Guide to Hiring in the Philippines

Planning on hiring in the Philippines? Whether you are building your first remote team or expanding an existing one, it is important to understand the local hiring landscape. This includes knowing the law around contracts, benefits, salaries, and employer responsibilities.

This guide will walk you through the essentials from the types of employment you can offer to region-specific minimum wages and important compliance requirements.

Before Starting the Hiring Process

Before you can begin operations and start hiring, you’ll need to register a company in the Philippines that aligns with your business goals and structure. Common business structures you can choose from include:

1. Domestic Corporation: A separate legal entity incorporated under Philippine law. Typically used by foreign investors who want full operational capability and local market presence. Requires at least 2 incorporators and may involve foreign ownership limits, depending on the industry.
2. One-Person Corporation (OPC): A simplified corporate structure that allows a single stockholder to form a limited liability company. It’s suitable for solo founders or foreign individuals looking for full ownership without needing business partners.
3. Representative Office: A non-income-generating setup that allows foreign companies to perform marketing, support, or administrative functions in the Philippines. It cannot engage in commercial activities or earn revenue locally.
4. Branch Office: An extension of a foreign company that can conduct business and earn income in the Philippines. It does not operate as a separate legal entity, but it registers with the SEC and pays local taxes.

Emerhub can assist in making this process easier by helping you choose the right setup, handling the registration, and ensuring full compliance with local laws.

However, if you are looking to test the market before committing to registering a business, partnering with an Employer of Record (EOR) in the Philippines, such as RecruitGo, is a preferred alternative. 

The EOR service allows foreign companies to legally hire employees without setting up a company. They will handle all the compliance requirements, payroll, employee benefits, and other aspects on your behalf.

Understanding the Philippine Labor Laws

Before you onboard your employees, it is important to understand the local labor laws and your responsibilities as an employer. 

At the core of labor regulations is the Labor Code of the Philippines, which outlines everything from employment standards to termination procedures. It is an important framework to understand worker rights, benefits, and employer obligations.

Regulation and enforcement fall under the Department of Labor and Employment, or DOLE. This is the key government agency enforcing labor laws and ensuring that workplace practices are fair and legal.

A. Employment Types Under the Philippine Labor Code

It is important to know the basic types of employment recognized by local labor laws as you start the recruitment and hiring process in the Philippines. Each employment type has different rules when it comes to contracts, benefits, and termination. Here’s a quick overview to help you choose the right setup for your team:

• Regular Employment: Standard long-term hires with employee benefits and security of tenure, meaning they cannot be dismissed without proper cause.
• Project-Based Employment: Ideal for short-term or specific projects. The employment ends when the project is complete or the employee meets the contract duration. As the employer, you will set the duration and job scope.
• Independent Contract: This is for self-employed professionals or service providers rather than full-time employees. They work independently for a fixed fee without employee benefits.

Our Emerhub business advisors can assist you in selecting the best employment type for your hires based on your business needs and proposed activities.

B. Regional Minimum Wage in the Philippines

One thing to keep in mind when hiring in the Philippines is that there is no set minimum wage. Instead, the minimum wage is set by region. So, you will have to pay a varying amount depending on where your employee is located. 

When setting up local operations, such as a manufacturing facility, understanding and complying with the applicable regional minimum wage is essential for budgeting and legal compliance.  However, when it comes to hiring skilled professionals such as engineers, software developers, or senior managers, the minimum wage is usually not relevant. 

These professionals need to be compensated based on their skills and experience. Although labor costs in the Philippines are generally lower compared to Western markets, companies that want to attract and retain top talent should consider offering salaries above the local market average.

For more details, refer to our article on regional minimum wage rates in the Philippines.

C. Employment Contracts, Work Hours, and Overtime Rules

Employment contracts are a key part of the hiring process in the Philippines as they provide you with an opportunity to lay out all the necessary details for the employment clearly. This includes details on the job scope, monthly salary, employee benefits, and expected working hours. A well-written contract protects both you and your employee while setting clear expectations from the start.

