Hiring employees in the Philippines

The Philippines is one of the world's strongest markets for remote and offshore hiring: a large, young, English-fluent workforce, a deep BPO and tech talent pool, and costs well below Western rates. The first decision is how to employ people legally, and there are three routes.

You can register your own Philippine entity, a domestic corporation or a branch through the SEC, which makes sense once you have a substantial local operation but takes months and carries ongoing corporate and tax compliance. You can engage people as independent contractors, which is quick but risky: if someone works fixed hours under your control, Philippine labor authorities will treat them as a regular employee, and the back pay, contributions, and penalties fall on you. Or you can hire through an employer of record, where a licensed local company employs your team for you and handles contracts, payroll, contributions, and tax, while you direct the work.

Philippine labor law is built around security of tenure: once an employee is regular, they can only be dismissed for a cause the law recognizes and through the correct process. How and when someone becomes regular depends on the type of employment, so getting the category right at the start matters.

The main employment types

• Regular employment. The default for work that is necessary or desirable to the usual business. Regular employees have full security of tenure.
• Probationary employment. A trial period of up to six months. The employee becomes regular automatically at the end of it unless they fail reasonable standards that were made clear to them in writing when they were hired. If no standards were communicated, the law treats them as regular from the start.
• Project employment. Tied to a specific project with a defined end. Employment ends naturally when the project does, which is not a dismissal.
• Seasonal employment. For work that recurs with a season; employees are engaged for the season and may be rehired.
• Fixed-term employment. Allowed where the term was genuinely agreed without the employer forcing it, and used for legitimate reasons rather than to dodge regularisation.

The employment contract

Contracts should be in writing and set out the role, the salary and pay schedule, the hours, the place of work, the employment type and any probationary standards, the benefits, and the grounds and process for termination. The probationary standards point is the one employers most often get wrong: if you intend a six-month probation, the performance standards have to be communicated in writing at the point of hiring, or the probation is unenforceable and the person is simply regular.

The standard working day is 8 hours, within a 48-hour week, with a meal break of at least 60 minutes that is not counted as paid time. Every employee is entitled to a rest period of at least 24 consecutive hours after six consecutive working days.

Overtime and premium pay

Work beyond 8 hours in a day is overtime and must be paid at a premium over the regular hourly rate. The premium depends on when the work falls:

The night differential of at least 10% applies to any hour worked between 10pm and 6am and stacks on top of overtime and holiday premiums, which matters in the Philippines because so much offshore and BPO work runs on night shifts aligned to overseas clients. Holiday pay has its own rules, covered next.

The Philippines splits paid time off into statutory holidays, a single service-incentive-leave entitlement, and a generous set of parental and special leaves. There is no separate statutory vacation and sick-leave split, which surprises many foreign employers.

Regular holidays vs. special non-working days

There are two kinds of public holiday, and they pay differently. Regular holidays (around a dozen a year, such as New Year's Day, Independence Day, and Christmas) are paid even when not worked; special non-working days (declared by proclamation each year) follow a no-work, no-pay rule unless company policy says otherwise.

If a regular holiday falls on the employee's rest day and they work, an extra 30% applies on top of the 200%. These premiums are a real budgeting item for teams that work through the holidays.

Service Incentive Leave

Employees with at least a year of service are entitled to five days of paid Service Incentive Leave a year. It can be used for vacation or sickness, and any days left unused at year end must be paid out in cash. Many employers offer more generous vacation and sick leave on top of the five-day minimum to stay competitive, but five days is the legal floor.

Maternity, paternity and solo-parent leave

Parental leave in the Philippines is among the most generous in the region, and most of it is funded by the SSS rather than the employer, though the employer advances the pay and reclaims it:

• Maternity leave: 105 days at full pay for every birth, regardless of delivery method, with an extra 15 days for a solo parent and an optional 30 days unpaid. A miscarriage or emergency termination of pregnancy gives 60 days. Up to 7 of the days can be transferred to the child's father.
• Paternity leave: 7 paid days for a married father, for each of the first four deliveries of his spouse, separate from any transferred maternity days.
• Solo-parent leave: 7 additional paid days a year for a qualified solo parent.
• SSS sickness benefit: beyond Service Incentive Leave, an employee unable to work through illness can claim up to 120 days a year at 90% of salary through the SSS, again advanced by the employer and reclaimed.

