By Globalization Partners
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With its tropical climate, incredible beaches and diving spots, growing economy, and strategic access to many Asian financial centers, the Philippines is an excellent place to live and expand your business operations. As you do, you will need to know the ins and outs of hiring to remain compliant with local labor laws and ensure you get the best employees for the job.
That’s why we’ve developed this comprehensive guide to hiring employees in the country. We’ll discuss contract and severance requirements, tell you what you need to know about working hours and hiring costs, and offer some general tips for hiring in the Philippines.
What to know before hiring in the Philippines
Before you start hiring, your company needs a thorough understanding of considerations like contract employment, payroll and taxes, standard working conditions, and other nuances of Filipino labor law. Here are a few essential points to keep in mind:
1. Contracts and termination
Most professional positions in the Philippines require contracts since at-will employment does not exist in the country except during short probationary periods. Though these contracts may be oral or written, best practice is to craft a strong written contract in Filipino and clarify items like these:
- Termination requirements
In the Philippines, the requirements for terminating an employee are relatively complicated, and employers may need to spend time learning the rules and ensuring that their policies comply with them.
Filipino law allows for a probationary period of up to six months. During this time, if the employer and employee feel the relationship is not working out, they may part ways easily.
After the probationary period, employers in the Philippines may dismiss an employee without severance if they have just cause to do so. However, to show just cause, managers must conduct a formal investigation and present compelling evidence of the cause for termination. Just cause for termination of the employee may include the following:
- Willful disobedience
- Severe misconduct
- Habitual, gross negligence of duties
- Fraud or breach of trust
- Commission of a crime or similar offense against the employer or the employer’s family
- Serious illness
- Workplace redundancy
- Retrenchment to minimize losses
- Installation of labor-saving equipment
- Closing of the business
2. Notice and severance
When a company terminates an employee for just cause, it must provide at least 30 days of notice. It may choose from among these notice options:
- A notice of its intent to dismiss the employee. The notice must specify the dismissal grounds and provide the employee with a reasonable opportunity to respond to the charges leading to the termination.
- A conference or hearing that allows the employee to respond to the charges. The employee may present evidence or rebut the company’s evidence of wrongdoing.
- A notice of dismissal that the company has established grounds to justify termination. It should show that the employer has considered all relevant circumstances carefully in making its decision.
In addition to giving the employee a written copy of the notice, the employer should also provide a copy to the Regional Office of the Department of Labor and Employment (DOLE) that governs the company’s region.
An employee who has received notice may appeal to an arbitrator and argue that the termination is unfair. If the arbitrator determines that the employer did not follow the required procedures in dismissing the employee, it may order the employer to pay damages or back wages, or to reinstate the employee at the company.
The severance pay the employee receives will likely depend on the reason for the termination. In general, though, employees receive a month’s salary for each year of service. If the employee has done nothing wrong but the employer has made the employee’s position redundant, the company must provide the employee with either one month’s pay or one month’s pay per year of service, whichever is higher. If the company retrenches or closes, each terminated employee should receive either one month’s pay or half a month’s pay for every year of service, whichever is higher.
3. Payroll and taxes
The Philippines has a Social Security System (SSS) that employers and employees must pay into. The SSS provides disability and illness protections, as well as retirement pensions and assistance with funeral expenses. Separate social security funds also providehousing loans, and the Philippine Health Insurance Corporation (PhilHealth) provides social security health benefits so Filipino employees can get the healthcare they need.
Everyone under 60 who earns more than 1,000 Philippine pesos a month must contribute, and the contributions come out of each employee’s salary payments as withholdings. As of 2020, the employer must contribute a maximum of 1,630 Philippine pesos per month for each employee. Each employee must also contribute a maximum of 800 Philippine pesos per month.
4. Wages and working hours
The standard workweek in the Philippines is 40 hours long, and the standard workday is eight hours long. Filipino employees who work overtime must receive 125 percent of their usual wages for the extra hours worked, and they must receive their overtime pay as monetary compensation rather than additional time off. Additionally, Filipino employees required to work on a Sunday or a paid holiday must receive 130 percent of their usual wages for those hours unless their contracts or Collective Bargaining Agreements (CBAs) state otherwise.
Your industry may have a CBA that requires certain rates of pay, working hours, or other special conditions. However, only about 10 percent of the Filipino workforce has joined a union or CBA, so these requirements may not apply to your company.
The minimum wage in the Philippines varies by sector and region. For instance, the National Capital Region (NCR), which consists of metropolitan Manila, tends to have higher minimum wages than other areas. Your company may need to research the minimum wage for your industry in the location where you plan to establish your new operations.
5. Time off
Legally, Filipino employees are entitled to only five paid vacation days per year. This time, known as service incentive leave, incorporates both vacation time and sick days. However, in practice, most employers provide 15 paid vacation days per year for professional positions.
In addition to this paid time off, Filipino employees are entitled to several paid holidays. The Philippines recognizes two types of holidays: regular holidays and special non-working days. There are 10 regular holidays, which are paid days off and include holidays such as New Year’s Day, Good Friday, and Christmas Day. Special non-working days are non-paid days off and often change from year to year. In the past, they have included such days as Chinese New Year, All Saints Day, and New Year’s Eve.
