An Employer of Record (EOR) in the Philippines acts as the legal employer for workers, handling payroll, benefits, and other employment tasks on behalf of the actual employer. Also known as a Global PEO, it simplifies hiring without the need for entity setup.
Discover the key considerations and essential details you should be aware of before you hire your remote team in the Philippines.
On this page: Employment Contracts | Working Conditions in the Philippines | Social Security | Personal Income Tax
Employment Contracts in the Philippines
In the Philippines, the Department of Labor and Employment (DOLE) plays a central role in regulating employment through the Philippines Labor Code. Employment contracts, crucial agreements between employers and employees, must adhere to DOLE regulations and the stipulations of the Labor Code. These contracts outline essential aspects such as job responsibilities, compensation, and benefits, with DOLE ensuring their compliance. The synergy between DOLE, the Labor Code, and employment contracts establishes a framework that safeguards the rights and interests of both employers and employees, contributing to a fair and balanced employment landscape.
In the Philippines, it's a requirement under labor laws that all job relationships have a written contract. This document outlines the terms and conditions of the employment. Following are the key clauses of an employment contract in the philippines.
Key Clauses of an Employment Contract
- Job Description: responsibilities and duties of the employee
- Employer and Employee Information: names, addresses, contact details, SSS, TIN
- Place of Work: work location, travel, non-standard hours
- Working Hours: normal hours, overtime arrangements
- Wages and Benefits: salary, allowances, bonuses, overtime pay, leave benefits
- Probationary Period: duration, termination without cause
- Term of Employment: contract length (specific or indefinite)
- Termination: grounds and procedures for contract termination
- Confidentiality and Non-compete Clauses: information disclosure and competition restrictions
- Arbitration and Dispute Resolution: provisions for resolving disputes in accordance with law
Employment Contract Types
- Fixed-Term Contracts: This type of employment agreement specifies a definite termination date, often suitable for temporary or seasonal workers or those engaged in project-based roles.
- Indefinite Contracts: These agreements lack a predetermined end date, providing continuity until either party decides to terminate the employment. They are the standard arrangement for full-time permanent positions.
- Part-Time Contracts: Outlining a fixed number of weekly working hours, this agreement is typical for employees compensated on an hourly basis, commonly engaged in less than standard full-time hours.
- Freelance or Consulting Contracts: Governing terms between an independent contractor and the hiring company, these contracts are prevalent for short-term projects or one-time assignments, offering flexibility in engagements and terms.
Collective Bargaining Agreements (CBAs)
Collective Bargaining Agreements (CBAs) in the Philippines play a crucial role in defining the terms and conditions of employment for specific groups of workers. These agreements, negotiated between employers and worker representatives, typically unions, cover various aspects such as wages, working hours, benefits, job security, and working conditions.
CBAs act as a complement to individual Employment Contracts, offering increased protection and stability for workers. They ensure equal and fair treatment of workers within the same job category and provide a mechanism for resolving disputes between workers and employers.
Legally binding and enforceable by Philippine labor courts, CBAs hold the force of law. In case of conflicts, they take precedence over individual Employment Contracts and other labor laws.
Working Conditions in the Philippines
As businesses explore opportunities to extend their operations to the Philippines, a comprehensive understanding of the country's working conditions becomes paramount. In the pursuit of hiring remote talent or establishing a physical presence, factors such as standard working hours, minimum wages, overtime compensation, probationary periods, holiday observances, and leave entitlements play pivotal roles. This nuanced understanding ensures a smooth integration into the Philippine work culture, fostering a positive and compliant environment for both employers and employees.
Normal Working Hours:
Employees are expected to work a maximum of eight (8) hours per day.
Overtime Work:
If an employee works beyond eight (8) hours a day, they are entitled to additional compensation. This compensation includes their regular wage plus a minimum of twenty-five percent (25%) for overtime. If the work extends beyond eight hours on a holiday or rest day, the additional compensation is based on the rate for the first eight hours on that day, plus a minimum of thirty percent (30%).
Weekly Rest Day:
Every employer, whether for profit or not, must grant each employee a rest period of at least twenty-four (24) consecutive hours after every six (6) consecutive normal workdays.
