Philippines Country Facts
We provide comprehensive information regarding, Culture, Work life, Taxation, Visa’s & immigration, Labour Law, recruiting in your country of choice and employment contracts.
Global Expansion Made Easy for You
Expanding into the Philippines generally comes with challenges, however, partnering with us and using Employer of Record (EOR) eliminates the frustrations you could encounter.
Types of Work Visas and Work Permits for the Philippines
Which visa or permit is required depends on the purpose and length of the trip and the applicant’s nationality. A number of visas are offered to allow foreigners to stay and work in the country. Work documentation, qualifications and work experience need to be factored in.
For short term visits for business or pleasure, which may include potential employees or employers, the Philippines have agreements with nearly 160 countries whose citizens can enter visa-exempt from seven to 59 days, depending on nationality. Otherwise, other foreign nationals can apply for the relevant national visa:
Non-immigrant Temporary Visitors Visa
- Entry Visa 9(A) – Including tourism, sports and recreation, visiting families and medical treatment. Also for business purposes e.g., conferences, meetings or signing contracts; they can be sent by a company abroad or invited by a registered company in the Philippines. Applications can begin online through from the Philippine Online Visa Application System (OVAS). This may require uploading documents and arranging an interview at a consulate or embassy in country of residence
- For Transit 9(B) – To allow travellers to pass through the Philippines
Visas and documentation for Employment
Here are some of the terms, visas and permits that employers may encounter when recruiting foreign nationals and onboarding staff to comply with the country’s immigration and labour laws. Also, efforts are made to place Filipinos in vacant positions before being offered to foreign nationals abroad. The Economic Free Zone areas, for instance, have a 5% limit on foreigners in the workforce.
- Alien Employment Permit (AEP). Foreigners entering the country to work, require an employment permit from the Department of Labour and Employment (DOLE). This is a legal document and a prerequisite before the Work Visa 9 (G) can be applied for. It covers projects for more than six months duration. Some individuals may be exempt by law from needing one. However, most other visa applications, require the AEP including the SIRV for Investor Residents, the Treaty Traders Visa (9D) and the Special Non-immigrant Visa such as the PEZA Visa (PV) and E.O.226 Visa
- Pre-Arranged Employment Visa 9(G) The typical Work Visa for employment (salary or wage) enables companies to employ foreigners. This visa covers numerous professions, usually in short supply, from technical specialists, scientists to commercial, industrial, and agricultural personnel holding managerial, executive, and technical positions. They should have the relevant qualifications, skill set and work experience.
This visa comes under the employer-employee relationship/sponsorship e.g., employment contract, so a job offer is required with a registered company in the Philippines. It is tied to the sponsoring company and the position applied for, otherwise a new visa 9(G) is required.
These visas are valid for between one and three years, which can be extended for three years depending on the length of the contract. However, an AEP is required beforehand, and the Work Visa cannot be for any longer than the AEP, which can also be renewed a number of times with the DOLE
- Treaty Trader’s Visa or 9 (D) for foreign investors from countries with an agreement for the admittance of Treaty Traders, which for the Philippines is Japan, US, and Germany. Minimum investment of €110,900 (US$120,000) plus an AEP is required. For more information:
- Provisional Work Permit (PWP) is issued to Visitor Visa holders that arrive in the Philippines wanting to start work before they have received approval for their employment visas, either 9(G) or 9(D). It is generally valid for three months or until the work visa is issued. The PWP comes under the Bureau of Immigration
- Special Work Permit (SWP) is the permission to work for short term contracts up to six months, generally issued for three months and then renewed. This requires an employer or organiser of events who serves as a petitioner/sponsor. This is for workers who provide special services or emergency work, or professionals such as sports people, artists, performers, and their entourage. However, this is not the work permit that freelancers can use or for job hunters. Also, is it no longer available to manual labourers
- PEZA Visa (PV) is the Philippine Economic Zone Authority work visa and in 2021 replaced the 47(A) (2) for qualified and eligible foreign personnel from organisations in areas of public interest. It is for foreign employees of regional and head office staff or for those who have job offers in the Economic Zones, with companies registered with PEZA or the Board of Investments (BOI). This visa has been streamlined with validity increased to two years. Applications are transferred from the Department of Justice to PEZA
- Special Investor’s Residency Visa (SIRV) a multi-entry visa which allows people to stay in the Philippines indefinitely providing they meet requirements including covered investments of €69,300 (US$75,000) in certain sectors, including business services, distribution, education, the environment, communications. They are also exempt from Exit and Re-entry clearance from the BI
Visas are also available for seafarers 9(C); government officials 9(E); academic programmes 9(F) and retirees (SRRV).
