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Labor, Employment, and HR Consulting in the Philippines
Employment law in the Philippines is governed by the Labor Code of the Philippines and covers the following key aspects:
- labor standards (prescribes the conditions of employment that both employers and employees have to abide by, such as types of employment, working hours, minimum wage, mandatory benefits, holidays, rest days, and employment rights)
- human resources development (stipulates provisions on local and overseas employment as well as employment of foreign nationals)
- labor relations (concerned with employer-employee relationship on termination of employment and the rights and duties of both parties in union formation, collective bargaining, and labor strikes)
I. Types of Employment
There are five types of employment in the Philippines, mostly determined by the nature of activities that employees perform. The employer is required to establish the terms and conditions of the employment contract, which is subject to limitations under the Labor Code.
Regular or Permanent Employment is when an employee performs activities that are necessary or desirable to the business/trade of the employer. Regular employees enjoy the benefit of tenure and cannot be terminated for causes other than those provided by law and only after due process.
Most companies in the Philippines require their new employees to undergo probationary employment for a maximum of six (6) months to evaluate their skills and performance and determine if they are able to meet the reasonable standards to become permanent employees.
Casual Employment is when an employee performs work that is usually not necessary or primarily related to the employer’s business/trade. The period of employment must be made clear to the employee at the time they started rendering service.
However, employees that have rendered service for at least one (1) year in the same company, whether continuous or not, shall be considered regular employees with respect to the activities they perform and will continue rendering service while such activities exist in the company.
Term or Fixed-Term Employment is a type of employment that is not determined by the activities that employees are required to perform but by the commencement and termination of the employment contract. A fixed-term employee can only render services within the set period of time stipulated in the employment contract and the employer must terminate his/her employment after such period expires.
Fixed-term employment in the Philippines is highly regulated and subject to the following guidelines:
- be voluntarily agreed upon by the parties without coercion or improper pressure to the employee
- employer and employee dealt with each other on more or less equal terms with no dominance exercised by the former over the latter
Project Employment is when an employee is hired for a specific project and the duration of employment is defined by the scope of work and/or length of the project. A project employee can acquire the status of a permanent employee if they are continuously rehired to undertake other projects for the company or the tasks they perform are necessary and indispensable to the usual operations of the company.
Seasonal Employment is defined when an employment contract is only for a certain time or season of the year. This is common practice in service industries, such as Retail, Food and Beverage, and Hospitality to increase manpower and cover labor demand during peak seasons.
Many companies hire “regular seasonal employees” who are only called to work during peak seasons (e.g. Christmas season) and are temporary suspended during off-seasons. These employees are not separated from service but are only on Leave of Absence (LOA) without pay until re-employed.
II. Minimum Wages
Minimum wage rates in the Philippines vary per region and are prescribed by the Regional Tripartite Wages and Productivity Board (RTWPB). Under the most recent wage order for the National Capital Region (i.e., Metro Manila), the minimum gross rate is Php 500.00 per day.
III. Mandatory Employee Benefits
Under the Labor Code, employees in the private sector are granted six (6) basic mandatory benefits, which are as follows:
- Social Security System (SSS) – the social insurance program for employees in the private sector, which provides these employees and their families protection from disability, illness, old age, and death
- Philippine National Health Corporation (PhilHealth) – the health insurance program, which provides private employees with a practical means of paying for adequate medical care
- Home Development Mutual Fund (Pag-IBIG Fund) – the housing loan program, which offers flexible housing loans to private employees
- 13th Month Pay – a mandatory salary bonus equivalent to an employee’s one (1) month salary, which must be given not later than December 24 every year
- Service Incentive Leave – employees who have rendered at least one (1) year of service is entitled to a yearly service incentive of five (5) days with pay
- Meal and Rest Periods – a meal period of not less than one (1) hour and rest periods of short duration in the morning and afternoon that should be included in the hours worked
Normal Work Hours
An employee’s normal hours at work must not exceed eight (8) hours a day. Working hours shall include:
- the whole duration when an employee is required to be on duty and/or to be at a prescribed workplace;
- the whole duration when an employee is permitted to work; and
- rest periods of short duration during working hours.
Night Shift Differential Pay
An employee performing work between 10:00 PM and 6:00 AM must be paid a night shift premium of not less than 10% of their regular wage for each hour of work performed.
Work performed beyond the normal working hours must be paid an additional compensation equivalent to an employee’s regular wage plus at least 25% thereof.
