Efficient Solution to Hire Staff and Expand Your Business Quickly and Compliantly in the Philippines
New Horizons PEO and employer of record services in the Philippines are the most cost-effective solution to establish a workforce for you. As a global professional employer organization, New Horizons can legally employ local and foreign staff on your behalf. You do not have to go through the expensive and time-consuming process of establishing a separate legal entity. We handle all compliance matters and legal liabilities as the employer-of-record while staff works for you full time.
You can take advantage of talented labor markets and opportunities in the Philippines immediately without worrying about Philippine labor laws and regulations. We assist with drafting compliant employment contracts, administering benefits, managing payroll, completing mandatory tax deductions, financial reporting, obtaining work permits and business visas for employees, advising you of recent changes in employment laws and providing general employment support.
For companies that wish to hire workers directly, we can assist in finding qualified candidates and advising you of important information on being an employer in the Philippines. Some of the most important labor laws and regulations are discussed below. We can consult with you on these topics or handle all compliance matters by providing PEO services to your business.
Unlike much of the western world, employment contracts are standard in the Philippines. Best practices require a strongly worded written contract in Filipino that clearly defines the employee’s duties, salary, benefits and procedures related to termination. Offer letters are customary and should clearly define the rate of salary and specific amounts related to other forms of compensation, defined in Philippine Pesos.
Our PEO experts have established relationships with local labor organizations and have had our employment contracts established as legally compliant. If you take advantage of our PEO services, we will use these contracts that are compliant and adopt best practices.
The typical work week in the Philippines is 40 hours while the average workday is 8 hours long. If an employee works longer than 8 hours in a workday, the employer must pay a rate of 1.25 times the employee’s regular hourly rate. Employees who are required to work on Sundays or on paid holidays are entitled to 1.3 times their average hourly rate unless the employment contract says otherwise.
Paid and Unpaid Holidays
In the Philippines, there are two distinct types of holidays: regular holidays and special non-working days. Regular holidays are paid days off. If the employee is required to work on a regular holiday, he or she is entitled to 2 times his or her average wages for those hours worked. Regular holidays include:
- New Year’s Day
- Maundy Thursday
- Good Friday
- Araw ng Kagitingan
- Labor Day
- Independence Day
- National Heroes Day
- Bonifacio Day
- Rizal Day
Special non-working days are unpaid holidays when employees are not required to work. If the employee is required to work, he or she will be entitled to a rate of 1.3 times the average hourly rate for each hour worked during the special non-working day.
Special non-working days are subject to change each year. For 2019, these days include:
- Chinese New Year
- EDSA Revolution Anniversary
- Black Saturday
- Ninoy Aquino Day
- Philippine Election Day
- All Saints’ Day
- Feast of the Immaculate Conception of Mary
- Last Day of the Year
Employees in the Philippines are entitled to five days of paid leave each year, but many employers offer up to 15 days of paid vacation time per year. The employment contract can establish rules for carrying over any unused portion of leave.
The Philippine government does not technically require sick leave. However, employment contracts often provide provisions for sick leave. If an employee has exhausted all sick leave provided by his or her employer, has paid at least three of the last 12 monthly Social Security contributions before the illness or injury arose and was hospitalized for more than three days and is approved by the SSS, the employee must be paid 90% of his or her average daily wages for each day that he or she was confined to a hospital or similar setting. The employer is entitled to full reimbursement from the SSS.
Maternity and Paternity Leave
Mothers who have made at least three SSS contributions within the last year are eligible for two months of paid maternity leave for their first four pregnancies. If the delivery was via caesarian, mothers are entitled to 78 days of paid leave. The benefit is equal to the mother’s regular daily wage.
Married fathers are eligible for 7 days of paid paternity leave for the first four children they have. Leave must be used within 60 days of birth.
Probationary employment is permitted for up to six months. The employer can choose not to extend the employment relationship further without recourse.
Employees in the Philippines cannot be terminated at will. Instead, employers can only terminate employees based on just cause, such as:
- Serious misconduct
- Gross and habitual neglect of duty
- Willful disobedience
- Fraud or breach of trust
- Commission of a crime against the employer
No severance is necessary in these circumstances.
There are authorized causes in which the employer can legally terminate an employee but the employer is required to pay a severance. Authorized causes include:
- Replacement of labor-saving devices
- Redundant placement
- Closure of business
- Disease or illness
- Retrenchment to prevent losses
Due process is required in these cases, which requires providing notice to the affected employee at least 30 days before the date of termination. The notice must also be sent to the Regional Office of the Department of Labor and Employment in the region where the employer is located. Additionally, the worker is entitled to a hearing or conference in which he or she can lodge a defense to the charges, present evidence or rebut evidence.
Severance pay is based on the reason for termination but typically is one month’s wages per year worked. For example, if an employee worked for you for 10 years, the employee would be entitled to 10 months’ severance pay.
Employees can appeal to an arbitrator. If the employer is found to have not followed the proper procedures, the employee may be entitled to damages, back wages and/or reinstatement.
Taxes in the Philippines
The Philippine tax system requires employees and employers to contribute to the Social Security System. The current deduction is 11% of the employee’s monthly salary not to exceed P16,000. The employer is responsible for 7.37% of this amount while the employee is responsible for 3.63% of this amount.
The Social Security System consists of the following:
Social Security System
This portion is used to provide employees and their families with protection against disability, old age, death and sickness. All workers under 60 who earn income of more than P1,000 a month must contribute to this fund. Their contributions are taken directly from their salary payments and withheld by their employer on a monthly basis.
Philippine Health Insurance Corporation
This fund is used to help provide adequate care to Filipino workers.
Home Development Mutual Fund
This fund helps employees save for the purchase of a home.
Health Insurance in the Philippines
Mandatory universal healthcare is funded from payroll taxes and the general budget in the Philippines. Private health care is also available. To be competitive, many employers in the Philippines offer private medical insurance. Some employers offer a taxable allowance to cover the cost of private medical insurance.
Employees in the Philippines are entitled to a bonus which is equal to one month’s average pay. If the worker was employed with the employer for less than a year, the amount of the bonus is determined by dividing the workers’ total salary by the number of months he or she was employed. This bonus must be paid no later than December 24th. Some employers provide an additional Christmas bonus to employees to attract staff.
Employers may provide other benefits to their employees in order to stay competitive. These benefits are voluntary and not required by local organizations.
One type of benefit that employers may provide is an allowance. Allowances may be provided for housing, medical expenses or transportation. Cost of living allowances are tax-deductible while other types of allowances are taxed.
Another benefit that employers may offer is supplementary health, disability or life insurance.
Benefits of Using a PEO in the Philippines
As you can see from the information above, the labor laws in the Philippines are complex and nuanced. Working with a PEO in the Philippines like New Horizons can help you avoid the need to worry about these laws since we assume all liabilities. We can handle all compliance measures on your behalf.
Using a PEO also allows you to avoid the tedious and expensive process of setting up a subsidiary or branch office in the Philippines. With our services, you can hire employees with minimal time and expense. This allows you to take advantage of the affordable workforce in the Philippines, providing even more cost savings for your business.
Our PEO and payroll services allow you to delegate administrative tasks to experts with local knowledge and connections. We assume payment of wages and compliance with local rules and also handle reporting requirements. This allows business leaders to focus their efforts on finding new opportunities and clients while we handle HR functions.
Our PEO services also allows you to have access to a greater talent pool so that you can quickly fill positions with qualified candidates. You can also scale up or down your business as your needs change without having to worry about termination procedures or other compliance issues.