- Emigration Clearance Certificate (ECC) is required by foreign nationals with both immigrant and non-immigrant visas, when exiting the Philippines after staying for more than six months. The ECC-A is applied for through the BI, for those people who are leaving the country permanently, and the ECC-B for those who are leaving temporarily. It is a single-use receipt for one year. It can be used as a Special Return Certificate for those with non-immigrant visas and as a Re-entry Permit for immigrants and is also applied for through the BI
- Certificate of Exclusion for the AEP is given to foreign workers who supply a service to companies inside the Philippines but whose employer is located outside the country or those foreigners who do not have an employer/employee relationship; examples include contracted service supplier and Intra-company Transferees
- Alien Certificate of Registration (ACR I-Card) is required by all foreign nationals who stay for longer than 59 days. This includes non-immigrant and immigrant visa holders including those on Temporary Visitor Visas. Those who do not apply for the ACR Card will find it difficult to open a bank account, rent or buy property, interface with non-government and government departments. For retirees on the SRRV Visa, the BI replaces the ACR with a PRA (Philippine Retirement Authority) Membership Identity Card
Applying for the Work Visas and Work Permits in the Philippines
Although there are a number of different routes into the Philippine market for employees and companies seeking to onboard staff, here we list the application process for the main work visa and work permit. Documents that have to be authenticated require an apostille certificate and are no longer notarized at embassies and consulates.
To work in the Philippines, employees receiving remuneration from a registered company require:
- Entry / Visitor Visa
- An Alien Employment Permit (AEP – Work Permit)
- A Pre-Arranged Employment Visa (9G) for longer than six months (Work Visa)
- A Provisional Work Permit (PWP)
- An ACR 1-Card
Entry / Visitor Visa (Temporary Stay)
Applied for an embassy or consulate abroad, after which the work documentation can be completed on arrival at the BI and DOLE. For more information on the entry visa including details of the documentation.
An Alien Employment Permit (Work Permit)
Who can apply?
A foreigner with an employment offer from a legally registered company and receiving remuneration in the Philippines OR an employer who is hiring a foreign national for paid employment in the Philippines.
When and where to:
The employer ascertains that no local worker can do the job and the vacant position has been advertised locally in newspapers, which should be 15 days before the application for the AEP is submitted and within 10 days of signing the employment contract.
Typical Documents required:
- Completed and signed application form
- Copy of passport (six months validity) showing the valid entry visa
- All documents relevant to the employment contract
- Tax ID Number from the BIR
- Certified copy of company’s Business Licence from the Mayor’s Office (from BPLO)
- Certified copies of relevant licences or registrations e.g., PEZA, PCAB, DO 174
- Certified copy of company’s Securities and Exchange Commission (SEC) certificate
- Proof company publicised job vacancy e.g., newspaper clipping
- Special Permit if job position is listed as a regulated profession
- If a company is covered by the Anti-Dummy Law Commonwealth Act, there must be a copy of the authority to employ foreign nationals
- Fees due
More employment-related documents may be requested, such as academic qualifications or proof of work experience.
Overview of Taxes in the Philippines
Personal Income (Compensation) Tax: As of January 2023, exempt up to PHP 250,000 (€4,230, US$4,590); five further bands up to 35% on excess over PHP 8,000,000 (€135,455, US$147,000).
Fringe Benefits Tax (FBT): Managerial and supervisory staff taxed 35% on assessed monetary value of benefits.
Final Business Tax: This is typically 20% for resident and non-resident aliens engaged in trade or business. For those with income not from trade or business, the rate is 25%.
Value Added Tax (VAT): 12% is the headline rate based on value of goods and services. Certain categories are exempt or zero-rated, as in the case of exports by VAT-registered individuals or companies. The VAT threshold is PHP 3,000,000 (€50,570, US$55,960).
Corporate Tax: Generally 25% on domestic corporations, or 20% where total assets do not exceed PHP 100 million (€1,690,000, US$1,837,000). Resident foreign corporations are liable for 2.5%, 10%, 25%, or are exempt, depending on type of operations.
Capital Gains Tax (CGT): Applies at 15% to individuals, domestic and foreign corporations.
Withholding Tax (WHT): Generally at 25% on payments to non-resident individuals and corporations.
Excise and Customs Duties: These apply at rates from 3% to 10%. The rate of 60% on cigars and cigarettes increases by 5% each year from January 2024. Customs duties are generally harmonised with the Association of Southeast Asian Nations.
Local Government Taxes: Generally not exceeding 3% and based on business income of the previous year and real estate value.
Other taxes: Documentary Stamp Tax; Donor’s Tax.
