With a 7.6% GDP growth in 2022, the Philippines’ rising economy is now attracting international businesses looking to hire a global team.
The country is a good option for foreign employers expanding internationally or offshoring their Employer of Record (EOR) needs due to the Filipinos’ familiarity with Western culture and being one of the largest English-speaking countries in Asia. However, you must study their employment laws to expand and have a workforce within the country.
Not only do you need to know the rights of employers in the Philippines, but you also need to know the employees’ rights as well to ensure you have a great employment relationship.
Here’s an essential comprehensive guide to help you understand the different labor and employment laws, regulations, and requirements in the Philippines.
Why Hire an Employer of Record (EOR) from the Philippines?
Hiring an EOR in the Philippines allows you to outsource your hiring, compliance, human resources (HR) needs, and payroll without establishing yourself as a legal entity. It means you can obtain your workforce faster as you won’t have to go through the legalization process as a foreign company, saving you the costs.
If you let an Employer of Record (EOR) guide you, you won’t need to study the Philippines’ labor and employment laws extensively. One of their services is an onsite legal team that’ll steer you into staying compliant. Other services include recruitment, onboarding, employee management, and payroll.
They can hire contractors if you’re not looking for full-time employees. Some EORs also help secure work visas if you intend to bring in team members from overseas to help establish operations and train your workforce.
Another benefit is that because the EOR is the employer the government recognizes, you’re not liable for your employees’ welfare and compensation. That means reduced risk of noncompliance, and a trusted EOR will ensure that they’re upholding fair labor practices and keep you updated if any employment laws change. They will be the ones to build employment relationships and allow you to focus on your business. For instance, scheduling their working hours, providing them the incentives for working on holidays or rest days, and keeping them engaged with activities.
If you’re still looking to establish yourself as a legal entity, partnering with an EOR helps you start operations while you go through the process. Other businesses also partner with an EOR to draw upon their expertise and familiarize themselves with the local market, workforce, and employee and employer rights in the Philippines.
Fees are usually charged monthly, with some EORs having additional fees per full-time employee. When looking for an EOR to partner with, check their services and costs to see if they fit your business well.
How to Hire an EOR from the Philippines
EOR services are a great option for businesses that want to set up a branch or subsidiary in another country but don’t want to deal with the hassle of learning complex tax laws, labor and employment laws, benefits, and compensation.
With an EOR service, you don’t have to worry about setting up your own office space within the country or going through the licensing process to have a branch or subsidiary as your legal representative.
You can register for one of the government organizations if you meet their eligibility requirements under the Fiscal Incentives Review Board (FIRB). These include the Board of Investments (BOI), the Philippine Economic Zone Authority (PEZA), and the Tourism Infrastructure and Enterprise Zone Authority (TIEZA).
Registration will allow you to have tax benefits and investment assistance.
When hiring an EOR in the Philippines, you should check their experience within your industry. Then, discuss your specific needs and fees. That way, they’ll be familiar with the type of employees you need and can hire the best candidates.
Since an EOR usually takes care of your company’s administrative responsibilities, you can focus on growth and marketing. However, remember that hiring one would require some knowledge of labor and employment law in the Philippines.
Philippine Labor Laws That Employers Must Know
The government established labor laws to protect employees’ rights in the Philippines. To avoid trouble with the law, you must stay compliant. Here are some of the Philippine labor laws that employers must know.
• Filipino employees’ basic rights
The Department of Labor and Employment mandates that employers provide their employees with equal work opportunities, security of tenure, compensation for working hours, weekly rest days, and safe working conditions. In addition to this, they can’t hire children below 15 years old, as stated in Republic Act No. 7658.
• Employee contracts
No law states that you must provide an employee with a written contract. Although a verbal agreement is enough to employ a Filipino, lawyers strongly recommend providing a written contract.
Employment relationships are important, however, if any conflict arises between you and the employee, you can prove they didn’t meet their responsibilities. It also provides proof of the employee’s employment status because labor law presumes that an employee without a contract is a regular employee and not contractual or probationary.
• Normal working hours
Under Article 83 of the Labor Code of the Philippines, Filipino employees’ working hours shouldn’t exceed eight (8) hours daily. The government amended the law to allow compressed work weeks, but total working hours shouldn’t exceed 48 hours a week.
