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Hiring in the Philippines
In the Philippines, employees often negotiate in terms of net salary rather than gross salary. This practice can pose a challenge for global employers, so when negotiating terms of an employment contract and offer letter with an employee in the Philippines, it may be useful to keep this and the following practices in mind.
Employment contracts in the Philippines
In the Philippines, employment contracts can be oral or written, but it’s best to provide a written contract in English, which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in the Philippines should always state the salary and any compensation amounts in Philippine pesos (PHP) rather than another currency.
The Labor Code draws a distinction between managerial and non-managerial (rank-and-file) employees. Unlike managerial employees, rank-and-file workers are entitled to certain labor benefits and privileges (i.e., night shift differential, overtime pay, pay for work rendered during rest days or holidays, annual service incentive leave of 5 days, and service charges).
Nonetheless, labor laws in the Philippines do not prohibit employers from granting such benefits and privileges to managerial employees, provided that such entitlement is agreed upon in writing by the employer and the worker.
Working hours in the Philippines
The workweek in the Philippines is 40 hours, with a standard workday of 8 hours. If employees in the Philippines must work on a weekend, they are entitled to an additional 30% of their regular daily wage, unless a Collective Bargaining Agreement (CBA) or employment contract states differently.
If employees work more than 8 hours a day, the employer must pay an additional 25% of the hourly rate in excess. Employers in the Philippines may not offer time off to compensate overtime.
Holidays in the Philippines
There are 2 types of holidays in the Philippines: regular holidays and special non-working days. Regular holidays are paid days off, and employees must receive an additional 100% of their regular daily rate wages if they work during these holidays. Special non-working days are also paid holidays, and if the employee is required to work on these days, they are paid an additional 30% of their regular daily rate wages. Companies must be mindful when conducting business in the Philippines as there are some additional regulations around special pay for overtime and normal rest days.
The number of annual regular and special non-working holidays may vary depending on the government’s regulations, but the most common ones include:
Regular holidays:
- New Year’s Day
- Araw ng Kagitingan
- Maundy Thursday
- Good Friday
- Labor Day
- Eid’l Fitr (tentative)
- Independence Day
- Eid’l Adha (tentative)
- National Heroes Day
- Bonifacio Day
- Christmas Day
- Rizal Day
Special non-working days:
- Chinese New Year
- EDSA People Power Revolution
- Black Saturday
- Ninoy Aquino Day
- All Saints Day
- Feast of the Immaculate Conception of Mary
Vacation days in the Philippines
Non-managerial employees in the Philippines are legally entitled to 5 days of paid service incentive leave, which can be used for vacation or sick leave. However, most employers offer 15 days of paid vacation and 15 days of paid sick leave for most positions in the Philippines, regardless of whether they are managerial or non-managerial roles.
There are no rules regarding carryover for additional leave benefits, so it is left to the employer’s discretion. It should also be noted that unlimited PTO is extremely rare in the Philippines.
The Philippines sick leave
There is no statutory sick leave in the Philippines, but employee contracts, company policy, and Collective Bargaining Agreements often include sick leave benefits.
In the event of mandatory confinement, employees are required to meet the following conditions to qualify for 90% of the average daily salary per day of confinement:
- A minimum of 3 monthly social security contributions in the 12-month period before the illness or injury
- Confined for at least 4 days in a hospital or elsewhere
- Secured approval from the Social Security System (SSS)
- Exhausted all leaves with pay
The employer is entitled to 100% reimbursement and must submit directly to the SSS to receive the payment.
Maternity and paternity leave in the Philippines
Pregnant employees who have issued a minimum of 3 monthly contributions to the SSS within the 12 months preceding childbirth or miscarriage are eligible to receive a daily maternity benefit equal to 100% of their average daily salary. This benefit is available for every instance of pregnancy, miscarriage, or emergency termination, with 105 days for live births and 60 days for miscarriages.
Non-birthing employees are eligible for 7 days of paid paternity leave for their first 4 children, as long as they live in the same household. Leave must be taken within 60 days of the birth.
Health insurance in the Philippines
The Philippines has compulsory universal healthcare which is funded through payroll taxes and the general budget. Private healthcare is also available. The private healthcare system caters to 30% of the population. Many employers offer private medical insurance as a fringe benefit.