Employment Income Tax in the Philippines
Figures are in the Philippines peso (PHP) with euro and US dollar equivalents. Rates apply to citizens taxed on worldwide income. Non-resident citizens and aliens are taxed only on Philippines-sourced income. Rates apply from January 2023.
Personal income tax for employed individuals
Income | Tax on Excess
Up to PHP 250,000 (€4,230, US$4,590) | 0%
PHP 250,000 – PHP 400,000 (€6,780, US$7,343) | 15%
PHP 400,000 – PHP 800,000 (€13,532, US$14,687) | 20%
PHP 800,000 – PHP 2,000,000 (€33,830, US$36,700) | 25%
PHP 2,000,000 – PHP 8,000,000 (€135,560, US$146,800) | 30%
Excess Over PHP 8,000,000 | 35%
Individual Tax Rules in the Philippines
- The tax year is generally the calendar year, January 1 until December 31
- Married couples file joint returns, although they are assessed individually
- Employees’ due taxes withheld by the employer should match the tax liability, or the balance must be paid when annual return is filed
- Individuals who stay more than 180 days in a calendar year are considered to be non-resident aliens engaged in trade or business and liable for taxation. Most expats are considered non-resident aliens as their contracts will typically specify a period for their employment
- Returns are filed by April 15 following the tax year
Employers’ and Employee’s Social Security and Statutory Contributions in the Philippines
Employers and employees who are Philippines citizens contribute to the Social Security System (SSS), the Philippines Health Insurance Corporation (PHIC) and the Home Development Mutual Fund (HDMF). Expats working do not contribute to the HDMF. A foreign employee’s maximum contribution in 2022 was PHP 32,700 (€553, US$600). From January 2023 the contribution to the SSS was increased by 1% to 14%, of which the employer contributes the equivalent of 9.5% of the employees’ salary, with the employee contributing the balance.
The World Bank recognizes the Philippines economy as setting one of the fastest growth rates in the Southeast Asian region. The Philippines strategic location on one of the world’s leading trade routes has fuelled growing exports, up 13.2% in the year to November 2022. The Philippines ranked 11th out of Asian economies in 2022, is predicted to climb as high as fourth by 2030 and into the world’s top 20 economies.
The Philippines is also creating a niche market as a regional hub for Business Process Outsourcing as a key element of its growing digital and e-commerce sector.
Foreign businesses planning their next major move in the global economy have various options, and opening a subsidiary is necessary to hire and run payroll in the Philippines. The usual choice of opening a limited liability company does not apply in the Philippines, but opening a corporation as a subsidiary provides similar protections for the parent company, incorporators and shareholders.
The incorporation process, beginning with the Securities and Exchange Commission, is complicated and companies undertaking the procedure themselves must cope with strict set-up procedures. In addition, there will be issues involving hiring and onboarding employees, running payroll and complying with tax laws and employment legislation. Coping with this long list is time consuming and risks diverting your focus on building your business in the new territory.
Or … you could take a faster route into the Philippines economy, with no need to open a subsidiary. Bradford Jacobs has the expertise to deal with these potential issues and delays. Our Professional Employer Organisation (PEO) specialists and Employer of Record (EOR) consultants will point you in the right direction – from recruiting the staff to managing every legal aspect of compliance. Instead of waiting weeks or months, you can be up-and-running in days … while employees are always under your day-to-day control.
How to set up a Philippines Subsidiary
As applies to a foreign parent company opening a corporation as a subsidiary, operating under the Corporation Code.
- Verify and reserve unique company name with the SEC, through the Company Registration System
- Register two or more incorporators, up to a maximum of 15, who must all sign the Articles of Incorporation and company by-laws.
- The Revised Corporation Code still requires minimum share capital of PHP 5,000 (€85, US$92) for certain corporations operating under specific laws. However, the Securities and Exchange Commission (SEC) requires paid-in capital of €184,360 (US$200,000) for an enterprise in the Philippines. This can be reduced to €92,180 (US$100,000) if certain conditions are met https://www.dlapiperintelligence.com/goingglobal/corporate/index.html?t=03-minimum-capital-requirement&c=PH
- Provide the SEC with notarized treasurer’s affidavit to prove that at least 25% of authorised capital stock has been subscribed
- Obtain Certificate of Registration and Tax Identification Number from the SEC
- Register with the Bureau of Internal Revenue (BIR) to pay corporate taxes
It is also necessary to register with various local authorities (LGUs):
- Obtain clearance from the Barangay office of the district where the company is located, providing the Certificate of Registration, notarised IDs and proof of registered office
- Obtain community tax certificate from the relevant City Treasurer’s Office
- Register with the local Business Permit and Licensing Office (BPLO) and the mayor’s office
Companies intending to employ staff must also register with: The Social Security System (SSS); The Philippine Health Insurance Corporation (PhilHealth); The Home Development Mutual Fund (Pag-IBIG Fund).
