Employment Laws in the Philippines: A Guide for US Companies

Hiring in the Philippines is an excellent option for US employers to consider when expanding internationally. We walk through the labor laws to keep in mind if you're planning to hire there.

Skyscrapers of Makati Metro Manila at Night

Caitlin MacDougall

PEO vs EOR office building against a purplish sky

With a young, tech-savvy workforce, the Philippines is an attractive destination for international businesses looking to hire a global team. Even more enticing, English is one of the official spoken languages of the country, and Filipinos are very familiar with American culture and customs, making communication between US employers and Filipino workers that much smoother.In recent years, members of the Filipino workforce have become eager to participate in the Silicon Valley world: mobile app development and data analytics are just a couple skills that tech workers in the Philippines have mastered. And despite the COVID-19 pandemic, the economy is surging to pre-pandemic levels.Before you start hiring in any country, it's important to know some of the details of employment law, and the Philippines is no exception. In this article, we will provide an overview of the labor code of the Philippines, as well as different worker classifications to keep in mind as you find the right talent for your company.

Employment relationships 📑

Let's start with employment relationships in the Philippines. A written employment contract is technically not required in order to hire workers in the Philippines, but companies will often provide a contract to their employees before they start work anyway. If you draw up an employment contract for a Filipino employee, it should include the specifics of the job, such as the job description, salary, and the conditions of employment.The Philippine Overseas Employment Administration is a government agency designed to protect employees who are hired outside the Philippines, and they take worker protections very seriously. Make sure that when you do hire in the Philippines, you are classifying your workers correctly.Employment agreements must comply with Filipino labor code regulations to avoid legal penalties from the National Labor Relations Commission. If a company hiring in the Philippines misclassifies an employee as an independent contractor, they may be required to pay back taxes or back pay, and may even face legal trouble for not providing employee protections like rest periods, 13th month pay, or collective bargaining agreement requirements.So what are the different types of types of employment in the Philippines? Here is an overview:

Regular employment

A worker is considered a regular employee when they have been working for an employer for at least one year, regardless of whether that relationship was continuous or not. In regular employment, the employee is engaged in work that is necessary or contributes to the usual business of the employer.

Project employment

Employees who are assigned a specific project or task with a set end date are considered project employees. They have security of tenure until the project is complete.

Seasonal employment

Seasonal employment is temporary work that lasts for a season, such as agricultural work. Seasonal work can be considered regular employment, as regular seasonal employees whose work ends may be hired again later in the year.

Fixed-term employment

In fixed-term employment contracts, there is a fixed period of time for an employee to complete a task or project.

Probationary employment

Sometimes, an employer may decide to hire an employee for a kind of probationary period known as probationary employment. During this period, the employer determines whether the probationary employee qualifies for regular employment. Before hiring an employee under this agreement, the employer must define the standards under which the employee will qualify as a regular employee. If the standards aren't clear, then the employee will be considered a regular employee under labor code.

Employee rights ⚖️

Labor code in the Philippines mandates certain rights for employees. Here are a few crucial rights to consider when hiring employees:

Collective bargaining

Employees have a constitutional right to form or join unions for the purpose of collective bargaining agreements. Rank-and-file employees and and supervisory employees are also free to organize or assist unions for collective bargaining purposes.

Minimum wage and working hours ⏰

Minimum wage rates in the Philippines vary depending on whether the worker is in the agricultural industry or not. At present, the minimum wage for non-agricultural workers is Ph537 per day.Eight hours is the maximum number of working hours that a Filipino employee can work a day. All rank-and-file employees in the private sector, with the exception of agricultural workers, domestic workers, and workers paid by results (e.g. contractors), can receive overtime pay amounts to 25% of their daily salary rate on top of their regular pay. Any overtime that occurs on the employee's rest days, special working days, or paid holidays is calculated as 30% of the employee's daily salary rate in addition to their regular rate.The Philippines has allowed flexible work arrangements since before the pandemic. The DOLE (Department of Labor and Employment) Department Order regulating flexible work arrangements allows for compressed work weeks, reduction of work days, and other arrangements, provided that the schedule is mutually agreed upon by the employee and employer.

Termination of employment ❌

An employer may end an employment relationship in the case of:

serious misconduct

failure to meet standards of a bona fide occupational qualification

willful disobedience

gross and habitual neglect of duty

fraud or breach of trust

a crime or offense against the employer, the employer's family, or the employer's representative.

Separation pay is granted to terminated employees in certain cases. For instance, if an employer installs a machine that conducts the employee's duties, the employee is entitled to separation pay. This is also the case for redundancy. Redundancy occurs when there is an excess of jobs or positions in the company that prevent it from operating in an economical and efficient manner.Separation pay can be justified if there are expected or actual losses in profit at the company, or if the business closes. An employer may also receive separation pay if the employee has an incurable disease. Separation pay amounts to one month of pay for every year of service.To terminate a contract, the employer must provide a 30-day written notice of dismissal to the employee, after which the employee must be granted the opportunity to respond to the charges in a meeting with the employer. A copy of the written notice must be turned into the DOLE Regional Office where the employer is located.