Compensation for Rest Day, Sunday, or Holiday Work:
- If an employee works on their scheduled rest day, they are entitled to additional compensation of at least thirty percent (30%) of their regular wage. This also applies to work performed on Sundays if it's the established rest day.
- If an employee's work nature doesn't allow for regular work days and rest days, they should receive an additional compensation of at least thirty percent (30%) of their regular wage for work on Sundays and holidays.
- Work on special holidays warrants an additional compensation of at least thirty percent (30%) of the regular wage. If such holiday work falls on the employee’s scheduled rest day, the compensation increases to at least fifty percent (50%) of the regular wage.
Holidays
|
Holiday |
Date |
|
Regular Holidays |
|
|
New Year's Day |
January 1 |
|
Labor Day |
Monday nearest May 1 |
|
Maundy Thursday |
Movable Date |
|
Independence Day |
Monday nearest June 12 |
|
Good Friday |
Movable Date |
|
National Heroes Day |
Last Monday of August |
|
Eidul Fitr |
Movable Date |
|
Eidul Adha |
Movable Date |
|
Araw ng Kagitingan (Bataan and Corregidor Day) |
Monday nearest April 9 |
|
Rizal Day |
Monday nearest December 30 |
|
Christmas Day |
December 25 |
|
Nationwide Special Holidays |
|
|
Ninoy Aquino Day |
Monday nearest August 21 |
|
Last Day of the Year |
December 31 |
|
All Saints Day |
November 1 |
Leave Entitlements
Mandatory Entitlements:
- Service Incentive Leave (SIL): Minimum of 5 days per year, increasing by 1 day for every year of service up to a maximum of 15 days. This leave can be used for any purpose, including vacation or sick leave.
- Regular Holidays: 10 fixed holidays every year. If a holiday falls on a Tuesday, Wednesday, or Saturday, it is observed on the Monday before or Friday after. If it falls on a Sunday, it is observed on the following Monday.
- Special Non-Working Days: Variable number of days per year declared by the President. Usually includes major religious holidays and some special events. Refer to the table “Holidays” for the names and dates.
Optional Entitlements:
- Vacation Leave: Most employers offer additional vacation leave beyond the minimum SIL requirement. The typical range is 10-15 days per year, but some companies may offer more.
- Sick Leave: Typically around 15 days per year, with some variation depending on company policy. Unused sick leave may be convertible to cash in some cases.
- Paternity Leave: 7 days of paid leave for male employees upon the birth of a child.
- Maternity Leave: 105 days of paid leave for female employees, provided by the Social Security System.
- Parental Leave for Solo Parents: 7 days of paid leave per year for solo parents.
- Special Leave Benefit for Women: 2 months of paid leave for female employees who experience miscarriage, abortion, or emergency termination of pregnancy.
- Leave for Victims of Violence Against Women and Their Children: 10 days of paid leave for victims of violence and their dependent children.
Maternity Leave Benefits
In accordance with Article 131, or 133, every employer is mandated to provide maternity leave benefits to eligible pregnant women employees. For those who have rendered a minimum of six (6) months of service in the last twelve (12) months, maternity leave of at least two (2) weeks prior to the expected delivery date and an additional four (4) weeks after normal delivery or abortion should be granted, with full pay based on the regular or average weekly wages. A medical certificate predicting delivery within two weeks may be required by the employer. If a woman employee experiences illness due to pregnancy, delivery, abortion, or miscarriage, extending the leave without pay is possible unless she has earned unused leave credits to cover it. It's important to note that the employer is obliged to pay for the maternity leave only for the first four (4) deliveries after the effective date of this Code.
Minimum Wages:
- There's no national minimum wage in the Philippines. Instead, regional wage boards set minimum wages for various regions and industry sectors.
- As of June 2022, daily minimum wages range from PHP 306 to PHP 570 depending on the area and sector.
Payroll Cycle:
- Most companies in the Philippines follow a monthly payroll cycle with salaries paid either monthly or bi-weekly, with pay intervals not exceeding 16 days.
- Some companies, especially in specific industries, may have alternative payroll cycles like semi-monthly or weekly.