Note: There is no limit on the number of shareholders, but if the company issues or sells shares to more than 19 individuals in a 12-month period its securities must be registered with the SEC.
What are the Benefits of setting up a Subsidiary in the Philippines?
The subsidiary operates in the Philippines as a separate and distinct legal entity from the parent company, which is generally protected from responsibility for any debts or liabilities, including legal issues. Shareholders are liable only to the extent of their contribution to the subsidiary, but this protection can be removed if they follow fraudulent or illegal activities attached to the company.
Through its subsidiary the parent company has the chance to test the market by pursuing different business opportunities and entering into agreements with other registered companies in the Philippines. Also, the subsidiary has greater credibility with clients and suppliers, compared with branches.
However, taking the step of setting up a subsidiary is still a long way from finding the most efficient and financially sensible route to setting up operations in the Philippines.
Consider this … Bradford Jacobs will find the perfect fit and brightest talent for your company in the Philippines through our in-country Professional Employer Organisation (PEO) specialists. Employees can be working at their desk in days … not weeks, or even longer. All concerns regarding employment laws and compliance will be removed by our Employer of Record (EOR) teams. We handle the hassle … while you have day-to-day operational control over your workforce.
Subsidiary Regulations in the Philippines
As applying to a corporation which incorporates under the Corporation Code.
Registration and Documentation:
- Verify and reserve unique company name with the SEC, through the Company Registration System
- Register two or more incorporators, up to a maximum of 15, who must all sign the Articles of Incorporation and company by-laws. The Revised Corporation Code removed the minimum requirement of five incorporators
- The Securities and Exchange Commission (SEC) requires paid-in capital of €184,360 (US$200,000) for an enterprise in the Philippines. This can be reduced to €92,180 (US$100,000) if certain conditions are met. Submit notarized treasurer’s affidavit to the SEC to prove that at least 25% of authorised capital stock has been subscribed
- Obtain Certificate of Registration from the SEC
- Obtain clearance from the Barangay office of the district where the company is located, providing the Certificate of Registration, notarised IDs and proof of registered office
- Register with the local Business Permit and Licensing Office (BPLO) and the mayor’s office
- Companies must also register with the Social Security System (SSS); the Philippine Health Insurance Corporation (PhilHealth) and the Home Development Mutual Fund (Pag-IBIG Fund) if they are employing staff
Accounts and Taxation:
- Obtain company’s Tax Identification Number from the SEC
- Register with the Bureau of Internal Revenue
- Obtain community tax certificate from the relevant City Treasurer’s Office
- Subject to corporate taxes sourced in Philippines and worldwide, as well as VAT on gross receipts and any local business taxes
- Annual tax returns are required (as is the case with all other business types in the Philippines)
- Dividends paid by the subsidiary to the parent company liable for withholding tax
- Annual registration fee to the BIR must be paid by January 31 each year
Management:
- There is no limit on the number of shareholders, but if the company issues or sells shares to more than 19 individuals in a 12-month period its securities must be registered with the SEC
- Subsidiaries may require an annual stockholders meeting to appoint directors, but otherwise shareholders or directors annual meetings are not necessary
- Management must supply annual General Information Sheet (GIS), stamped ‘Received’ by the BIR, to the SEC
- Subsidiary can have a maximum of 15 directors and at least three individual officers – president (who must be a director); treasurer (who must be a Philippines resident); secretary (who must be a Philippines resident and citizen)
Located in the western Pacific between the South China and Philippine Seas, the Philippines archipelago has over 7,000 islands, around 2,000 of which are inhabited. Approximately two-fifths of the islands have no names and only 350 exceed an area of one square mile.
The three main island groups of Luzon, the Visayas and Mindanao stretch north to south for 1,150 miles and east to west for 700 miles. Mountain ranges, including volcanic peaks, fringe the rugged coastlines which have a combined length of around 22,000 miles.
The Southeast Asian nation’s heritage reflects western influences. The Philippines takes its name from King Philip II, who was king of Spain during its 16th century colonisation. After 333 years of Spanish rule, American influence held sway. The Philippines is Asia’s second most populous nation after India that has English as an official language. The culture and heritage are very much Asian, however, with an emphasis on homogeneity bringing together the ethnic groups scattered across the archipelago.
The capital, Manila, and Quezon, the most populous city, are on the largest island, Luzon. The growing middle class aspires to fulfil the World Bank’s assessment that the Philippines will become an upper-middle income society, but there remains considerable disparity between the wealth of urban and rural populations.