Data Privacy Act 🔐

The Data Privacy Act (Republic Act No. 10173) is a law that seeks to protect private, personal, or sensitive information from being shared. In terms of personal employee data, employers are only allowed to process necessary personal information and are not allowed to share that information without the employee's consent. All organizations are required to appoint a Data Protection Officer (DPO) at their company to ensure compliance with data protection laws.

Employee benefits 💸

What are some employee benefits that are afforded to employees under social security law? Let's review.

Service incentive leave (SIL)

An employee who has worked for at least one year is allowed five days of a yearly service incentive leave. During that period, the employee receives the regular salary they would normally earn.Instead of vacation leave, employers may offer a service incentive leave instead. The service incentive leave does not apply to those who have already been provided leave with pay of at least five days.

Paid sick leave 🤒

Service Incentive Leave can also be used in lieu of paid sick leave. Paid sick leaves are not required by law in the Philippines, but some private companies or government employers may provide an employee with 15 days of sick leave with pay after one year of service to an employer. Employers must pay 90% of the employee's normal wages during sick leave, which is then reimbursed by the social security system with proof of social security contributions.

Maternity leave and other parental leave benefits 🤰

A pregnant female employee in the Philippines qualifies for maternity leave benefit if she has made at least three monthly contributions to the social security system for at least a year, or the twelve-month period before giving birth. The employee must also file a maternity leave application and notify her employer of her due date.Once qualified, the employee is entitled to 105 days of maternity leave, during which she is paid a daily maternity benefit equivalent to 100% of her salary credit.

Paternity Leave Act

With the Philippines' recent Paternity Leave Act, fathers of newborn children are entitled to take some time off to care for their child. New fathers are entitled to seven days of paternity leave with 100% their normal wages.

Leave for solo parents

Parental leave does not just apply to a married male employee or a married female employee. A single parent is also entitled to seven days of leave if they have notified their employer of their intention to take leave and filed a leave application. Furthermore, the Solo Parents' Welfare Act (Republic Act No. 8972) grants solo parent employees a maximum of seven working days per year to attend to parental responsibilities.

Holiday pay

The Philippines celebrates many public holidays that are considered paid days off. If an employee works on non-working holidays, they must receive 100% of pay in addition to their daily salary rate for each holiday. If the employee does not work on a paid holiday, then the employee receives wages they would earn on a normal day.In the instance where two paid holidays occur on the same day (e.g. a national holiday falls on the same day that a moveable holiday is celebrated), the employee is entitled to two holidays' worth of pay in addition to their regular full pay.

13th month pay 💰

13th month pay is a required end-of-the year bonus given to employees. In the Philippines, the bonus is equal to one month of full pay. Employers must pay the bonus by December 24, without exemption or deferment of payment. Employers are required to report that they paid their employees their 13th month salary through the DOLE Establishment Report System no later than January 15, after the December 24 deadline.

Retirement pay

Filipino employees who have reached the age of 60 have the option to retire, and retirement is compulsory at age 65. Retired employees have the right to retirement pay if they have served at their company for at least five years.The calculation for minimum retirement pay is: 22.5 days x daily rate x number of years of service.

Independent contractors 👩‍🔧

Filipino workers are increasingly attracted to gig work, and many are becoming independent contractors. US employers may find that independent contract workers suit their companies' needs better than employees do. For instance, if an employer is unsure how long a project will take or how much work they can provide, an independent contractor is a wise investment.Independent contractors in turn can appreciate having a flexible working schedule, as they are not beholden to work for a single employer on any fixed working schedule. Online freelancers and independent contractors in the Philippines must register with the country’s Bureau of Internal Revenue (BIR), and are required to submit monthly, quarterly, and annual reports of their profits.As mentioned previously, companies hiring in the Philippines must be very diligent about worker classification, especially if they want to hire a contractor. While independent contractors are typically exempt from the complexities of many kinds of employment law, providing a written contract is a best practice. If no written contract is provided, the employer may face significant fines, in addition to payment for benefits owed to their misclassified worker.

Legal Disclaimer:

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.

The benefits of outsourcing HR 📈

Navigating compliance and local labor laws amidst the rest of your duties as an employer can be quite challenging without help. Unless you are an avid reader of the periodic handbook the Philippine Overseas Employment Agency publishes every year, you will likely need help keeping track of all that's required for hiring a Filipino foreign national. Fortunately, there are ways to outsource your HR team to ensure you're complying with labor law.Pilot specializes in payroll, benefits, and compliance for remote teams. From acquiring an alien employment permit to paying your workers, our team is glad to help. For US-based companies who want to grow globally, our international and fully distributed team has expert knowledge on the essentials for hiring globally.Contractors love our payments services, too: we don't mark up exchange rates, and we don't require that they use an e-wallet to access their payments. Instead, funds go straight to their bank accounts, making the whole process for both employers and workers much more streamlined. Even better, Pilot supports payments in over 240 countries around the world.

Going global isn't daunting when you partner with Pilot. 🤝

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