Employees who must work on regular holidays are entitled to receive 200 percent of their usual salaries in overtime pay. Employees who must work on special non-working days receive 130 percent of their typical salaries.
Pregnant employees in the Philippines may receive paid maternity leave for their first four pregnancies if they have made the required contributions into the SSS fund. They should receive 60 days of leave paid at 100 percent of their usual salary rate. A pregnant employee who will have a cesarean delivery is entitled to 78 days of leave, instead.
As long as they live in the same household, married fathers may also receive up to seven paid days of leave for each of their first four children. They must take this paid leave within 60 days of the child’s birth. The employer pays the employee directly and then receives reimbursement from the SSS.
6. Anti-discrimination law and restrictions
Labor law in the Philippines prohibits employers from discriminating against individuals in many protected classes. Companies cannot discriminate against job candidates or employees for these characteristics:
- Sexual orientation
- Social status
To avoid giving even the appearance of discrimination, employers often refrain from asking questions about these topics during hiring interviews.
Cost of hiring an employee in the Philippines
The costs to hire employees in the Philippines will vary by employer and industry. As you add new employees, your company will need to consider both indirect and direct hiring costs, including these:
- Job advertisements
- Hours spent on applicant review and interviewing
Employment law in the Philippines requires companies to give their employees a 13th-month bonus that equals the monthly salary an employee receives throughout the year. The law requires payment no later than Dec. 24, but it’s good practice for companies to pay these bonuses earlier in December if they can. Some employers give an additional Christmas bonus as a 14th-month bonus to thank their employees for their hard work and build team loyalty.
Though allowances are not mandatory, many employers in the Philippines offer allowances for costs such as housing, transportation, and medical expenses not covered by the employee’s insurance. Employers also frequently offer insurance benefits beyond what is mandatory, such as life insurance and extra health insurance coverage.
Hiring practices in the Philippines
Hiring someone in the Philippines may be similar to the process you use in your home country. Nevertheless, prepare to encounter a few minor differences and alter your hiring practices accordingly:
- Use the local language and currency: As you discuss job positions with candidates, use Filipino whenever you can, and translate all monetary figures into Philippine pesos. Even if your applicants have studied some English in school, making an effort to use a familiar language and terms will help them feel comfortable and ensure they understand the finer details of the job.
- Focus on net salary: Filipino companies often speak in terms of net salary rather than gross salary. If your company typically makes employment offers in terms of gross salary, you may need to reframe your pay discussions to align with Filipino norms and prevent confusion.
What does a company need to hire employees in the Philippines?
Hiring new employees in the Philippines can be a labor- and time-intensive process, especially if you follow the traditional route of setting up a subsidiary to do business. These are some of the requirements you may need to fulfill if you set up a subsidiary corporation:
- Filing your official company name with the Securities and Exchange Commission (SEC)
- Having your treasurer’s affidavit and articles of incorporation notarized
- Obtaining your taxpayer identification number (TIN)
- Creating a bank account
- Depositing your minimum share capital with the bank
- Receiving your business permit from the Business Permit and Licensing Office (BPLO)
- Obtaining barangay clearance that certifies your company’s compliance with local community regulations
- Obtaining your community tax certificate (CTC) so you can pay your yearly community taxes
This process can take your company weeks and cost you thousands of Philippine pesos in fees.
Alternatively, you may wish to work with a professional employer organization (PEO), also known as an Employer of Record (EOR), to streamline operations and hiring. The process will go much more quickly, you’ll be sure you’re complying with regulations, and you’ll expedite your progress toward having a functional and profitable international team.
Hiring remote employees in the Philippines
As you evaluate potential employees for your operations in the Philippines, the distance between countries may obligate you to interview and hire remotely. Here are a few tips for getting the process to run smoothly:
- Plan ahead: Remote interviewing may take a bit more coordination and planning than you are used to with in-person interviews. Be sure you know how to work the technology platform you are using, and decide beforehand which team members will handle what questions to maximize the limited time you get with your candidates.
- Be flexible: With an in-person interview, you might wonder about an applicant’s reliability if the person arrived late. However, sometimes technological problems occur despite a candidate’s best efforts. Try to keep the candidate’s abilities and role suitability top of mind and avoid associating their candidacy with any internet interruptions or platform issues.
- Use social media to your advantage: If you can’t be present in the Philippines to meet candidates at career fairs or university recruiting events, you can often put social media to good use. Facebook and LinkedIn are both popular in the country, and many employers have good luck on GitHub and industry-specific sites. You should also make sure your company website is optimized for mobile phones since many Filipino candidates use their phones for job searches and applications.
Develop your international teams with Globalization Partners
When you’re ready to expand internationally, Globalization Partners is here to help. As a global EOR, Globalization Partners can take on the legal, human resources, and administrative work of hiring in another country. We shoulder the work of recruiting, hiring, and onboarding employees — our comprehensive technological solution streamlines and expedites these processes so you can focus on your primary business operations.