The primary step in establishing a presence in the Philippines is to be familiar with the labor laws that the government has set to protect its workers. It serves as a legal framework that determines employment in the country and the best practices that must be observed.
The Philippines Labor Code is the law governing all things related to employment. It was written and made possible by President Ferdinand Marcos in 1974 as Presidential Decree No. 442. This law specifies the rules regarding employment in the country, which include hiring practices, work conditions, benefits, working hours, and termination.
The Labor Code is written in a way that benefits laborers. It sets provisions to protect the welfare of the workers against unjust and discriminatory practices. The Department of Labor and Employment (DOLE) is the government agency responsible for promulgating the labor code’s advocacies.
In this article, we will discuss the elements of the Philippines’ employment law and other labor relations in the country.
What does the Employment Law include?
The employment laws in the Philippines specify regulations on every aspect of employment in the country. Particularly, the labor code covers the following areas:
- Offices and Government agencies responsible for regulating employment laws
- Training policies for employees and special workers
- Work conditions – working hours, holidays, and leaves
- Work conditions for employees in special groups – minors, house helpers, homeworkers, and night workers
- Health, Safety, and Social Welfare benefits
- Unfair Labor Practices
- Post-employment – Termination and Retirement
Who is covered by the Employment Law?
The Labor Code of the Philippines applies to all workers in the country. According to Article 6, all the rights and benefits indicated in the code shall apply to all workers, whether they belong to an agricultural or non-agricultural sector.
An employment contract is a signed document that formalizes the agreement between the employer and the employee. It specifies the terms and conditions of their rights and responsibilities.
Employment contracts in the Philippines must abide by the minimum standard set by the Labor Code of the Philippines. It usually includes the following information:
- Employee’s details (name, address, contact number, etc.)
- Job position
- Job description
- Remuneration and Employee benefits
- Length and condition of probationary period, if any
- Periods of notice
- Code of conduct
- Employee grievance mechanism
- Company policies
The Labor code further identified different types of employment based on the tenure and the job responsibilities in their employment contract. Below are the following:
An individual’s role and responsibility with the employer is deemed necessary with the business operations and trade. Employees under this type of employment are employed for an indefinite period.
An individual has been with the employer for a year and will be employed indefinitely so long as their responsibility and activities exist in the business operations.
An individual is subject for a period where employers are to assess and evaluate their performance and suitability for the position. The maximum period for employees to be under probation is six months. Afterwhich, the employer may decide whether to change the employee’s status to regular or terminate their contract.
An individual is employed only for the duration of a specific project. Their contract legally ceases once the project is completed.
Fixed period or Term-based employment
An individual is employed for a specified period. According to the Labor Code, a term-based employee shall be regularized if the contract exceeds a year.
An individual is employed only for a given season or term. Since they are hired out of necessity, they shall be considered a regular employee for the season they are obliged to work in.
Key Provisions of the Act
The Labor Code of the Philippines sets the minimum requirements for employers and employees to observe during employment. Below are the employee entitlements as mentioned in the Labor provision
According to Republic Act No. 6727 or the “Wage Rationalization Act” of the Labor Code, the Minimum wage in the Philippines varies across three major industrial sectors – Agriculture, Retail Establishment, and Service Establishment. It is furthermore determined regionally. The minimum wage range in the Philippines may range from PHP 315 to PHP 570 per day.
The regular working hours in the Philippines are 8 hours. However, meal/break periods of an hour are inserted in between these hours. However, there are instances where employee breaks are shortened to 20 minutes due to the nature of work or urgent tasks.
Overtime Pay rate varies based on the day the extra work was performed. Below are the following rates:
- Ordinary weekday, overtime – hourly rate X 125%
Below is the pay rate for working extra but on regular time (8 hours) on following days:
- Rest days or Special days – hourly rate X 130%
- Scheduled Rest day – hourly rate X 150%
- Regular Holiday – hourly rate X 200%
When workers have to do overtime on special days, rest days, regular holidays, etc. then the overtime rate is:
- Rest days or Special days, overtime – hourly rate X 130% x 130%
- Scheduled Rest day, overtime – hourly rate X 150% x 130%
- Regular Holiday, overtime – hourly rate X 200% x 130%
The Labor Code specifies an added payment for employees working the night shift. The Night Shift Differential is given to employees working a shift between 10 PM to 6 AM. They are entitled to a 10% additional payment for each hour worked during the night shift.