Starting your business in the Philippines
Foreign companies intending to start business operations in the Philippines by setting up a subsidiary have initial decisions to make, including deciding which business structure best suits their plans. In the Philippines, a foreign company must have a subsidiary to be able to recruit and pay staff. The usual choice in other countries is to open a limited liability company, but this business type is not an option in the Philippines. Therefore, the typical option is to open a corporation, which offers similar protections as a limited liability company to both the parent business and its incorporators and shareholders.
After first reserving the company name with the Securities and Exchange Commission (SEC), there is a long and complex procedure to follow that involves liaising with at least five government agencies at federal and local level.
This is only the first step in a string of requirements that also involves finding and recruiting staff and registering them with the Bureau of Internal Revenue and the Social Security System. Also high on the ‘to do’ list are opening a bank account for share capital and initial operating costs and deciding where to locate the business and find lines of support, such as distributors.
However, there is an alternative to opening a subsidiary and dealing with these complications. This is the point at which the wise move is to partner with a Professional Employer Organisation (PEO) and Employer of Record (EOR) such as Bradford Jacobs. We will take care of recruitment, onboarding, payroll … and much more. They are all dealt with while you focus on building your business in a new territory.
Companies that decide to go it alone must follow a strict registration process to comply with the Corporation Code.
Incorporation procedures:
- Verify and reserve unique company name with the SEC, through the Company Registration System
- Register two or more incorporators, up to a maximum of 15, who must all sign the Articles of Incorporation and company by-laws. The Revised Corporation Code removed the minimum requirement of five incorporators
- The Revised Corporation Code still requires minimum share capital of PHP 5,000 (€85, US$92) for certain corporations operating under specific laws. However, the Securities and Exchange Commission (SEC) requires paid-in capital of €184,360 (US$200,000) for an enterprise in the Philippines. This can be reduced to €92,180 (US$100,000) if certain conditions are met https://www.dlapiperintelligence.com/goingglobal/corporate/index.html?t=03-minimum-capital-requirement&c=PH
- Provide the SEC with notarized treasurer’s affidavit to prove that at least 25% of authorised capital stock has been subscribed
- Obtain Certificate of Registration from the SEC
- Obtain company’s Tax Identification Number from the SEC
- Register with the Bureau of Internal Revenue (BIR) to pay corporate taxes
- Obtain clearance from the Barangay office of the district where the company is located, providing the Certificate of Registration, notarised IDs and proof of registered office
- Obtain community tax certificate from the relevant City Treasurer’s Office
- Register with the local Business Permit and Licensing Office (BPLO) and the mayor’s office
- Companies intending to employ staff must also register with the Social Security System (SSS); the Philippine Health Insurance Corporation (PhilHealth); the Home Development Mutual Fund (Pag-IBIG Fund)
Note: There is no limit on the number of shareholders, but if the company issues or sells shares to more than 19 individuals in a 12-month period its securities must be registered with the SEC.
Expanding your business into the Philippines
The Republic of the Philippines holds a key position among the key economies of Southeast Asia, in relatively close proximity to major players such as mainland China, Taiwan, Hong Kong, Singapore and Japan. Foreign companies planning to expand their business into the Philippines will also see it as a potential springboard to these and other nations further into the Pacific Rim.
Another attraction for investors are the Philippines various trade agreements, including those related to its membership of the Association of Southeast Asian Nations (ASEAN). It also concluded the Philippines-Japan Economic Partnership Agreement, and the Regional Comprehensive Economic Agreement with 13 nations including Australia, New Zealand, South Korea and China, plus other bilateral trade agreements.
In the 10 years up to 2021, the Philippines fell behind ASEAN neighbours in attracting Foreign Direct Investment, although 2022 showed signs of accelerating FDI growth. The government sought to further boost this trend with legislation, such as the Foreign Investment Act, the Public Services Act and the Retail Trade Liberalisation Act, all aimed at relaxing restrictions on overseas investment.
Advantages and Challenges when entering the Philippines Market
Some Advantages:
- Rated by the World Bank as among the fastest-growing economies in Southeast Asia, transitioning from a lower-middle income to upper-middle income society with increased domestic consumption
- Well-educated, literate workforce with excellent skills in English, which is the official language alongside Filipino
- Flexible attitudes to advances in the digital economy, helped by nearly 50% of the workforce being under the age of 25
- Strategic geographic location, ideal for expansion into the Asian region and Pacific Rim
- Becoming more influential globally thanks to thriving Business Process Outsourcing sector
- Government relaxing restrictions on foreign investment
Some Challenges:
- Inadequate infrastructure and congestion in cities and ports
- Perception of corruption, bureaucracy and opaque procedures surrounding procurement; inconsistency in applying regulations
- Terrorist threat, particularly in the south; 16th on the 2022 Global Terrorism Index of countries most likely to be affected by terrorist attacks
- Economy centred on the capital, Metro Manila, which accounts for 30% of the economy
- Inequality in income levels
Under the Labour Code, employment contracts need not be written. However, the employment agreement must be recorded in such a manner as can be examined by inspectors from the Department of Labour and Employment (DOLE). There are no statutory language requirements; English is usually used in a written contract, with dual language contracts in Filipino where necessary. Employers and employees are free to agree any terms for their contract that do not contravene mandatory minimums of the Labour Code, otherwise the contract is null and void.