In addition, a day-off of 24 consecutive hours after six days of work should be scheduled upon consultation with the employee. Holidays and rest days must be given to employees and can be adjusted based on what was discussed between the two parties.
• Termination of employment
Various factors can cause you to terminate an employee’s contract. These reasons include serious misconduct, neglect of their duties, committing a crime, and willful disobedience. You can also end an agreement in cases of redundancy, retrenchment, installing devices that save on labor, and in case your business closes.
Additionally, under Republic Act No. 1787, if there is no fixed period for employment in a commercial, industrial, or agricultural business, either the employer or the employee can end the employment at any time. The employee can do this with or without a valid reason by giving written notice to the employer at least one month in advance.
Before termination, you need to observe due process. Depending on the factor causing you to dismiss the employee, you must either present the employee with a written notice and then summon them to a hearing or provide the written statement 30 days before their last day and submit a copy to the Department of Labor and Employment (DOLE).
By not following the due process, you may pay employee damages if they decide to bring the case to DOLE.
• Minimum wage
The minimum wage in the Philippines depends on the region and if the employee works within the agriculture industry. The minimum wage for non-agricultural employees working in the National Capital Region (NCR) is around PHP 570 daily, as of June 2022.
Employment Types in the Philippines
There are six types of employment recognized in the Philippines. These are:
• Regular
Employees working with an employer for at least a year, performing necessary duties, and contributing to their business scheme.
• Project-based
Employees hired by the employer for a specific project with a fixed end date or until the project is complete.
• Seasonal
Employees on a seasonal contract are hired for a season and laid off in the off-season. The law considers them regular employees during the season and because of their job nature. An example of this employee type is those working in agriculture.
• Fixed-term
Employees performing a task or job for an agreed-upon time. The labor code of the Philippines doesn’t mention this type of employment, but it’s recognized and enforced via jurisprudence.
• Probationary
An employer can hire a worker under probationary employment as a trial run to see if they qualify for regular work. The employer must inform the employee about the standards they must meet to be eligible for regularization. Otherwise, the law considers them regular employees.
Employee Benefits and Contributions
Besides having a good employment relationship, the country’s government has listed down on the labor code of the Philippines several mandated benefits and contributions employers must provide their employees. This includes overtime pay, compensation adjustments during work on holidays or rest days, and many more.
Benefits
• 13th-month pay
The law requires all employers to pay their rank-and-file employees 13th-month pay if they worked for a least a month in a calendar year. The employer must give their employees their 13th month’s payment no later than December 24th. In addition, 13th-month pay shouldn’t be less than 1/12th of an employee’s total basic salary.
• Overtime pay
Overtime refers to additional hours worked that exceed the standard 8 hours. The overtime pay calculation differs depending on whether the employee worked during a regular day, holidays or rest days. The rate also varies depending on the industry.
• Holiday pay
Holiday pay refers to compensation for any work done during a non-working regular holiday. Employees exempt from receiving holiday pay include government employees, retail and service establishments with fewer than ten employees, domestic workers, those with managerial positions, and field personnel. In case needed, an employee who reported to work for hours on a holiday or rest day is entitled to an additional premium on top of the employee’s daily/hourly rate. The computation will be the employee’s hourly rate multiplied by 130% and multiplied again by the total number of hours on a holiday or rest day that they worked.
• Night shift differential
Night shift differential is compensation for employees working between 10 p.m. and 6 a.m. Based on Republic Act No. 11701, the pay should be an additional 10% of their basic salary per hour worked. Computation for night shift differential depends on the industry and if the employee worked during holidays or rest days.
Employees exempt from receiving night shift differential are in the same category as those exempt from receiving holiday pay.
Contributions
• SSS
The Social Security System (SSS) is part of the government’s employee compensation programs and provides support in the event of disability, death, retirement, maternity, or unemployment. An employer typically deducts an amount of an employee’s salary to contribute to their SSS fund.
Calculations for contributions depend on the employee’s range of compensation.
• Pag-IBIG
Also known as the Home Development Mutual Fund (HDMF), the Pag-IBIG fund is a government savings system. Like the SSS, employers typically deduct a percentage of an employee’s salary to contribute to the fund. This is mandated by the Republic Act of 7835.
