Requirements of Hiring Employees in The Philippines

Contract of hiring employees in the Philippines

The Labor Code of the Philippines dictates the guidelines for all employee/employer relations, specifically on issues such as wages, post-employment benefits, labor standards, safety and health, and conciliation and arbitration procedures. The Labor Code protects the rights of individual employees and trade unions, ensuring that unfair practices against these parties are considered a criminal offense. For the purpose of bargaining as a collective, employees are allowed by the Labor Code and Constitution to join or form labor organizations or trade unions. Unions, which represent different ideological tendencies across the country, are typically either independent or affiliated with federations.

Immigration Requirements

Foreigners who wish to enter the Philippines must have a valid passport able to be used six months after entry into the Philippines. Individuals with plans to work in the Philippines for six months or more must obtain an Alien Employment Permit (AEP) at the DOLE and a working visa from the local Bureau of Immigration before legally being able to work. Renewals can be granted to extend the working period on the visa. For foreigners who will be working six months or less, a Special Work Permit (SWP) will suffice and can be obtained from the Bureau of Immigration. The SWP is granted for three months but can be renewed for an additional three months.

HR & Labor

Working hours: Full-time employment is considered to be 8 hours a day of 48 total hours a week. Employees are guaranteed at least one day of rest in one work week. Employers can choose how many days a week an employee should work and can compress the times into six days, five days, or four days. Although female employees are generally not encouraged to work the hours between 10 pm and 6 am, an exemption can be made.

Minimum working age: Children below the age of 15 are not allowed to work unless they are working directly under the supervision of their parents and only work with family members. The employment conditions are also restricted, with children not being able to be employed in dangerous conditions that endanger their life, health, morals, or impairs normal development. A child must be granted a work permit by DOLE to be able to work.

Payroll

There are no set guidelines for the frequency of employee pay, with the possibility of being paid on a daily, weekly, or monthly basis. The annual 13th month salary has become mandatory, with employees that have worked for at least one month is eligible to receive it. Employees will be paid 1/12 of the annual salary. Generally, these payments are made in May (when children begin attending school) and in December (around Christmas time), which is given along with bonuses.

Benefits

Sickness benefits, maternity leave, retirement and disability benefits, and death benefits are all included under social security benefits, although other common benefits also include housing, salary, and education loans. Expatriates are entitled to certain social security benefits even after leaving the Philippines.

The information contained in this article is valid on December 21st, 2018. For updated information, please contact us via email at contact@nnroad.com.

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Social Security in the Philippines

Social Security Deductions in the Philippines

Under the Social Legislations, a Philippine employer and its employees are required to be members of and make monthly contributions to, the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth) and Home Development Mutual Fund (Pag-IBIG Fund). The contributions of the employer and its employees are based on the employees’monthly compensation.

The employer must shoulder its contributions and may not deduct the same from its employees’ compensation. As to the employees’ contributions, the employer is required to withhold the same from the employees’ compensation. Furthermore, the employer is required to remit its own contributions and those of its employees (which it has withheld) to the SSS, PhilHealth, and Pag-IBIG Fund within the period set by these agencies.

Contribution rates in the Philippines

Social Security: 4.13% of employee’s monthly gross salary.*

Home Development Mutual Fund (Pag-IBIG Fund):  UDS 28.44 and below (1%), Over UDS 28.44 (2%) of employee’s monthly gross salary. 

Philippine Health Insurance Corporation (PhilHealth):  UDS 189573.50 and below (USD 2.60)/ USD 189573.50- USD 756.28 (USD 2.60- USD 10.40)

*Note:

  • Minimum monthly earnings USD 18.96 maximum monthly earnings USD37.91

Social Security: 8.37% of employee’s monthly gross salary.*

Home Development Mutual Fund (Pag-IBIG Fund):  UDS 28.44 and below (2%), Over UDS 28.44 (2%) of employee’s monthly gross salary.

Philippine Health Insurance Corporation (PhilHealth):  UDS 189573.50 and below (USD 2.60)/ USD 189573.50- USD 756.28 (USD 2.60- USD 10.40)

*Note:

  • Minimum monthly earnings USD 18.96 maximum monthly earnings USD37.91

Individual Income Tax & Benefits in the Philippines 

Every individual citizen, alien residing in the Philippines, and every non-resident alien engaged in a trade or business in the Philippines, who is receiving is required to file an income tax return. Taxes are paid annually based on the calendar year.

Individual Income Tax Philippines

*Note:

  • Non-residents are taxed at a flat rate of 25% of gross income

Home mortgage interest, medical expenses, contributions, and other personal expenses cannot be claimed as deductions for income tax purposes.