Different types of Employment Contracts in the Philippines
Open-ended, regular employment contract: The usual contract form, with a start date but no designated end date, which is terminated by mutual agreement or by due process.
Fixed-term employment contract: These are permitted, with the proviso that the contract becomes regular if extended beyond one year. These are not restricted to seasonal work.
Project-based employment contract: These are attached to completing a specific task.
Part-time employment contracts: Part-time employees in regular employment are entitled to the same benefits as regular employees.
Casual employment contracts: Under Article 295 of the Labour Code, casual employment is neither regular nor project-based and involves duties peripheral to the company’s usual operations. There are no entitlements.
Seasonal employment contracts: These specify work for a particular season.
Probation periods: These cannot exceed six months and the probationer must be told the requirements to become fully employed. Unless the individual fails to perform satisfactorily, the probationer enters regular employment at the end of the trial.
Collective Bargaining Agreements (CBAs): Under the terms of the Department of Labour and Employment (DOLE), a CBA cannot establish terms less than those set out in the Labour Code, and must set procedures for resolving disputes. CBAs generally last for five years but the economic terms should be renegotiated after three years. The CBA results from negotiations between employers and employees covering such economic factors as wages, bonuses, allowances and retirement benefits. The DOLE estimated that by the first quarter of 2022 the Philippines had more than 116,000 labour organisations representing 4.8 million workers and 924 CBAs covering nearly a quarter of a million employees.
Laws that regulate the Labour Relationship
The Labour Code is the main source of employment legislation in the Philippines, supplemented by various laws, decrees and decisions of the Supreme Court. Other specific legislation affecting employees and the employment relationship includes:
- The Data Privacy Act (2012)
- The Anti-Sexual Discrimination Act (119)
- The Safe Spaces Act
- The Paternity Leave Act
- The Solo Parents’ Welfare Act
- The Telecommuting Act
- The Social Security Law
- The National Health Insurance Act
- The Domestic Workers Act
- The 105-Day Expanded Maternity Leave Law
- The Wage Rationalisation Act
- The Persons with Disability Act
General requirements for Contracts
Written contracts are not mandatory, but strongly advised, and any agreement must be in such a form that can be presented if required to officials from the Department of Labour and Employment. Written contracts are in English, with a supporting translation in Filipino if required. Contracts should include full details of all parties including address and place of business; role description; remuneration and payment schedule; any benefits beyond the statutory. Employment agreements fall into categories recognised by the Labour Code – regular and indefinite; fixed-term; project related; seasonal, casual and part-time.
The Philippines Labour Code plus supplementary legislation covers employment entitlements and benefits. The statutory minimum benefits and entitlements stipulated by the Code can be improved by contracts, Collective Bargaining Agreements (CBAs) and trade unions.
What are the Compensation Laws?
National Minimum Wage (NMW): The national monthly minimum of PHP 8,060 (€137, US$147) varies across regions and between agricultural and non-agricultural sectors. Minimum wages can also be increased by CBAs.
Working Hours and Breaks: Article 91 of the Labour Code allows for general working days of eight hours, up to 48 a week, or 40 for employers operating a five-day week. Employees receive a rest day of not less than 24 hours every six working days, or 48 hours in a five-day week. Workers are entitled to a one-hour unpaid break during the day or a paid break of 20 minutes.
Sick Leave and Benefits: Employers are under no obligation to provide sick leave benefit, although many do. If SSS-qualifying employees are sick beyond the period covered by benefits from their employer, say for 10 days, the employee receives 90% for the remainder of incapacity. The employer can reclaim this from the SSS. Benefit can be for up to 120 days in a calendar year.
Paid Vacations: The statutory minimum is only five days’ paid leave, applicable after completing one year’s service and with no entitlement in the first year. Known as Service Incentive Leave, the statutory minimum is increased by most employers to between 12 and 15 days annually, while CBAs can also provide for more.
