Security and manpower agencies
A client pays for twenty guards. Most of that money is wages passing through. Here is why the distinction matters so much.
A manpower or security agency bills a client one amount per guard per month. Out of that comes the guard's wage, the mandatory contributions, the uniform, the supervision, and what is left is the agency's margin.
The client sees one bill. The agency sees a pass-through with a thin slice on top. Getting the records to reflect that correctly is the central challenge of the business.
The guards are your employees, not the client's
This is the foundation. An agency supplies personnel; it does not transfer them. The guards are employed by the agency, on the agency's payroll, registered with the contribution systems by the agency.
That makes the agency an employer at scale, often with more employees than any other business of similar revenue. All the ordinary employer obligations attach: payroll records, the deductions and remittances that go with wages, the contribution systems, and the paperwork of people joining and leaving.
The client is a customer buying a service, not an employer. Where an arrangement drifts, where the client directs the workers as if they were staff, hires and fires them, and sets their conditions, the picture gets complicated, and that ambiguity is the source of a great deal of dispute in the industry.
Your income is the whole bill, not the margin
The most common accounting error in this industry is treating only the margin as revenue.
The full amount the client pays is the agency's income, and the wages, contributions, and costs paid out are the agency's expenses. The difference is the profit.
This matters for two reasons. Thresholds and obligations tend to look at revenue, not profit, so an agency with a thin margin can still be a large business by the measures that count. And the expenses only reduce your taxable income if they are properly documented, which for payroll means real records rather than a lump described as wages.
Clients will deduct before paying
Companies paying for services generally deduct an amount before releasing payment and remit it in the agency's name. Collect the certificates: they are advances against the agency's own tax, and they are substantial in a business with high revenue.
Clients also pay late, routinely, while wages are due on time without exception. An agency is therefore always financing its own payroll ahead of collection, and the cash record matters as much as the profit record. Agencies that fail usually fail here rather than on margin.
The documentation load
This is a paperwork-heavy business, and the paperwork is the business.
Per employee: payroll records, contributions, joining and leaving documentation, and the annual paperwork employees are entitled to.
Per client: the contract, the billing, the deductions withheld from your payments, and the certificates supporting them.
Per period: the returns that go with employing people, on their own schedule.
An agency that cannot produce these is not merely disorganised; it is exposed on the employment side, where the consequences are heaviest.
Practical footing
Record revenue gross, not net of wages.
Keep payroll records that would survive being examined line by line.
Collect withholding certificates from every client, every month.
Watch the cash gap between paying wages and being paid.
Be clear in contracts about who directs the workers.
Running an agency and unsure how to record the wages that pass through you? Ask AskOnward for a clear answer from the official BIR rules, so the biggest part of your billing is documented properly.
This article is for general information and is not affiliated with the government. For official forms and the latest rules, see the Bureau of Internal Revenue at bir.gov.ph.