The Philippines have 12 regular holidays, six special-non-working holidays, and 52 rest days. Additionally, each region recognizes provincial holidays that most businesses observe. Employees working during these days are entitled to compensation, as indicated in the previous overtime pay rate.
Service Incentive Leave
Filipino employees with at least one year of service in a company are entitled to 5 days of leave with pay. This leave may be used as either a vacation or sick leave. Unused service incentive leave may be converted into cash on a pro-rata basis.
Maternity Leave for female employees is 105 days with full pay. But for female employees who qualify as solo parents under the “Welfare Act of 2000”, an extra 15 days with full pay will be added. In case of miscarriage, they will be given an additional 60 days’ leave with full payment.
Employees on this leave will be receiving a cash benefit from their Social Security. The employer will pay the difference to provide their employees full pay during their leave.
Special Leaves for women
There are two special leaves that Filipino employees may be entitled to under special circumstances.
The first one, The Magna Carta Of Women Act, is provided for female employees that have undergone surgery due to a gynecological disorder. Eligible employees will be entitled to 2 months of leave with full pay.
The second one, the Leave for Victims of Violence Against Women and Their Children, is granted to employees who had been victims of domestic abuse. They are given ten days of leave with full pay to attend to their needs during difficult times.
Thirteenth Month Pay
All Filipino employees are entitled to 1/12 extra pay at the end of each year as a Thirteenth Month Pay. However, companies may have the option to split the payment and release it during the months of June and December. This has been the practice by most businesses in the country to accommodate employees with children to have a sizable budget upon school enrollment season.
Employees who have resigned, retired, new hires, or are under maternity leave will still be entitled to a prorated 13th-month pay. The computation for the 13th-month pay will be as follows:
Total number of their basic pay earned in the year/ 12 (months) = 13th-month pay
Termination Process and Separation Pay
The Labor Code of the Philippines has listed down the various reasons for an employee’s termination. Severance pay will be based on whether the reason is of just cause or not. For termination due to misconduct, fraud, a commission of a crime, or neglect of duty, a separation pay will not be provided. But for authorized termination, such as resignation, retrenchment, or end of a contract, an employee is entitled to severance pay.
The amount of separation pay varies based on the reason for the end of the contract. Below are the following entitlements:
Filipino employees who are of 60 years or more (up to 65 years of age) shall be retired from their services. However, government employees and those working in the retail, service, and agricultural sectors are exempted from this ruling.
Filipino retirees will be given a ½ month’s pay for every year of service. Additionally, retirement pay will include employee compensations such as :
- 13th-month pay (½ of pay for each year served),
- service incentive leave (cash equivalent for five days), and
- 15 days’ worth of salary (based on the salary rate at the time of retirement)
Book seven of the Labor Code of the Philippines highlights the penal regulations for unmet labor requirements. Generally, unlawful labor practices shall be sanctioned with a fine of PHP 1,000- PHP 10,000 or imprisonment of not more than three years or both.
Complaints about the offenses committed in the Labor Act must be filed within three years after their occurrence. For unfair labor practices, complaints must be filed within a year.
Compliance Strategies for Employers
In the Philippines, the following strategies can help employers to comply with the labor laws in the country.
- Streamline payroll schedule
- The Labor Code is very particular, with salaries and compensation being released promptly. Additionally, employees can report any unmet compensation to the Department of Labor and Employment. It should be noteworthy to allot a designated cut-off period for overtime, leave credits, and payroll deductions.
- Be transparent
Providing a pay slip as a backing document for every payroll release is a good way to establish credibility with your employees. Moreover, employers may provide digital copies for paperless transactions.
Distributing employee handbooks on top of their contracts is a better way to communicate their rights. By subscribing to daily or weekly newsletters, employers must be on the lookout for regulatory changes in labor laws. In turn, Employee handbooks must be updated to accurately reflect these changes.
- Automate HR processes
Manual computing, scheduling, and contract drafting may be tedious, especially when working in a big company. Fortunately, HR tasks such as compliance, payroll management,, and employee onboarding, can be processed by PEO and EOR solutions. These solutions help businesses streamline their processes while staying compliant with the country’s regulations.
Labor Regulations in the Philippines can become complicated when one is unfamiliar with them. But Multiplier can help you ensure that your business complies with the requirements when onboarding Filipino employees.
Compliance experts craft our SaaS-based platform to ensure smooth HR management. Employers can grow their business with ease through our solution.