According to the labor code of the Philippines, benefits from regularly contributing members include housing and short-term loans. The calculation for the contribution is 2% of an employee’s salary if they’re earning more than PHP 1,500 a month and 1% if they’re making PHP 1,500 and below.
• PhilHealth
Included in Republic Act No. 7875 is that employers must provide financial access to quality health care services to their employees. PhilHealth is a compulsory government insurance program that aims to cover all Filipinos. Like the previous two contributions, the employer automatically deducts a part of the employee’s salary to contribute to PhilHealth. The calculation depends on the employee’s wage range, and benefits include in-patient and out-patient services.
Leaves
• Sick leave
The labor code of the Philippines doesn’t require employers to give employees paid sick leaves. Also, the amount of paid sick leaves depend on the employer.
If an employee contributed at least three months of SSS before hospital confinement for more than three days, the employer must pay them 90% of their daily salary for each confinement day.
This compensation only applies if the employee has no more existing sick leaves. The SSS reimburses these payments to the employer if they provide proof of the employee’s contributions.
• Vacation leave
The labor code of the Philippines doesn’t explicitly state any vacation leave but mandates that employers must give employees five days of paid Service Incentive Leave (SIL) after working for a year. The law says that a year is either continuous or broken 12 months of service and is convertible to cash.
Those exempt from receiving the SIL include the same exemption from holiday and night shift differential pay.
• Maternity leave
The law mandates that all female employees benefit from paid maternity leave of up to 105 days, with additional 15 days if they qualify as solo parents under RA 8972. Female employees qualify for this benefit if they’ve made at least three months of contributions to the SSS before giving birth, suffering a miscarriage, or terminating their pregnancy as an emergency.
• Paternity leave
Paternity leave covers married male employees working in the private and government sectors. The benefit covers the first four deliveries of the employee’s wife and is seven days of paid leave. The employee must be employed at the time of delivery and cohabiting with his wife unless his occupation keeps him away.
Frequently Asked Questions (FAQs)
Q1: What are the different types of employment recognized in the Philippines?
There are six types of employment in the Philippines: regular, project-based, seasonal, fixed-term, probationary, and casual. Each type has specific characteristics, and understanding them is essential for compliance with labor laws.
Q2: What are the mandated benefits and contributions for employees in the Philippines?
Mandated benefits include 13th-month pay, overtime pay, holiday pay, and night shift differential. Contributions are made to Social Security System (SSS), Pag-IBIG (Home Development Mutual Fund), and PhilHealth. These contributions provide support for disability, death, retirement, maternity, and unemployment.
Q3: What are the essential Philippine labor laws that employers must be aware of?
Employers in the Philippines must understand labor laws regarding Filipino employees’ basic rights, employee contracts, normal working hours, termination procedures, minimum wage, and different types of employment. Familiarity with these laws is crucial to maintaining compliance and building employment relationships.
Q4: How can an EOR help me navigate Philippine labor laws?
EORs offer onsite legal teams to guide you in staying compliant with labor laws. They manage administrative responsibilities, recruitment, onboarding, and employee management, reducing your risk of noncompliance. EORs also keep you informed about any changes in labor practices or laws.
Q5: How does leave entitlement work under Philippine labor laws?
Employees in the Philippines are entitled to sick leave, vacation leave (Service Incentive Leave or SIL), maternity leave, and paternity leave. The specific regulations and duration vary, and understanding them is crucial for employers to meet legal obligations.
Let an EOR Be Your Guide
You should consider several laws when expanding your business to the Philippines. Not only do you need to review the government-mandated benefits, but you also need to remember the different laws surrounding leaves and contributions.
Hiring an EOR allows you to forgo studying all these laws extensively because they take care of your business’s compliance, hiring, payroll, and employee management. They guide you to stay compliant and shoulder the responsibility and liabilities regarding your workforce, leaving you free to grow your company.
If you want to expand your business into the Philippines, consider One CoreDev IT. We’re an offshore EOR company that helps with HR solutions and back-office services. We also provide dedicated offshore software development teams and project management services.
Check out our FAQs and other guides to learn more!
