Classifying online workers for social protection, taxation a big problem

Classifying online workers for social protection, taxation a big problem

Jan 20, 2022, 8:09 AM
Rose De La Cruz

Rose De La Cruz


The growth of remote working arrangements has led to confusion and difficulty in classifying online workers for taxation and social protection purposes, said a study of the Philippine Institute of Development Studies. Still government must simplifying online workers’ registration as this kind of work arrangement is expected to surge in 5 years.

The growth in remote work during the pandemic has led to problems on how to classify online workers for the purpose of taxation and social protection.

This reality emerged from the study of the Philippine Institute for Development Studies entitled “Exploring Policies and Initiatives for Online Workers in the Philippines authored by PIDS Senior Research Fellow Ramonette Serafica and Research Analyst Queen Cel Oren.

The authors cited the overlapping classification of online workers that has affected their tax payments to the Bureau of Internal Revenue (BIR).

“Even if Filipino online workers want to register with the BIR and pay their fair share, anecdotal evidence reveal confusion with respect to their proper category. The registration requirements and procedures could also be problematic,” the authors said.

Freelancers on project basis

Online workers are often freelancers hired on a per project basis, which means income is not always steady.

Some work depends on the availability of clients and contracts. They can fall under varying categories — entrepreneurs, part-time workers, freelancers, or independent contractors — at different times, said the study published by BusinessWorld.

For instance, freelancers are not among the list of individuals who should file an income tax return (ITR) under the National Internal Revenue Code. But a freelancer can be classified as self-employed professional, mixed-income individual or sole proprietor, depending on their profession.

“Even if Filipino online workers want to register with the BIR and pay their fair share, anecdotal evidence reveal confusion with respect to their proper category,” PIDS researchers said.

Some online workers are not able to register at the BIR because they cannot submit a residence certificate without the required storefronts.

Different perception

“Platform workers have a different perception of their employment status. Depending on the nature of their work, they may be recognized by the BIR as individual and non-individual taxpayers,” the authors said.

At the same time, freelance workers can tap social insurance programs, but they often fall into overlapping employment status categories.

“Online workers might find it challenging to make regular contributions or may not be motivated to voluntarily do so,” PIDS said. “Thus, the current social protection schemes will have to be reviewed and updated to be responsive to the needs of new types of workers and work arrangements.”

Social Security System and Pag-IBIG benefits have contribution-based eligibility rules, which means online workers that have not paid contributions over a certain number of months will not be able to avail of benefits.

Govt. must simplify social protection

The government should help simplify social protection registration processes and using online payment systems, the PIDS researchers said.

“Like the Universal Health Care Act, the government can consider providing universal social protection,” the authors said.

“Whether it is to design a social protection scheme suitable for online workers or a mechanism to increase tax compliance, field experiments could be conducted to determine the appropriate interventions that will encourage participation and reduce the informality of online work.”

Online work to surge in 5 years

The PIDS researchers expect online work to surge, with a third of the workforce partly or fully working remotely after five years.

“With the COVID-19 pandemic, the market for online work is believed to expand further with the increase in outsourced tasks and availability of workers due to job losses in other sectors.”

Several bills related to online workers are pending in Congress, including the Philippine Digital Workforce Competitiveness Act that would help improve digital training, and the Freelancers Protection Act that would give them the right to social welfare benefits and simplified tax registration. The National Digital Careers Act would roll out subsidies, scholarships, and incentives for digital work.

Tags: #PIDSstudy, #onlineworkers, #taxationandsocialprotection, #confusingregistration, #labor

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