When looking at a list of popular outsourcing destinations, you can be sure to find the Philippines in one of the top positions. The reasons for this are pretty straight-forward: First of all, employment costs are really low, making hiring in the Philippines very cheap and attractive for international companies.
Second, English is an official language – so no need to worry about difficulties communicating with your new remote employee. Third, the country’s workforce is young, dynamic and well-educated. What’s more, given the Philippines’ considerable history as a popular outsourcing destination, most employees have experience working for international employers and will not have any trouble adapting to the new workflow.
Although verbal employment agreements are also valid, it is best practice to put a written employment contract in place when hiring an employee from the Philippines. The contract should be drafted in English as well as in Filipino and outline the basic terms of employment including but not limited to:
- Identification of both parties
- Date of commencement (and employment duration for temporary contracts)
- Job description, position, duties and responsibilities
- Basic salary as well as other compensation or benefits
- Working hours
- Total number of holidays
- Notice periods for employment termination
- Probation period
- Code of conduct and complaint procedures
- Company policies
Unless stated otherwise in the employment contract, employment relationships in the Philippines are considered permanent. Fixed-term contracts are, however, possible.
Probationary periods should not exceed six months.
Working Hours and Breaks
Under normal circumstances, employees should not work for more than eight hours per day, i.e. 40 hours per week – 48 hours in certain industries operating on a six-day week. Employers are obligated to grant a meal break of no less than 60 minutes to their employees. It is possible to reduce daily breaks to 20 minutes by offering pay instead.
Furthermore, employers have to make sure an employee’s weekly rest period is not shorter than 24 consecutive hours.
Employees who are required to work overtime must be remunerated at a rate of at least 125% of their normal wages. Every hour worked beyond eight hours a day is considered overtime. Managerial staff is exempt from overtime pay.
It is mandatory to pay employees once every two weeks or twice a month. In no case should the period between two payments exceed 16 days.
As of 2022, the national minimum wage in the Philippines is set at PHP 537 per day – for non-agricultural workers. In 2023, the minimum wage is expected to rise to 547 PHP per day.
Although there are no statutory provisions for paid sick leave, it is common practice for companies to introduce internal sick leave policies. Depending on the industry, collective agreements may provide for sick leave.
Labour law in the Philippines provides for a 13th salary which should be paid by the 24th of December of every year – at the very latest. However, it is also possible to pay the bonus in two instalments, one in June and one in December.
Taxes and Social Security Contribution
Employees and employers in the Philippines are subject to the following tax and social security contribution rates (as of 2022):
30% corporate tax rate
12% VAT (standard rate)
Income tax rates:
up to PHP 250,000: 0%; over PHP 250,000: 20%; over PHP 400,000: 25%; over PHP 800,000: 30%; over PHP 2,000,000: 32%; over PHP 8,000,000: 35%
Around 12% of employee’s salary, including:
Social Security System (SSS): 8.5% (up to PHP 2,115)
Philippine Health Corporation (PHIC): 1.75% (up to PHP 900)
Home Development Mutual Fund (HDMF): 2% (up to PHP 100)
Around 7% of employee’s salary, including:
Social Security System (SSS): 4.5% (up to PHP 1,125)
Philippine Health Corporation (PHIC): 1.75% (up to PHP 900)
Home Development Mutual Fund (HDMF): 1% (up to PHP 100)
Employees are entitled to five days of paid annual leave after having completed one year of service with the employer.
In addition, there are ten regular public holidays which are observed all over the country plus several special non-working days which vary from year to year. While official public holidays are paid days off, non-special working days are unpaid rest days.
Employees who are required to work on public holidays are entitled to double pay – a pay rate of 130% applies on special non-working days.
Maternity Leave and Paternity Leave
In 2019, the government of the Philippines extended maternity leave from 60 to 105 days. During this time, the employee is to receive her full wages. Maternity leave can be extended by another 30 days. However, any extension will be unpaid.
Fathers can take up to seven days of paternity leave which is fully paid.
There are no legal provisions for further parental leave following maternity and paternity leave. However, solo-parents have the right to take seven days off per year in order to fulfill their parental duties.
Additional Leave and Benefits
Philippine labour law does not provide for any further leave. However, it is common for companies to provide their employees with additional allowances and complementary insurance.
In addition to employment termination by default – i.e. in case of a fixed-term contract – resignation and mutual agreement, the Labour Code recognises the following reasons for employee dismissal (non-exhaustive list):
- redundancy or any other business-related reason
- summary dismissal due to gross misconduct or disobedience
- breach of trust
- employee’s underperformance
- employee’s long-term illness or inability to perform agreed work because of lasting injury
The statutory notice period for employees and employers is 30 days. Employees who are made redundant are entitled to severance pay equal to one month’s salary for each year of service – a period of more than six months counts as one year of service. Retrenched employees receive severance pay equal to one and a half month’s salary for each year they have worked for the employer.
Hiring in the Philippines?
Not sure if you should start with a contractor or go ahead and hire a full-time teammate in the Philippines? The Lano platform makes it easy to go from freelance to full-time employee. Get expert guidance from the Lano team to compare your options and keep growing.