The Philippines offers exciting opportunities for foreign companies hoping to tap into new markets. Using an Employer of Record (EOR) can decrease the time it takes to hire employees, to run payroll and other administrative tasks and to provide employment contracts without the hassle of working through these legal obstacles.

The Employer of Record Sky Executive can accomplish these tasks and provide the owner with peace of mind while also ensuring that the company stays in compliance with local labor laws in the Philippines.

Benefits of Using an Employer of Record in the Philippines

The Employer of Record (EOR) will fast track hires and remove the months of time it takes to fill vacancies in the company’s foreign location. Tax management, compliance and HR services are all part of the EOR experience with Sky Executive. Sky Executive will ensure the contracts are in the native language and remove the confusing negotiation stage with local citizens. 

Hiring and Negotiating in the Philippines with the EOR

Employment negotiations require an understanding of local customs. Someone familiar with the local population can ensure that the most qualified candidates are hired for the foreign business. Having an EOR on your team can help you negotiate employment terms with prospective candidates that focus on your best interest. 

Employment Contracts in the Philippines

The Labor Code of the Philippines discusses various employment requirements. There are four possible employment contracts available in the Philippines:

  • Standard employment
  • Project employment that is temporary or long-term
  • Seasonal employment
  • Casual employment terms

Employment contracts should include certain entitlements, such as Sunday workdays off, paid time off, medical leave, vacation days, maternity and paternity leave and salary terms and other benefits.

Employment Contracts for New Hires in the Philippines

Employment contracts in the Philippines are either written or oral, but a strong written contract is important for best practices. A solid contract is written in the local language and contains details regarding compensation, benefits and how termination works. The employee will receive an offer letter with an included contract and know salary rates beforehand along with other forms of compensation, which are stated in Philippine Pesos or PHP. Sky Executive provides an employment contract template as a service to the owner of the company without the need to draft separate agreements in the Philippines. 

Working Hours in the Philippines 

Standard workweeks in the Philippines include 40 hours with no more than eight hours each day. If there is a need to work on Sundays or paid holidays, the employee will receive additional compensation. However, an employment contract may state something different if the two parties negotiate the matter. 

The Department of Labor and Employment and the National Wages and Productivity Commission enforce the Labor Code in the Philippines. This law prescribes standard employment regulations for laws that companies must adhere to when hiring workers.

The minimum wage varies based on the region in the Philippines. It can range from PHP 259 to PHP 512 depending on various factors. Work days may be of the following nature:

  • A regular day 
  • A special day, which is paid at 130 percent of the basic rate of pay
  • A special day and also a scheduled rest day, which is 150 percent of the basic rate of pay 
  • A regular holiday, which is 200 percent of the basic rate of pay
  • A regular holiday and also a scheduled rest day, which is 260 percent of the basic rate of pay
  • Ordinary night, is 110 percent of the basic rate of pay
  • A rest day, a special day or a regular holiday at night, which is 110 percent of the basic rate of pay
  • Overtime is the number of hours over eight in one workday, which is 125 percent of the basic rate of pay
  • Overtime on a rest day, a special day or a regular day is the excess of eight hours in one workday, which is 130 percent of the basic rate of pay
  • On a night shift for a regular day, this is 110 percent of the basic rate of pay
  • On night shift for a rest day, a special day or a standard holiday, this is 110 percent of overtime hourly rates

Holidays in the Philippines

The Philippines have two types of holidays for employees: regular holidays and special non-working days. The regular holidays are those that workers will take off and receive pay, Employees who work on these days are paid a rate that is 200 percent the basic rate of pay. The special non-working day is not a paid holiday but provides additional compensation if the employee is required to work. This is 130 percent of standard pay for each hour of work. There are ten regular holidays in the Philippines as follows:

  • New Year’s Day
  • Maundy Thursday
  • Good Friday
  • Araw ng Kagitingan
  • Labor Day
  • Independence Day
  • National Heroes Day
  • Bonifacio Day
  • Christmas Day
  • Rizal Day

The additional special non-working days may differ based on the year. They may include the following: 

  • Chinese New Year
  • EDSA People Power Revolution
  • Black Saturday
  • Ninoy Aquino Day
  • Oct 31st depending on the president
  • All Saints Day
  • New Year’s Eve 

Annual Vacation Leave in the Philippines

For each year of service, Filipino employees receive five days of service incentive leave that the employer pays. These days are for vacation or illness. While the Philippines provides these days as a minimum, many employers will increase this number to fifteen for paid vacation and an additional fifteen paid sick leave days when the individual is at a professional level. These days do not usually carry over to the next year. The policy regarding vacation is at the discretion of the company owner. Unlimited or untracked vacation or paid time off is rare in the Philippines. 

