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Philippines – Employer of Record

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Country Introduction – Philippines

Capital –  Manila City
Currency –  Philippine Peso
GDP –  $450.340 Billion USD (2022)
People/Nationality- Filipino
Language –  Filipino
Major Religions –  Roman Catholic, Protestant, Iglesia Ni Cristo
Population – estimated 112, 917 Million as of July 2022

Philippines is a tropical country found in Southeast Asia near the western Pacific Ocean. It is made of more than 7,000 islands and islets. Manila is the capital, but nearby Quezon City is the country’s most-populous city. Both are part of the National Capital Region (Metro Manila), located on Luzon, the largest island. The second largest island of the Philippines is Mindanao, in the southeast. This country is known for being rich in natural resources and unique gastronomic offers.

Economy-wise, Philippines has one of the most dynamic economies in the East Asia Pacific region. Average annual growth increased to 6.4% between 2010-2019 from an average of 4.5% from the last decade. With increasing urbanization, a growing middle class, and a large and young population, the Philippines’ economic dynamism is rooted in strong consumer demand supported by a vibrant labour market and robust remittances. Business activities are flexible with notable performance in the services sector including business process outsourcing, real estate, tourism, technological, finance and insurance industries.

Contract of Employment

An employment contract between an employer and employee in the Philippines sets all the terms and conditions of the job. These include the duties, salary, work hours, and confidential employees’ information. This must be documented in print and must be notarized immediately to make it admissible in court without the need for further proof of authenticity.

Probation Period

A probationary employment is sort of a “trial-basis” because the employer is allowed to see for himself whether the employee is suited for role in the business.

Under Article 281 of the Labor Code of the Philippines, the maximum length of probationary employment shall be six (6) months and is counted from the date an employee started working. When the employment is not terminated after the six-month probationary period, it shall then be considered regular employment.

An employee who is allowed to work after a probationary period shall then be considered a regular employee and shall be entitled to additional benefits.

Termination

Employment termination in the Philippines may root from voluntary resignation or the employer’s dismissal based on just and authorized causes- supported by the Code of Conduct or Labour Code. For the execution, a notice period of 1 month is usually practiced for regular employees unless the company has a unique policy around this. An immediate termination or dismissal may also be considered if there is a just cause.

Working Hours

The regular working time is 8 hours a day. The employee is also entitled to a 1-hour lunch break daily, without fail. However, for some companies practicing the “Compressed Work Week” scheme, daily work hours may reach up to 10.5 times 5 days a week. For remote work, the employer may set its set flexible work hours needed for the role.

Overtime

Under the Labor Code, the employee’s OT pay rate is computed as: regular pay plus 25% of their hourly rate on regular working days, except if a more favorable company policy or collective bargaining agreement provides for more generous OT pay rates. In some cases, employees under the management team (supervisors up) are not entitled to OT pay but may be converted hours or days off. Some companies also practice the “Compressed Work-Week” scheme in which employees usually working for 6 days a week may enjoy 2 days off given that their daily work hours are extended to cover the 1 day extended off.

Annual Leave

Vacation leave in the Philippines is only five days per year and is known as Service Incentive Leave (SIL).  It is only available after 1 year of service, so no leave is mandated in the first year.  However, many employers will offer vacation leave of 12-15 days a year as a company policy, or in the individual employment contract.  This is so common that many believe that the statutory minimum is more than five days.

Unused vacation leave can be converted to cash at the end of the year, based on the daily salary rate. In some cases, the said leave allocation may be carried over on top of the next replenished leave credits.

Sick leave

Employees who can’t report to work due to sickness or disability can apply for sick leave. Employees can also avail SL if they have family members who are ill and needs taking care of. Usually this is equivalent to 15 days and can be converted to cash by the end of the year.

Maternity Leave

The start of maternity leave should be no earlier than forty-five (45) days prior to the expected date of childbirth and you should have maternity leave of at least sixty (60) days after childbirth. Maternity leave is available to eligible Philippines-based employees regardless of nationality or marital status.

The maternity leave period is counted in calendar days, inclusive of Saturdays, Sundays, and holidays. This is in consonance with the rule that maternity leave should be availed of in a continuous and uninterrupted manner.

VAT / GST:

The standard VAT rate, which applies to most supplies of goods, properties and services, is 12% f the gross selling price or gross value.

Income Tax

An employee whose taxable income does not exceed P250,000 is not required to file an income tax return. For required employees, below is the breakdown:

Employer/Employee Contributions

Social Security System (SSS) – The updated SSS monthly contribution as of 2019 for employed members with monthly incomes of ₱17,500 and over is ₱1,920. The employer is required to contribute 8% or ₱1,400 from this amount while the remaining 4% or ₱700 should be withheld from the employee’s salary.

Home Development Mutual Fund (HDMF) – Contributions to Pag-IBIG Fund is set at ₱200 and must be equally shared by both employer and employee.

Philippine Health Insurance Corporation (PhilHealth) – Effective January 2018 onwards, monthly premium contributions to PhilHealth will be 2.75% of the employee’s basic monthly salary and will be shared equally by both employer and employee.

Public Holidays

 There are 15 public holidays in the Philippines:

–  New Year’s Day
–  Lunar New Year
–  Day of Valor
–  Maundy Thursday
–  Good Friday
–  Labour Day
–  Eid al-Fitr
–  Philippines Independence Day
–  Eid al-Adha
–  National Heroes’ Day
–  All Soul’s Day
–  Bonifacio Day
–  Feast of the Immaculate Conception
–  Christmas Day
–  Rizal Day

Severance Pay

An employee is entitled to separation pay equivalent to one-month pay or at least one-month pay for every year of service, whichever is higher. A fraction of at least six months shall be considered as one whole year. The period of service is deemed to have lasted up to the time of closure of the establishment.

Work and Residence Permits (Expatriates)

Every foreign national seeking admission to the country for employment purposes is required by the Bureau of Immigration to secure a work visa, regardless of the source of compensation and duration of assignment in the Philippines.

The process of obtaining a work visa in the Philippines begins with an application for an AEP from the Department of Labour and Employment. This application can be filed by the employer in the Philippines or the employee himself. The application must be sponsored by the employer and can be filed through the Bureau of Immigration.

It can take two to three months to complete the process of obtaining a work visa, including two to three weeks for the AEP alone. Employees should plan to apply well in advance of their trip to the Philippines.

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