Personal income subject to tax does not include:


• Statutory minimum wage
• Damages received by an employee or his/her heirs following the judgment or agreement arising out of or related to an employer-employee relationship
• Proceeds of life insurance policies
• Gifts, bequests, and devises
• Compensation for injuries or sickness
• Retirement benefits, pensions, and gratuities
• Interest on tax-exempt government securities
• Thirteenth-month pay and other benefits such as productivity incentives and Christmas bonus subject to the PHP 90,000 limit

Certain other items specifically provided as not taxable including the following:


1. Amount received by the insured as return of premium
2. Income exempt from treaty
3. Certain prizes and awards exempted by law
4. Certain prizes and awards in sports competition
5. GSIS, SSS, Medicare, and other contribution
6. Gain from sale of bonds, debentures, or other certificates of indebtedness with a maturity of more than five years
7. Gains from redemption of shares in mutual fund
8. Interest income from long-term deposits or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts, and other investments
9. Income of non-residents from transactions with offshore banking units and depository banks under the expanded foreign currency depository system.

On sale of goods and properties – twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged
On sale of services and use or lease of properties – twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.


On importation of goods – twelve percent (12%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such as tax to be paid by the importer prior to the release of such goods from customs custody; provided, that where the customs duties are determined on the basis of quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any.
On export sales and other zero-rated sales – 0%

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Employee Termination Policies in The Philippines

An employer may dismiss an employee on the following just causes: serious misconduct; willful disobedience; gross and habitual neglect of duty; fraud or breach of trust; commission of a crime or offense against the employer, his family or representative; installation of labor-saving devices; redundancy; retrenchment to prevent losses; closure and cessation of business; and disease/illness.

Before terminating an employee, the employer must observe procedural due process. In a termination for just cause, due process involves the two-notice rule:

  • a) A notice of intent to dismiss specifying the ground for termination, and giving the said employee reasonable opportunity within which to explain his or her side;
  • b) A hearing or conference where the employee is given the opportunity to respond to the charge, present evidence or rebut the evidence presented against him or her;
  • c) A notice of dismissal indicating that upon due consideration of all the circumstances, grounds have been established to justify termination.


In a termination for an authorized cause, due process means a written notice of dismissal to the employee specifying the grounds at least 30 days before the date of termination. A copy of the notice shall also be furnished the Regional Office of the Department of Labor and Employment (DOLE) where the employer is located.

Severance Pay

In a termination for authorized causes, separation pay is the amount given to an employee terminated due to installation of labor-saving devices, redundancy, retrenchment, closure or cessation of business or incurable disease. Separation pay may also be granted to an illegally dismissed employee in lieu of reinstatement. Separation pay follows the below policies of payment:


• Installation of labor-saving devices or redundancy- equivalent of at least one (1) month pay or one (1) month for every year of service, whichever is higher


• Retrenchment, closure or cessation of business- equivalent of at least one (1) month pay or one-half (1/2) month pay for every year of service, whichever is higher


• Incurable disease- equivalent of at least one (1) month pay or one-half (1/2) month pay for every year of service, whichever is greater.

Probationary Period in the Philippines

Under the Labor Code, probationary employment shall not exceed six (6) months from the date the employee started working, unless it is covered by an apprenticeship agreement stipulating a longer period. The services of an employee who has been engaged on a probationary basis may be terminated for a just cause or when he fails to qualify as a regular employee in accordance with reasonable standards made known by the employer to the employee at the time of his engagement. An employee who is allowed to work after a probationary period shall be considered a regular employee.

A probationary employee may not be terminated during the period of such probationary employment unless there is a just or authorized cause for such termination. Due process for a probationary employee consists in having informed him of the standards against which his performance will be continuously assessed during the probationary period. These work standards should be understood at the time of his engagement and then, if he fails to meet these standards, a written notice is served to him by the employer within a reasonable time from the effective date of termination. The two-notice rule does not apply to probationary employees terminated because of failure to meet the reasonable standards made known to them at the time of engagement. However, it still appears to be a requirement for probationary employees terminated because of just cause.

Rest & Holiday Leaves in The Philippines

When hiring employees in the Philippines, the length of annual leave is 15 days. Every employee is also entitled to 11 paid public holidays. Workers are entitled to one month of paid annual leave, for each year of continuous work. After 10 years of service, annual leave shall be increased one day per year worked.

New Year’s Day – January 1

Maundy Thursday – (movable date)

Good Friday (movable date)

Eidul Fitr(movable date) 

Eidul Adha(movable date)

Araw ng Kagitingan – April 9

Labor Day (Monday nearest 1 May)

Independence Day (Monday nearest 12 June)

National Heroes Day (Last Monday of August)

Bonifacio Day (Monday nearest 30 November)

Christmas Day – Dec 25

Rizal Day (Monday nearest 30 December)

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