Public Holidays: Employees in the Philippines are entitled to paid public holidays. Employees who are required to work on official public holidays are paid twice their normal hourly rate. There are also special holidays announced by Presidential Decree, which can vary each year and include such as Chinese New Year, Nino Aquino Day, All Saints Day and All Souls Day. Employees required to work on these days receive a premium 30% above normal salary if it falls on a rest day. Special non-working holidays may include such as Christmas Eve and New Year’s Eve. Employees who work on these days are entitled only to their basic pay. Also, dates vary for the Islamic holidays of Eid-al Fitr and Eid-al Adha, aligning with the Islamic calendar. The public holidays are:
Overtime: The rate for each hour worked above the regular eight is overtime and compensated at 25% above the normal hourly rate. Overtime on a rest day or official holiday is paid at 30% above the normal rate.
Probation Periods: Six months is the maximum period and employers must make clear the requirements to become fully employed. Unless the individual fails to perform satisfactorily during the trial period, the probationer then enters regular employment.
Notice Periods: There is no statutory advance notice period for dismissal with just cause. However, the employer must give written notice of the reason for termination and give the employee the chance to respond. The employee must be given a second written notice, advising that grounds for dismissal have been established. For dismissal with authorised cause both the employee and the Department of Labour and Employment must have 30 days prior notice of the reasons. The Labour Code does not rule on pay in lieu of notice.
Termination, Severance and Redundancies: Termination for just or authorised causes must comply with the Labour Code and the employer must prove their reasons, or have to reinstate the employee with back pay. Just causes include gross misconduct or neglect of duties and fraud or criminal activity. Employers’ authorised causes include closure, installing labour-saving equipment, redundancies and downsizing. Severance is one month’s salary, or half a month’s salary per year of employment and can depend on the reason for termination. There is no legislation specifically covering mass lay-offs or redundancies, which employers are expected to manage in a reasonable way.
Maternity / Paternity Leave: Pregnant employees are entitled to 105 days maternity leave on full pay. This covers employees in the public and private sector, the informal economy and voluntary contributors to the Social Security System (SSS). Mothers can assign seven days of their leave to their partner or carer. Under the 105-Day Expanded Maternity Leave Act (2019), mothers can take an extra 30 days without pay and single parents can take an extra 15 days. Leave also applies in the case of miscarriage or early emergency termination. There is no limit on the number of pregnancies. Fathers are entitled to seven days paid paternity.
13th Month Salary and Bonuses: Presidential Decree 851 established the mandatory 13th month salary for all employees who have completed one month’s tenure with their employer, which means it also includes probationers. Department of Labour and Employment guidelines stipulate it should not be less than one-twelfth of their annual salary and is paid at the end of the calendar year.
Pensions: The Philippines has a four-tier system. Tier 1 – combines programmes of the Department of Social Welfare and Development, the Department of Health and the Department of Labour and Employment to benefit the poorer members of the population. Tier 2 – the mandatory benefit scheme of the Social Security System for the private sector and employees in the Government Service and Insurance System. Tier 3 – includes mandatory benefits at the PAG-IBIG fund for private sector workers on retirement. Tier 4 – comprises voluntary contributions from individuals into private pension funds.
Health Insurance: The government-owned corporation PhilHeath administers the universal healthcare system in the Philippines, which varies between high-quality options in urban areas to poorer care in rural areas. The size of the population puts strain on the system, which also suffers from qualified practitioners migrating abroad. PhilHealth provides treatments and inpatient care for citizens and legal residents. Private healthcare is expensive for most locals but competitively priced for expats in comparison with other countries, as is indicated by the Philippines growth of medical tourism.
Locating top level candidates to join your company’s international expansion is just the first of a long list of issues to deal with. This certainly applies if trying to recruit staff in the Philippines while still based in your home country. Once recruited and onboarded, employers face strictly-applied employment legislation that spells out their responsibilities and obligations in addition to the legal rights of their staff.
These demands add up to a considerable workload. There is a better option … a straightforward, fast and cost-effective alternative that will have your new staff operational in a matter of days without having to unravel any red tape.
Bradford Jacobs has the essential expertise you need to provide the smoothest route for your journey into the Philippines economy. Our Professional Employer Organisation (PEO) networks have global reach to find the right staff. Then, through our Employer of Record (EOR) platforms we will have your new employees at their desks and screens in the shortest time. This guide highlights the essentials of recruitment and onboarding in the Philippines. You can trust Bradford Jacobs to put the brightest talent in position for your company – right now!
Recruiting in the Philippines
Foreign companies entering the Philippines employment market open the door on a labour pool of well-educated, flexible, English-literate personnel from a predominantly young labour pool – 50% of the population are under 25 years old.
The Philippines has a booming global Business Process Outsourcing (BPO) sector, so recruiters looking to fill IT-related positions are in an extremely competitive area. Network architects and administrators, IT coordinators, data analysts along with digital and web marketing specialists are all in-demand roles.