Probation Period:
- The maximum probation period for definite employees in the Philippines is six months.
- During this period, the employer can terminate the employment without cause, provided they follow the proper procedural requirements.
- Probationary employees are still entitled to minimum wage and other mandatory benefits like SSS, PhilHealth, and Pag-IBIG contributions.
Notice Period:
- By law, employers must give employees a minimum of 30 days' written notice before terminating their employment, for any reason other than gross misconduct or willful neglect of duty.
- Notice periods can be longer if stipulated in the employment contract or collective bargaining agreement.
Termination and Severance Pay:
- Grounds for termination: An employer can terminate an employee for various reasons, including gross misconduct, habitual absence, redundancy, business closure, and health reasons.
- Severance pay: If an employee is terminated for authorized causes not attributable to the employee (e.g., redundancy, business closure), they are entitled to severance pay.
- Severance pay is calculated as one month's pay for every year of service, or half a month's pay for every year of service, whichever is higher.
13th Month Salary
The 13th month salary, often referred to as the Christmas bonus, is a statutory benefit for all employees in the Philippines. Enacted in 1975, this benefit ensures that employers provide an additional month's salary to their employees before December 25th each year. Its purpose is to aid Filipino workers in managing financial demands during the Christmas season and other holiday-related expenses.
The computation of the 13th month salary is straightforward, representing one-twelfth (1/12) of the employee's total basic salary earned throughout the calendar year. This calculation excludes non-regular allowances and benefits like overtime pay and meal allowances.
It's crucial to note that all employees in the Philippines, regardless of their employment status (full-time, part-time, probationary, or contractual), and industry, are entitled to the 13th month salary. This mandated bonus contributes significantly to the festive financial preparations of Filipino workers.
Personal Income Tax in the Philippines
In the Philippines, personal income taxes are levied based on a graduated system. The taxable income, which is the income subject to taxation after deducting allowable expenses and personal exemptions, falls into different brackets:
- 0%: Applies to income up to PHP 250,000
- 15%: Applicable to income above PHP 250,000 up to PHP 400,000
- 20%: Imposed on income above PHP 400,000 up to PHP 800,000
- 25%: Levied on income above PHP 800,000 up to PHP 2,000,000
- 35%: Applicable to income exceeding PHP 2,000,000
| Overview | |
| Continent | Asia |
| Country | Philippines |
| Capital | Manila |
| Time zone | UTC+08:00 (PHT) |
| Total Time zones | 1 |
| Working hours per week | 45–54 |
| Working week | Monday–Friday |
| Typical hours worked | 9 (including 1 hour lunch break) Most businesses are open on Saturdays. So often it is Monday–Saturday. |
| Personal Tax filing deadline | 15th Apr |
| Financial Year | 1st January to 31st December |
| Date format | mm/dd/yyyy |
| Currency | Philippine Peso (PHP) |
| VAT | the standard rate is 12% |
In the Philippines, leveraging the services of an Employer of Record (EOR) is pivotal for businesses venturing into the local employment landscape. The EOR takes charge of intricate compliance matters, manages payroll intricacies, and handles administrative intricacies, freeing up companies to focus on their core objectives without getting bogged down by regulatory complexities. This collaborative approach ensures that employees are brought on board with contracts aligning with the Philippines' labor laws and practices. As the Philippine business environment evolves, the role of an EOR becomes increasingly vital, offering businesses a streamlined entry and growth path in the Philippines while maintaining compliance and fostering a conducive work environment.
Social Security in the Philippines
Social Security Contributions in Philippines
When paying employees in the Philippines, employers must comply with payroll regulations, including monthly withholding obligations, regardless of the number of employees. These regulations are governed by the Department of Labor and Employment (DOLE) and are an essential part of payroll computation in the Philippines. There are four primary payroll contributions that must be deducted each month from employee salaries:
Complying with these payroll contributions is vital to ensure legal compliance and provide employees with social security benefits, healthcare coverage, access to affordable housing, and retirement savings. It is important for employers to accurately calculate and deduct these contributions from employee salaries to fulfill their obligations and support the well-being of their workforce.