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Managing employees is one of the most important tasks of running a business. In this article, we will give you an overview of what you need to know before and while you hire in the Philippines.
Before you hire in the Philippines
Set up a legal entity in the Philippines
Choosing a suitable entity for you depends on what will be the nature of your activities. The below table will give you a brief overview of the types of legal entities in which foreign investors can engage.
Branch (fully foreign-owned)
|Prohibited to engage in any commercial activities but allowed to:
Joint Venture (<40% foreign ownership)
All of the above entities are suitable for hiring both local and international employees. To learn more, take a look at our previous guide on how to form a corporation in the Philippines.
Alternative to setting up a company: Employer of Record
An alternative to setting up a company in the Philippines is hiring through an employer of record (EoR). An EoR is a third-party service provider that allows you to employ employees in countries where you don’t have a legal presence while complying with the labor law of the Philippines.
EoR is especially useful when hiring staff remotely. Your EoR service provider, such as Emerhub, takes necessary employees on their payroll. Therefore you don’t need to open an entity of your own.
So, if you and your current business are in a foreign country, using an EoR would be an option to hire staff and expand to new markets, including the Philippines.
Types of employment in the Philippines
In addition to having access to an abundant pool of laborers, the Philippines’ work opportunities are flexible. There are several types of employment to consider.
Note that you can ask for a probation period for skill testing before your employees become regular employees. It can last up to 6 months, starting from the first day the employee started practicing.
Regular employment allows employment indefinitely. Though, hiring on a project basis or choosing a seasonal, casual, or fixed-term worker is an option.
Type of employment
Main employment terms
|Fixed employment period with completion timeframe|
|If work is seasonal and performable only at a particular time of the year, the employment is with a limited deadline|
|Sudden or incidental need to engage in employment matters. If a casual employee provides one year of service to a company, they qualify as regular employees|
|Commencement and termination dates of the employment relationship have been set before the employment begins|
Managing employees in the Philippines according to the labor law of the Philippines
Office hours in the Philippines
In the Philippines, the regular hours, according to the Philippines labor laws, of work for any employee are 8 hours per day, five days a week. Another solution for an employer is to follow the principle of 40 hours per week.
Each employee also has the right to an hour of a non-compensable meal break during every workday which the 8-hour workday does not include.
Working beyond 8 hours per day is only allowed if the employee receives overtime pay for that. Compensation in the Philippines equals the employee’s regular wage plus at least an additional 25% of the salary.
Note the terms of compensation when working beyond 8 hours during holiday or rest day. The amount must be equal to the rate of the first 8 hours on holiday or rest day plus at least 30%.
Working nighttime (R.A. NO. 10151) – Night Shift Differential
Every employee in the Philippines must receive at least 10% of their regular wage for the night shift differential for each hour of work they perform from 10 PM until 6 AM.
The employer must issue at least a minimum of 50% of the wages and other benefits to employees working 4 hours per day, between 6 AM and 10 PM.
Compensation to part-time workers must be in proportion to the hours they attend or equal to only 4 hours per day pay. As per company agreements and policies, part-time employees may receive a higher basis of computation of wages.
Calculating daily salaries
The daily rate is a constant figure for computing overtime and night differential pay. As well as commutation of sick and vacation leave credits. Assuming no intervening salary increases. Keep in mind that the daily rate must also be the same ground when computing the ten unpaid holidays.
Annual leave and days off
At least one day off per week
All employees must have a rest period of at least 24 consecutive hours after every six regular work days. As per the scheduling of the employer, a weekly rest day is subject to a collective bargaining agreement. The weekly rest day follows the rules and regulations of the Secretary of Labor and Employment.
Note that the employer must respect the rest preference of employees if it is related to their religion.
Emergency rest day work
In general, no one must work against their will during the scheduled rest day, unless any actual or impending emergencies occur.
- Serious accidents
- Other disasters or calamities to prevent losing life and property
- Force majeure or imminent danger to public safety
Also, when urgent work must be done on machinery, equipment, installations to avoid a severe loss which would otherwise occur for the employer.
