Paying Filipino workers in USD. What should the inflation rate be?
Your employees are at risk of PHP inflation; you are not, so you should be paying in USD, and adjusting for USD inflation if you want to.

Yes your reasoning is correct. If you increase their pay by US inflation, in theory the exchange rate to PHP should increase MORE due to the higher PHP inflation (relative to USD). So when they convert their USD to PHP, their resulting PHP income would reflect PHP inflation.