Employees who work beyond 8 hours on a holiday or rest day shall also be paid an additional compensation equivalent to the rate of the first 8 hours plus at least 30% thereof.
Undertime Not Offset by Overtime
Undertime work on a normal work day shall not be offset by overtime work on any other work day. Philippine labor laws discourage the offset because the hourly rate of overtime is higher than the hours missed when an employee works for less than 8 hours.
However, permission given to an employee to go on leave for a day in a regular work week shall not exempt the employer from paying the additional compensation required for the overtime work done.
Emergency Overtime Work
An employee may be required to perform emergency overtime work under any of the following cases:
- when the country is at war or when any other national or local emergency has been declared by the National Assembly or the Chief Executive
- when it is necessary to prevent loss of life or property in cases of imminent danger to public safety due to actual or impending emergencies in the locality caused by serious accidents, fire, flood, typhoon, earthquake, epidemic or any other disaster
- when there is urgent work to be performed on machines, installations or equipment, in order to avoid serious loss or damage to the employer or some other causes of similar nature
- when the work is necessary to prevent loss or damage to perishable goods
- where the completion or continuation of the work started before the eighth hour is necessary to prevent serious obstruction or prejudice to the business or operations of the employer
V. Other Mandatory Rights and Benefits
Right to Weekly Rest Days
Employees have a right to a weekly rest period of not less than 24 consecutive hours after every 6 consecutive normal work days
Right to Holiday Pay
An employee shall be paid his regular daily wage during regular holidays, except in retail and service establishments regularly employing less than 10 workers. The employee may be required to work on a holiday but shall be paid a compensation equivalent to twice their regular rate.
Right to Separation Pay
Employees dismissed from work due to business closure, reduction of costs or other reasons that are beyond their control should be granted separation pay equivalent to one (1) month salary or at least one (1) month salary for every year of service in the company.
All service charges collected by hotels, restaurants, and similar establishments shall be distributed at the rate of 85% for all covered employees and 15% for management. The share of the employees shall be equally distributed among them.
In case the service charge is abolished, the share of the covered employees shall be integrated into their salary.
I. Local Employment
Local employees in the Philippines are primarily classified into three categories:
Managerial employees, commonly known as managers, are those vested with power by the Labor Code to lay down and execute management policies and/or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees that are under their supervision. They are allowed to regularly exercise discretion and independent judgment over their staff.
Managers are not allowed to devote more than 20% of their working hours to activities not directly or closely related to the following:
- regularly and directly assist a proprietor or managerial employee on performing managerial duties;
- execute, under general supervision, specialized work that require special training, experience or knowledge; or
- execute, under general supervision, special assignments and tasks.
Unlike rank-and-file employees, they are not entitled to overtime, night shift differential, and holiday pays. They are also not entitled to receive 13th month pay. But in accepted practice, most companies in the Philippines grant managers with an equivalent of the 13th month pay.
Supervisory employees, commonly known as supervisors, are employees who are generally considered as members of the managerial staff because they are granted the authority to recommend managerial actions, provided that the exercise of such is not merely routine or clerical in nature but requires the use of independent judgment.
Similar to managers, supervisors are also not entitled to overtime, night shift differential, and holiday pays. But they are also given a monetary incentive that is equivalent to a 13th month pay.
Rank-and-file employees are those who do not occupy high-level positions in a company. They are entitled to most, if not all, of the mandatory employee benefits provided by the Labor Code, from night shift differential and overtime pay to work leaves and organization of labor unions.
II. Overseas Employment
As a general rule, Philippine citizens can only apply for overseas employment through a licensed Private Employment Agency (PEA) – a recruitment agency duly authorized by the Philippine government to perform recruitment and overseas placement activities in the Philippines.
Since Philippine overseas workers, commonly known as Overseas Filipino Workers (OFWs), generally leave the country to gain permanent employment and derive income from abroad, they are considered as non-resident citizens for income tax purposes. As non-resident citizens that do not derive income within the Philippines, they are exempt from paying taxes.
III. Employment of Foreign Nationals
Local employers can engage foreigners to perform work for them in the Philippines. There is no general limit to the number of foreigners an employer may hire but such employer must prove through a certification called Alien Employment Permit (AEP) that there is no person in the Philippines who is competent, able, and willing to perform the services that foreigners are called to perform.