The average work day in the Philippines is eight hours, with a one-hour lunch break and at least one rest day in the week. Teams that require night shifts between 10 PM to 6 AM are entitled to a night shift differential. This adds an extra 10% on top of their current hourly rate.

Those working beyond eight hours a day are entitled to overtime pay. Here’s how that works:

• On regular workdays, overtime is paid at 125 percent of the hourly rate.
• If they work on a rest day or a special non-working day, it goes up to 130 percent.
• If it’s a regular holiday, the rate jumps to 200 percent, plus an extra 30 percent if overtime is needed.

Understanding this is important to ensure your employees’ payroll is done accurately so they can be paid on time. As such, our team can assist with ensuring that your payroll calculations are done accurately by taking into account your employees’ overtime rates and night shift differentials.

D. Mandatory Contributions for Employers in the Philippines

Aside from meeting minimum wage requirements, you will need to provide your employees with their statutory contributions as mandated by the government. Each local governing unit has a specific percentage that you, as an employer, would need to cover, along with a percentage deducted from your employee’s salary for their share. The percentages are as follows:

• Social Security System (SSS): Covers retirement, disability, maternity, and more. Employer share is 10 percent, while the employee contributes 5 percent.
• PhilHealth: Employee health insurance where both the employer and the employee contribute equally at 2.5 percent each.
• Pag-IBIG Fund: Goes toward housing and savings benefits. Both employers and employees contribute 2 percent. If an employee earns PHP 1,500 or less per month, the employer contribution stays at 2 percent, but the employee is only 1 percent.

Additionally, you are also responsible for withholding tax for your employees by deducting it from their salaries and remitting it to the Bureau of Internal Revenue. The amount deducted depends on your employee’s income and tax bracket. Withholding taxes for your employees is an important part of complying with tax compliance requirements as a business owner in the Philippines.

E. Employee Benefits Provided by Employers

Offering the right benefits for your employees is a great way to keep them motivated and happy at work. Many of these benefits are mandatory anyway, so it’s good for you to get familiar with what you are expected to provide:

• 13th Month Pay: This is a bonus payout that is often eagerly anticipated around the holidays. It’s equal to one-twelfth of an employee’s annual basic salary and must be paid on or before December 24.
• Service Incentive Leave: Once an employee has been with you for a full year, they’re entitled to five days of paid leave each year.
• Maternity Leave: Female employees are entitled to 105 days of fully paid leave. If they are solo mothers, that extends to 120 days. This benefit is reimbursed by the Social Security System.
• Paternity Leave: Married male employees get seven days of paid leave to be with their spouse during or after childbirth.
• Solo Parent Leave: If an employee is a solo parent with a valid Solo Parent ID, they are entitled to seven additional days of leave each year.
• Other Special Leaves: There are also leaves granted under specific laws, like those for women dealing with domestic violence or health-related concerns under the Magna Carta for Women.

Grounds for Employee Termination and Severance Pay

Employee termination is an inevitable part of running a business. However, it is important to do it the right way to avoid conflict and issues with the labor department. 

Employee termination in the Philippines falls under two categories: just causes and authorized causes. Just causes are usually due to the employee’s misconduct or behaviour, which includes repeated negligence or willful disobedience. 

For authorized causes, it is usually due to redundancy, installation of labor-saving equipment, company closure, or retrenchment. 

As an employer, you are not required to pay severance for employees terminated due to just cause. However, you must settle anything that is owed to them, such as unpaid wages and cash equivalent for their unused leaves.

In case of authorized cause, you must provide proper notice and compensate the employee fairly with severance pay as follows, depending on the cause:

• Termination due to redundancy or automation: At least one month’s salary or one month per year of service, whichever is higher.
• Termination due to retrenchment, business closure, or employee’s medical condition (preventing them from working): At least one month’s salary or half a month per year of service, whichever is higher.

Need help setting up your business and hiring in the Philippines? Fill out the form below, and our local experts will reach out to guide you through the process.