Attending work may be necessary also when:
- abnormal work pressure occurs
- the type of work demands to have employees working continuously for seven days in a week or more
- delivering work depends on favorable weather or environmental conditions
Paying salaries in the Philippines
Calculating wages in the Philippines
Your workers must receive the wage rates as per the 8 hours of work a day. Or, the payment may cover a proportion of the amount, in case the work lasts less than the mentioned time frame. For example, on piecework, takay, pakyaw or when assisting on a task basis.
Deductions from wages
Allowed deductions as per Article 113:
- With employee consent to receive insurance from the employer, a deduction is carried out. An indemnity to the employer, according to the paid amount as premium on the insurance
- Union dues – applies if the employer recognizes the employee rights or the rights of their union to check off. Or authorized in writing by the employee
- If the employer has authorization by law or regulations issued by the Department of Labor and Employment (DOLE) Secretary
Allowed deductions as per the Labor Code and other laws:
- For loss and damage (as per Article 114, Labor Code)
- Agency fee deductions from non-union members. For those accepting benefits under the Chartered Association of Business Administrators (CBA)
- The union service fee
- Deductions as per the written authorization of the employee for payment to a third person. The employer agrees, given they do not receive any monetary benefit from the transaction
- For the value of the meal and other facilities
- For premiums of Social Security System (SSS), PhilHealth health insurance corporation, employee compensation, and Pag-IBIG fund
- Withholding tax as per the mandating of the National Internal Revenue Code (NIRC)
- Withholding of wages as a result of the employee debt to the employer, which is already due
- Court judgment against the employee where salaries are the subject of attachment or execution (only for liabilities that appear for food, clothing, shelter and medical attendance)
- If deductions from wages are the court order
- Deductions from the salary of a member, belonging to a legally established cooperative
Calculating wage for interns and apprentices
The wage rate when hiring an intern or an apprentice in the Philippines is at 75% of the statutory minimum wage. Also, note that if the person under discussion has a disability, the total amount of applicable minimum wage rates is set.
Other payments by the employer
Everyone must receive the regular daily wage during regular holidays. Unless in retail and service establishments that are regularly employing less than ten workers.
Regular holiday – refers to paying the compensation to an employee during regular holidays accordingly:
- Unworked regular holiday – 100% of the employee regular daily wage
- Worked regular holiday – 200% of the employee regular daily wage
- Unworked special holiday – no payment for the days off duty
- Worked special holiday – compensation of additional 30% of the daily rate is added to the basic pay or a total of 130%
Premium overtime pay
According to the law, the employer must pay extra compensation on work performed within the regular 8 hours during non-working days (rest days, regular and special holidays).
An additional monthly salary applies to all Philippine employees once per year. The bonus does not reflect on how much is the basic salary of the employee, what is their employment status or designation, neither the chosen payment method.
The only consideration is the employment must have lasted for at least one month during a calendar year. Payment to the employee must be conducted no later than December, 24th annually.
Depending on the company regulations and agreements, half of the payment may be given in June (opening of the regular school year). Note that the exact payment frequency and terms may also be a subject of internal agreements and bargainings.
Reduction of benefits
Note the impact that the decrease in benefits may have on the team you have or are planning to create. Non-diminution of benefits explicitly prohibits employers from eliminating or reducing the benefits received by their employees. It applies only if the benefit is based on any of the following:
- An express policy
- A written contract
- A company practice
Take a look at our previous article to learn more about the minimum wages and related benefits in the Philippines.
Termination of an employee in the Philippines
Ending employment contracts is not as simple in the Philippines as it might be in other countries. The Philippines’ Labor Law is coherently in favor of the employees rather than the employer.
You can only terminate an employee if you have a just or an authorized cause for it. Just causes arise from employee’s unacceptable behavior. Authorized reasons have legal grounds, for example, upon company closure.
To learn more about the process of ending employment contracts, read our previous article about how to duly terminate an employment contract in the Philippines.
Are you planning on hiring employees in the Philippines?
Do not hesitate to contact Emerhub for further discussion on how to draft your documents, hire or terminate an employment contract in the Philippines by filling in the form below.
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