Philippine Sick Days 

In the Philippines, there is no statutory sick leave available to employees. However, the employer can provide time in an employment contract, through company policy or with a negotiated agreement for these benefits. With the Social Security program, an employee that provides contributions throughout a twelve-month period before an illness and requires a hospital stay for more than three days can be approved for this time off. 

This employer pays 90 percent of the average daily salary for each day the worker is confined in a hospital, but this only kicks in after the individual uses all company applied sick leave. The Social Security program must pay the employer complete reimbursement for these funds once the company owner submits documentation to the administration.

Maternity and Paternity Leave in the Philippines

When female workers contribute to the Social Security program for no less than three months of the previous twelve-month period, they are eligible for up to 60 days of paid maternity leave at the same daily salary rate for the first four children born. If the mother must have a C-section, she is eligible for 78 days of paid leave. The rate is at 100 percent of the daily wages earned and is for either a child born or a miscarriage. 

Male employees are eligible for seven days of paid paternity leave for the first four children born if they live in the same household as the baby. The father must take the leave within the first 60 days of the child’s birth. The employer will pay this leave and then need to submit documentation to the Social Security program for reimbursement.

Bonus Pay in the Philippines

Unlike other countries, Filipino workers have a legal entitlement to a thirteen-month salary. The employee’s bonus is usually a month’s pay if he or she works for the company for no less than one year. However, even at less than twelve months, the employee will receive a smaller bonus based on the number of months worked at the company. 

This bonus is on top of any included allowances, monetary benefits or additional funds the employer provides. The employer must pay this bonus no later than December 24th of the year. However, government authorities recommend an early distribution of funds to ensure payment. The Christmas holiday is a crucial time of the year for locals and is taken very seriously. Providing funds to purchase presents is standard and an important aspect of the culture. 

Another time to provide the bonus is in June to help with school supplies for employees’ children. Some companies will give an additional bonus for Christmas on top of the thirteen-month bonus which is then considered a fourteen-month bonus. This is an effective incentive to retain employees throughout the year or to continue working with the employer. 

Termination and Severance in the Philippines

The probationary period can last up to six months. As long as the company has just cause, the employer can dismiss employees without mandatory severance pay. Just cause includes the following:

  • Serious misconduct
  • Deliberate disobedience
  • Gross neglect of duty
  • Fraud or a breach of trust
  • Criminal offenses to the employer, the employer’s family or a representative of the employer

Severance pay is necessary when termination is due to the following reasons: 

  • An installation of a labor-saving device
  • Redundancy of employment
  • A cutback in the company
  • A closure of the business
  • Disease or illness of the employee

When there is just cause, the employer must provide two notices of at least 30 days. This includes a written notice of dismissal with grounds specified. The notice must also contain the following:

  • A notice of intent to dismiss and a reasonable opportunity to explain the employee’s side
  • A hearing or conference with the opportunity to respond to the charge
  • A notice of dismissal with grounds that establish justified termination after the response

When there is just cause for termination, due process requires that a written notice of dismissal to the employee is given which specifies the details of these grounds with at least 30 days before the date termination will occur. Employees can appeal to relevant arbitrators. If the arbitrator decides in favor of the worker, the employer will be required to reinstate the employee and pay damages. 

Severance pay is available based on the reason the employee is terminated and is usually a month’s wages for each year of work.

Health and Tax in the Philippines

There is a system of Social Security similar to the United States with mandatory benefits to employees. The system provides employees and families with protection when disability, old age, death or disability occur. Anyone under 60 and who earns more than PHP 1,000 must contribute to the fund. Medical care is part of the Philippine Health Insurance Corporation and part of this system. Employers pay 7.67 percent and the employee pay 3.69 percent of the contribution, based on the employee’s pay.

The EOR and Employment in the Philippines

Sky Executive can handle all of these tasks and ensure the owner of the company need only review the details for each employee. Additionally, an Employer of Record can handle tax withholdings, compliance matters, HR functions and payroll. Contact us today to learn more about our impressive line of services.

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