The recruitment market highlights that these positions need to be filled in areas including the public sector, retail and wholesale, health and education, banking, finance and insurance.
Building a brand with which young and socially-aware staff identify creates a better chance of keeping them on the payroll. As Filipinos grow into the digital and e-commerce arena, social media is becoming another avenue for potential employers to source the best fit for their companies through such as LinkedIn and Facebook. Popular job boards include Jobstreet, Kalibrr, Boss Job and Workabroad.ph
Note: Under Section 6 of the Labour Code, it is illegal to fail to submit reports required by the Secretary of Labour and Employment regarding the company’s employment status, vacancies, remittance of foreign exchange earnings and details of individuals leaving the company.
Employees’ pre-hire checks in the Philippines
General: Philippines law does not apply regulations to pre-hire procedures, other than for employers to ensure foreign workers comply with immigration laws for employment. It is normal for employers to verify birth certificates with the Philippines Statistics Authority and check any criminal record with the National Bureau of Investigation. Employers are entitled to request details of educational qualifications and previous employment.
It is unlawful for pre-hire checks to discriminate on grounds including gender; marital, pregnancy or solo parent status; ethnicity; actual or suspected illnesses, including TB, HIV, suffering from cancer or being a cancer survivor; disability or mental health. Also, such discrimination cannot subsequently apply during employment.
Employers must also comply with the Data Privacy Act (2012) regarding any personal or sensitive data they obtain about the candidate.
Basic requirements when recruiting in the Philippines
Employers must comply with basic requirements of the Labour Code, which operates under the Bureau of Labour Relations. The code governs all employment laws and labour relations in the Philippines, is underpinned by the Philippines Constitution and supplemented by rulings of the Supreme Court and those of the Department of Labour and Employment.
Employers and employees are free to agree terms of their contract, provided they do not contravene regulations in the Labour Code. Any contracts including terms that violate the Code are automatically void. Terms of the Labour Code include:
- Written contracts are not mandatory, but strongly advised
- There is no specified language requirement; contracts in English are normal with dual-language contracts recommended where one party is not fluent in English
- Probation periods cannot exceed six months and the probationer must be advised of the standards required to become employed full time
- Written employment contracts should include: Full details of all parties including address and place of business; role description; remuneration and payment schedule; any benefits beyond the statutory; clauses covering confidentiality and intellectual property rights
- Contracts can cover the following types of employment: indefinite; related to a project; seasonal, casual and fixed-term
- Part-time workers in regular employment are covered by the same statutory rights as full-time permanent employees
The Basics of Philippines Culture
The Philippines has endured an often troubled history, including colonisation, occupation and harsh rulers. These historical events, however, did not erase the traditions of Filipino culture, its hospitable population and a resilient and family-oriented culture. This outlook has brought together more than 100 million people scattered over thousands of islands that comprise this Southeast Asian nation.
The Philippines is a blend of cultures, with Spanish influences dating from the 16th century colonisation and those of America since the mid-20th century, along with many from the wider Asian region. The Philippines is a predominantly Christian society of Roman Catholics and Protestants.
Filipinos are respectful, courteous, mutually supportive and proud of their culture, traditions and heritage … often expressed in spectacular festivities.
Philippines Work Culture
Hierarchy: Business structure reflects a culture where respect is due to elders, and it is the most senior members who will make decisions after assessing a consensus of views.
Introductions/Greetings: At first meetings, men share a firm handshake and smile; women offer a smile and wave of the hand. A typical greeting, in the Tagalog dialect for example, is ‘kumusta kayo’ … how are you? Respect personal space.
Language: English is the official language of the Philippines, alongside Filipino, so is used in business.
Gift Giving: Initially something modest, such as flowers or a food delicacy, or small corporate items. Exchanging gifts of greater value can happen after a deal is concluded, but nothing to overtly expensive as this could be misinterpreted.
Business Cards: Present face-up with both hands.
Dress Code: Smart, conservative and modest for both sexes. However, with a nod to the heat and humidity, shirt and tie suffice for a man. Skirts, long-sleeved dress shirts and trouser suits for women are also in tune with the business ambiance.
Punctuality: Being on time shows respect for the budding business relationship, although Filipinos are realistic about the traffic congestion in their cities, and enjoy talking about it – do your best!
Negotiations and Meetings: Filipinos do not like to directly disagree, contradict or refuse, due to the concept of ‘hiya’ – meaning shame or embarrassment. Long pauses in the discussions can indicate disagreement and a reluctance to commit. Filipinos will note ‘over the top’ promises and become suspicious.
Agreements: Verbal agreements are based on trust, and reneging will be considered as taboo as breaking a written agreement. However sensible business practice is, of course, to conclude written agreements – and do not sign drafts.
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