The validity of the AEP is coterminous with the duration of the foreigner’s employment with the same employer. This certification is also a prerequisite in the application for a work visa (9g visa) from the Philippine Bureau of Immigration (BI).
Similar to local Filipino employees, foreigners working for Philippine resident employers are subject to income tax. The employer has the obligation to withhold and remit the applicable percentage from compensation as personal income tax.
I. Types of Employment Termination
There are two types of termination in the Philippines: termination by employer and voluntary resignation or termination by employee. Termination of employment in the Philippines can be a complex process for employers since the Labor Code is construed in favor of employees.
Termination by Employer
An employer can terminate an employee based on a just or authorized cause. A just cause is based on acts attributable to an employee’s own wrongful actions or negligence while an authorized cause refers to lawful grounds for termination which do not arise from fault or negligence of the employee.
An employee can be terminated for the following just causes:
- serious misconduct or willful disobedience of the lawful orders of the employer;
- gross and habitual neglect of work duties;
- fraud or willful breach of the trust given by the employer;
- execution of a crime or offense against the employer, his/her family or representative; or
- other related causes.
Similarly, an employee can also be terminated for authorized causes, such as the following:
- installation of labor-saving devices;
- retrenchment (reduction of costs) to prevent losses;
- closure of business or operations; or
- disease/illness (that is of such a nature and at such a stage that it can no longer be cured within a period of six  months even with medical attention).
An employee may file a voluntary resignation without just cause or with just cause.
The just causes for filing a resignation are as follows:
- serious insult to the honor and person of the employee;
- inhuman and unbearable treatment given by the employer;
- crime committed against the employee or his/her family; or
- other related causes.
If the resignation is without just cause, the employee must give a one (1) month advance written notice for resignation (referred to as a resignation letter) to the employer to enable them to look for a replacement and prevent work delay. Failure to file a resignation letter can make the employee incur liability for damages.
II. Illegal Dismissal
Employees can file a complaint for illegal dismissal before the National Labor Relations Commission (NLRC) if the cause for their termination does not fall under the conditions stipulated by the Labor Code.
The most common type of illegal dismissal in the Philippines is constructive dismissal, a dismissal in disguise where an employee is forced to resign with the use of threats, intimidation, coercion, manipulation or penalty for an offense.
In cases of illegal dismissal, the employer has the duty of proving the dismissal is valid. Employees are allowed to question their dismissal from work based on two grounds:
- substantive – absence of a just or authorized cause supporting the dismissal
- procedural – failure of the employer to give the employee the opportunity to explain their side
If an employer fails to observe procedural due process in cases of legal and authorized termination, they are required to pay the employee indemnity or nominal damages in a sum of not more than 30,000 pesos (for just causes) and not more than 50,000 pesos (for authorized causes).
Employees who are unjustly dismissed are entitled to any or all of the following:
- reinstatement without loss of seniority rights
- separation pay equivalent to one (1) month salary for every year of service if reinstatement cannot be provided
- full backwages, inclusive of allowances and other benefits of their monetary equivalent from the time compensation was withheld up to the time of reinstatement
- payment of damages and/or attorney’s fees (if the dismissal was done in bad faith)
III. Labor Unions and Strikes
Right to Organize Labor Unions
The Philippine Constitution provides employees in rank-and-file and supervisory positions the right to organize, join, and assist labor unions for the main purpose of establishing a collective bargaining agreement (CBA) with their employer. Managerial employees, on the other hand, are not entitled to demand a CBA but are given the option to form associations for mutual aid and protection in the workplace.
The CBA must be executed upon request of the employer or the bargaining representative of the employees and contain the agreed terms of conditions of employment with respect to wages, hours of work, and other related matters which must not be below the minimum standards stipulated by law. The CBA must also include proposals for resolving grievances.
Labor Strikes and Lockouts
Rank-and-file and supervisory employees are also given the right to organize and participate in labor strikes or lockouts, provided they were organized for a valid purpose and conducted through means allowed by law.
Employees who participate in lawful strikes cannot be terminated by their employer since the law does not consider them to have abandoned their work but are merely exercising their right to organize to protect their rights as employees and/or obtain better work conditions.
But if the strike was unlawful and conducted for purposes not recognized by law, employees who participated in the commission of illegal acts during the strike may be terminated.
If you want to learn more about employment laws in the Philippines, you can access the official government publication of the Labor Code here. Similarly, you can talk to our labor specialists and HR consultants for a consultation on labor and employment-related matters.