Employment Law

Employment Contract in the Philippines

Written employment contracts are standard practice in the Philippines. Businesses must provide a detailed written contract in the local Philippine language that clearly stipulates the employee's responsibilities, wages, benefits, and procedures related to termination.

Employers should also include an offer letter when hiring any new employee. The offer letter must clearly specify the employee's salary and remuneration (in Philippine pesos).

In the Philippines, a probationary period of up to six months is allowed. During this period, the employer may choose not to extend the employment relationship without recourse.

Remoly's Philippines PEO has established relationships with local labor organizations and guarantees full compliance with employment contracts.

Fixed Term

Indefinite

Working Hours in the Philippines

The typical working week in the Philippines is 40 hours, with the average working day being 8 hours. If an employee works more than 8 hours a day, the employer must pay overtime pay at 1.25 times the employee's regular hourly wage.

For employees required to work on Sundays or paid holidays, overtime is paid at 1.3 times the average hourly wage. The only time this might be different is if the employment contract provides otherwise.

Taxes in the Philippines

In the Philippines, both employees and employers are required to contribute to the National Social Security System (SSS). The current deduction rate is 11% of an employee’s monthly salary and shall not exceed P16,000. The employer bears 7.37% of this, while the employee bears 3.63%.

Social Security System

The Philippine social security system provides protection against disability, old age, illness, and death to employees and their families. All workers under the age of 60 with a monthly income of more than P1,000 are required to contribute to the fund. Contributions are automatically deducted from the employee's salary each month.

Health Insurance

In the Philippines, mandatory universal health care is funded through payroll taxes and the general budget. Private healthcare is also available to those willing to pay.

To stay competitive, many employers in the Philippines offer private health insurance. Some employers also offer a taxable allowance to cover the cost of private health insurance.

Holiday Policy

Take a Vacation

Employees in the Philippines are entitled to five days of paid leave per year. However, many employers offer up to 15 days of paid vacation per year. The employment contract can set out rules regarding the carry forward of any unused portion of leave.

Sick Leave

Technically speaking. The Philippine government does not require employers to provide sick leave to employees. However, employment contracts often provide for the inclusion of sick leave.

During illness or injury, an employee may be entitled to 90% of his or her average daily wage if:

• The employee has used all sick leave provided by the employer
• The employee had made at least three social security contributions in the previous 12 months before the illness or injury
• If an employee is hospitalized for more than three days, it must be reviewed by the social security system

If sick leave is granted in these circumstances, the employer is entitled to full reimbursement from the social security system.

Maternity and Paternity Leave

In the Philippines, mothers who have made at least three social security contributions in the past year are eligible for maternity leave. Maternity leave consists of two months of paid leave and is available to a woman for her first four pregnancies.

In the case of a caesarean section, the mother is entitled to 78 days of paid leave. The benefit is equivalent to the mother's regular daily wage.

Married fathers are eligible for seven days of paid paternity leave for their first four children. Paternity leave must be used within 60 days of the birth of the child.

Termination and Severance

Employers in the Philippines can only terminate an employee if there is a proper reason for the termination. This can include:

• serious misconduct
• Serious and habitual neglect of duty
• Willful disobedience
• Fraud or breach of trust
• Commit a crime against the employer

In any of the above situations, no severance pay is required.

Employers may legally fire employees for certain authorized reasons and are required to pay severance pay. Authorization reasons include:

• Replace labor-saving device
• Redundant configuration
• Suspended
• disease or disease
• layoffs to prevent losses

Due process is required in any of these situations. This requires that notice must be given to affected employees at least 30 days prior to the termination date. Notice must also be sent to the Department of Labor and Employment regional office in the region where the employer is located. Additionally, workers have the right to attend a hearing or conference where they can defend the charges, present evidence, or rebut evidence.

Severance pay depends on the reason for termination and is generally one month's salary for each year of service. For example, if an employee has worked for a business for 10 years, the employee will be entitled to 10 months of severance pay.

Employees also have the option of appealing to an arbitrator. If an employer is found to have failed to follow proper procedures, the employee may be entitled to damages, back pay, and/or reinstatement.

For companies expanding overseas for the first time, dealing with employee layoffs and dealing with severance packages can be complicated. Remoly's Philippines PEOs can reduce risk for foreign companies and provide guidance during the process.

Salary and Benefits

Philippine Compensation Law

Minimum wages vary depending on where the Philippine business is located. For those living in the Philippines, it is estimated that a salary of at least P9,064 is required to make ends meet.

If employees work on Sundays or paid holidays, they are entitled to overtime pay at 1.3 times their regular hourly rate. If employees work more than 8 hours a day, they are generally entitled to overtime pay equal to 1.25 times their hourly wage. However, these numbers may differ if employees are part of a union or collective bargaining agreement.

Employers are also responsible for providing employees with 13 months of salary bonuses. This is equivalent to one month's salary and must be paid to employees by December 24. Most employers in the Philippines will issue bonuses for 13 months in early December. This is to ensure employees have extra funds to buy Christmas gifts.

Welfare in the Philippines is Guaranteed

Employers have a duty to provide a range of statutory benefits to their employees. For example, employees in the Philippines are required to take five days of paid leave, which can be used for vacation or sick leave.

There are two types of holidays in the Philippines. These are regular holidays and special non-working days. Employees are entitled to paid leave on statutory holidays and unpaid leave on special non-working days.

Philippine Benefits Administration

Employers in the Philippines also need to be aware of certain supplemental benefits. Although these benefits are not mandatory, many employees still want them as part of their compensation.

For employers who offer these benefits, it can help them attract high-level talent. These benefits include medical benefits, transportation, and even housing. Some employers also choose to provide supplemental insurance to their employees. These policies include disability insurance, life insurance and private health insurance.  

Benefits and Compensation Limitations

Benefits and Compensation The most important limitation for expanding a business is setting up a local entity. Employers generally cannot hire and pay employees without first establishing a subsidiary in the Philippines. This process can take months to complete, causing massive business delays.

With Remoly's Philippines PEO, you can start doing business in the Philippines in just 48 hours. We are the employer of record for your employees, which means you don’t need to set up a subsidiary in the Philippines.