Salaries are paid in Philippine pesos, at least twice a month. The wage floor is not national: it is set regionally by 17 separate wage boards, so what you must pay depends on where the employee works. Rates run highest in NCR (Metro Manila) and step down through the provincial regions, and they are revised by wage order through the year.

The 13th-month pay

Unlike most of its neighbors, the 13th month in the Philippines is a legal requirement, not a custom. Every rank-and-file employee who has worked at least a month in the calendar year is entitled to it, calculated as one twelfth of the basic salary earned during the year and paid no later than 24 December. The first ₱90,000 of 13th-month pay and other benefits combined is tax-exempt; the excess is added to taxable compensation. Treat the 13th month as a fixed cost of employment from day one, not a discretionary bonus, because skipping or underpaying it is a straightforward violation.

Three statutory funds sit on every Philippine payroll, shared between employer and employee, plus income tax withheld from the employee and remitted to the BIR.

Income tax is progressive under the TRAIN law, from 0% on the first ₱250,000 of annual taxable income up to 35% at the top, withheld monthly by the employer and computed on salary net of the mandatory contributions. The all-in employer cost of a hire — salary plus SSS, PhilHealth, Pag-IBIG, and the accrued 13th month — typically runs 11 to 12% above gross. We model the full breakdown live on our EOR pricing page.

The Philippines is not an at-will country. Because of security of tenure, an employer can only end a regular employee's contract on a ground the Labor Code allows, and only by following the correct procedure. Get either part wrong and it is illegal dismissal, which can mean reinstatement and full back wages. There are two families of grounds, and they follow completely different processes.

Just causes vs. authorized causes

• Just causes (Article 297) relate to the employee's own conduct: serious misconduct, willful disobedience of lawful orders, gross and habitual neglect of duty, fraud or willful breach of trust, a crime against the employer, and analogous cases. Just-cause dismissal carries no separation pay, but it requires the twin-notice process below.
• Authorized causes (Articles 298 and 299) are business or health reasons that don't blame the employee: redundancy, retrenchment, closure, installation of labor-saving devices, or disease. These require 30 days' written notice to both the employee and DOLE, plus separation pay, of one month per year of service for redundancy, or half a month per year for retrenchment and closure.

What is a Notice to Explain (NTE)?

A Notice to Explain, also called a show-cause memo, is the first of the two notices the law requires before a just-cause dismissal. It is the document that opens the process, and it is the term people most often search for, especially in the BPO sector, so it is worth understanding precisely.

An NTE is a written notice from the employer telling the employee exactly what they are alleged to have done: the specific acts or omissions, the company rule or policy said to have been broken, and the evidence relied on. It must give the employee a meaningful chance to respond, in practice at least five calendar days to submit a written explanation. A vague memo that just says performance is poor does not qualify; the charge has to be specific enough to answer.

The twin-notice rule

For any just-cause dismissal, the procedure is fixed:

• First notice, the NTE: the show-cause memo setting out the charge and giving at least five calendar days to explain.
• A hearing or conference: a real opportunity for the employee to respond and present their side. A formal hearing is not always mandatory, but the chance to be heard is.
• Second notice, the Notice of Decision: a written notice setting out the decision and the reasons for it.

Skip a step and the dismissal is procedurally defective even if the underlying cause was valid, which on its own entitles the employee to nominal damages; dismiss without a valid cause at all and it is illegal dismissal, with reinstatement and back wages on the table. Probationary employees are covered too: if the dismissal is for a just cause rather than simply failing pre-agreed standards, the twin-notice rule applies to them as well. An employee has up to four years to file an illegal-dismissal complaint with the NLRC or DOLE.