 goal. The industry generated around 1.44 million direct jobs (9% up on 2020), which also generated an estimated 4 million indirect jobs. This could be attributed to the fact that the country boasts a 97.5% literacy rate and has 60 million inhabitants who are fluent in English, or because the Philippine Economic Zone Authority (PEZA) has extended numerous incentives for foreign companies looking to invest into the BPO sector.
Freelancing in the Philippines also showed phenomenal growth. Combined, Upwork and Freelancer, two renowned platforms that enable independent professionals to offer their services, have around 2.2 million Filipino users enrolled. In 2019, riding the pandemic-fueled global remote working wave, the Philippines was ranked as the sixth fastest-growing freelancer market in the world. This trend continued in 2020, with the Philippines showing a 208% year-on-year revenue growth. However, the government could prove to be the fly in the freelancing ointment.
SONA 2022 and the issue of taxation
On 25 July 2022, newly-elected President Ferdinand “Bongbong” Marcos Jr., delivered his first State of the Nation Address in Manila. As Marcos Jr. discussed the uncertain future of the Philippine economy, he was quick to point out how a focus on agriculture and tourism could help to secure a single-digit poverty rate by 2028.
He added that one of the immediate aspirations for the country was to become an investment destination, particularly through productivity-enhancing investments. The irony of this stance is that many companies outsource services to Philippines-based teams to enhance their own productivity.
What came as a surprise, though, was the imposition of value added tax on digital services providers, which would adversely affect freelancers who make use of them. This comes off the back of a post-pandemic period where many Philippines-based freelancers experienced dry spells or sporadic commitments from clients, not to mention a recent PayPal survey claiming that 58% of freelancers have encountered client non-payment.
While Marcos spoke fondly of the country’s “beloved freelancers who were left vulnerable during the height of the pandemic”, it is well-known that they are prone to skirt or neglect their tax obligations. Following the 2022 SONA, there has been talks that Marcos is eager to plug this ‘tax leakage’, which could result in bills being passed to increase taxation on freelancers. Besides job security and economic concerns, any additional taxation could be a nail in the coffin for the Filipino freelance community.
The return-to-office standoff
The outsourcing industry in the Philippines grew alarmingly fast during the worldwide lockdown, partly because of the fact that 90% of all employees were able to work from home. Unfortunately the advent of remote working was cut short by the Government’s mandate for teams to return to their offices on 1 April 2022, especially those operating within the BPO industry.
After some resistance, the Philippine Economic Zone Authority (PEZA) reversed the labor policy by implementing a 70-30 work scheme, which allowed some workers in the BPO sector to work remotely for 30% of the time. This arrangement, however, is only in place until 12 September 2022. It is still unclear how flexible the government will be about this date, though further extensions are unlikely to occur.
The idea of having to return to work and losing their newfound freedoms, could nudge some professionals to consider joining the Great Resignation and becoming freelancers. However, this sudden loss of skill sets could similarly nudge companies to consider outsourcing these tasks to Philippines-based teams.
The future of freelancing
The problem of freelancing lies in the uncertainty thereof. It is a business structure that is fiercely competitive, can quickly become saturated with too many players, and is fraught with jurisdictional and business tax woes. The state of a country’s infrastructure, further muddles its future prospects.
One of the more recent concerns facing freelancers, is the inability to consistently guarantee a sustainable income. When a freelancer loses two or three key clients, they could find themselves in a spot of trouble. Not having the same security as a full time employee, along with additional troubles, such as client non-payment, robs freelancing of its luster.
Another serious detractor of freelancing is the concern that individuals who are not used to running their own businesses, are willfully placid in planning for their future. They neglect their retirement planning, do not secure medical cover and do not acquire or pursue relevant industry upskilling as they should. These are basic employee benefits and a way of future-proofing a business. While self-employment, remote work and flexibility are strong attributes of freelancing, it quickly dissipates when the reality of survival arrives at the doorstep.
The modern freelancer therefore is required to be ultra-creative, money-savvy entrepreneurs who are wise to the tax implications of their trade and willing to put measures in place to plan for their future. In kind, business owners need to be considerate of these points when contracting the services of an independent freelancer. And where larger projects or seasonal ramp ups require an outsourced response, be deliberate about engaging an ethical outsourcing partner that treats their team members with integrity.