Philippines supplementary benefits
Offering additional benefits can help attract and retain key talent. Below are a few common fringe benefits some employers offer in the Philippines:
- Allowances: Some companies offer allowances for things such as housing, transportation, and medical allowances. If an allowance can be classified as a cost-of-living allowance, then it is tax deductible. All other allowances will be taxed.
- Supplementary insurances: Supplementary life, disability, and health insurance are often provided by employers.
Bonuses in the Philippines
Employees in the Philippines are legally entitled to a 13th-month salary. If an employee worked for less than a year, the amount due is determined by dividing the total salary received by the number of months employed. The calculation of the base salary does not include allowances and monetary benefits that are not considered or integrated as part of the employee’s regular compensation. If, however, these benefits are by company practice or policy and treated as part of the basic salary, then they should be included in the computation of an employee’s 13th-month pay.
Law in the Philippines requires that the extra pay be given no later than December 24, however, it is strongly recommended that the 13th-month salary be paid in the early days of the month. Although not customary, some employers choose to pay employees half of the 13th-month salary around June.
In addition to the 13th-month pay, some employers give an additional Christmas bonus, which is known as the 14th-month pay. This is one of the key benefits used to attract and retain local talent and is a highly sought-after perk.
Termination/severance in the Philippines
Probationary employment is allowed for up to 6 months in the Philippines.
Employers may dismiss workers for just cause, in which case there is no mandatory severance. However, just cause is an extremely difficult burden to meet. Generally, management must conduct an investigation and have strong evidence to prove just cause. Termination causes that could be deemed just cause include:
- 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
Employers may also dismiss workers for authorized causes, in which the employer must provide severance pay. Termination causes that would be deemed authorized cause include:
- Installation of labor-saving devices
- Redundancy
- Retrenchment to prevent losses
- Closure and cessation of business
- Disease or illness
In a termination for just cause, due process involves the 2-notice rule, which in total, must be given at least 30 days before the effective date of termination:
- The first notice is a notice of intent to dismiss, which should specify the grounds for termination and give said employee reasonable opportunity to explain their side.
- The next step is to have a hearing or conference where the employee is given the opportunity to respond to the charge, present evidence, or rebut the evidence presented against them.
- Lastly, the second notice is 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 requires a written notice of dismissal specifying the grounds at least 30 days before the date of termination. A copy of the notice shall also be furnished to the Regional Office of the Department of Labor and Employment (DOLE) where the employer is located.
Employees may appeal to an arbitrator, and in cases where the employer fails to adhere to the correct procedures, the employee may be eligible for compensation, reinstatement, and/or back wages.
Severance pay is provided based on the reason for termination but is typically 1 month’s wages for every year worked.
In cases of termination due to the installation of labor-saving devices or redundancy, workers are entitled to separation pay equivalent to at least 1 month’s pay or to at least 1 month’s pay for every year of service, whichever is higher. This amount is based on the employee’s salary received on their most recent check (this includes allowance and basic salary, not commission or bonuses).
In cases of retrenchment to prevent losses, closures, cessation of operations of establishment, or undertaking not due to serious business losses or financial reverses, the separation pay should be equivalent to 1 month’s pay or at least 1/2 month’s pay for every year of service, whichever is higher. A fraction of at least 6 months shall be considered 1 whole year.
Paying taxes in the Philippines
The Philippines has a social security system which is a mandatory employee benefit. The Philippines Social Security System consists of the following:
- Social Security System (SSS): The SSS was created to provide private employees and their families with protection against disability, sickness, old age, and death. All individuals under the age of 60 who earn income from employment of more than PHP 1,000 per month are required to contribute to the SSS. Employee contributions for social security are deducted from the employee’s salary payments. These are withheld by the employer on a monthly basis.
- Home Development Mutual Fund (HDMF): The HMDF is a provident savings system providing housing loans to private and government employees, and to self-employed workers who elect to join the fund.
- Philippine Health Insurance Corporation (PhilHealth): PhilHealth is designed to provide employees with a practical means of paying for adequate medical care in the Philippines.
Employers in the Philippines are required to make contributions to the above funds.
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