Introduction
Interested in establishing a business processing center in the Philippines? As a top outsourcing destination for plenty of global companies, it’s important for investors to know what awaits them if they decide to invest in the country. It begins with learning the labor laws of this Southeast Asian nation.
The labor laws in the Philippines are very strict and are enforced by the Department of Labor and Employment (DOLE). The DOLE has a lot of responsibilities including ensuring that employees get paid on time, overtime pay for all employees that work more than eight hours a day or 40 hours per week, minimum wage standards, and safe working conditions for all employees at all times no matter what type of industry they work in or what their job title is.
Labor Laws on Rest Day, Holidays, and Paid Time Off
These laws were set in place for the welfare of Filipino workers. Local and foreign investors alike should be aware that a failure to abide by these rules could get them in trouble with the law:
Employees are entitled to a weekly rest day and an annual paid leave.
The Philippine Labor Code ensures that employees get a mandatory rest period each week to recuperate for their physical and mental well-being.
Chapter II, Art. 91. Right to weekly rest day.
“It shall be the duty of every employer, whether operating for profit or not, to provide each of his employees a rest period of not less than twenty-four (24) consecutive hours after every six (6) consecutive normal work days.”
An important thing to remember about this provision is that while only a single rest day is mandated by the law, the majority of companies in the Philippines give two rest days to their employees.
In such cases where an employee needs to work on their rest day, the employer must pay an additional 30% (minimum) to the worker’s daily rate. Likewise, a worker will earn a holiday pay (100% of their basic wage) on top of their daily rate if they worked during a regular holiday. The daily rate will be computed based on the actual hours of work they rendered for the day. Otherwise, the worker will still get the holiday pay if they choose to enjoy their break.
Regular holidays in the country are as follows:
- New Year’s Day – January 1
- Araw ng Kagitingan/Day of Valor – April 9
- Maundy Thursday (movable date)
- Good Friday (movable date)
- Labor Day – May 1
- Eid’l Fitr/Feast of Ramadhan (movable date)
- Independence Day – June 12
- Eid’l Adha/Feast of Sacrifice (movable date)
- National Heroes Day – August 29
- Bonifacio Day – November 30
- Christmas Day – December 25
- Rizal Day – December 30
In the case of the mandated annual paid leave, this is what the Labor Code has to say:
Chapter III, Art. 95. Right to service incentive leave.
“Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay.”
However, employees who are already enjoying at least five days of paid vacation from their employers are not eligible for the service incentive leave. That is because many companies in the Philippines adopt their own paid vacation and sick leave policies which often exceed the five days required by the law. For example, it is common for Filipino employees to receive 15 paid vacation leaves and 15 paid sick leaves for a total of 30 paid leaves in one calendar year.
The Labor Code mandates employers to provide their employees with the following paid leaves as long as they meet each type’s conditions:
- Maternity Leave – Any pregnant woman working in the private sector (where BPO employees will fall under), regardless of marital status, can avail of this paid leave benefit once they have contributed three months to the Social Security System for at least a year prior to birth. Upon informing her employer, the would-be mother is entitled to a 105-day maternity leave with pay that’s equivalent to 100% of her salary credit.
- Paternity Leave – On the other hand, fathers are entitled to seven days of paid leave after their partner has given birth. However, he can only avail of this if he is married and cohabiting with the mother. This benefit can also be enjoyed on up to four deliveries (including miscarriages).
- Parental Leave for Solo Parents – Any solo mother or father, after they’ve rendered one year of service is entitled to seven days of fully paid leave.
Furthermore, Philippine laws have special safeguards in place made specifically to address the health and welfare of women workers:
Republic Act No. 9262 Paid Leave for Victims of Violence Against Women and Their Children
Under this rule, women employees who meet the conditions set by the Republic Act are entitled to up to 10 days of paid leave. This can be extended based on the protection order signed by the court or by the village chief where she resides.
Republic Act 9710 The Magna Carta of Women Act
All women employees who have at least rendered at least six months of continuous aggregate service, regardless of marital status or age, are entitled to a 2-month long paid leave after surgery for gynecological disorders.
Labor Laws on Salary and Bonuses
Employees are entitled to a 13th-month pay.
According to the 13th Month Pay Law, all rank-and-file employees who rendered at least a month of service are eligible for a 13th-month bonus pay. The pay is equal to the employee’s one month pay and should be given on or before December 24. Some companies, however, may give half of their employee’s bonus before the opening of a new school year (around August – September), while others even go beyond the mandated bonus and give out 14th and 15th-month bonus pays.
Minimum wage rates vary depending on location, but it is set by the Regional Tripartite Wages and Productivity Board.
Wage rates also vary between agricultural and non-agricultural industries. You may view the current rates here.
The “No Work, No Pay” Policy
The “No Work, No Pay” policy is a law that states that if an employee refuses to perform his or her job’s duties, the employer is not required to pay that employee. In other words, if an employee doesn’t show up for work without prior notice and without good reason (such as illness), they will not receive any compensation from their employer during this time period. The intention behind the law is to encourage workers to be more productive and responsible with their attendance—it’s meant as an incentive against absenteeism.
However, in cases when the employee is able and willing to do their work but is unable to do so for reasons like illegal suspension or dismissal, then they are still required by law to be properly compensated.
Tax requirements that every employer should remember:
The Philippines has a progressive tax system, with rates ranging from 20% to 35%. The types of taxes imposed on employees are:
Income Tax
This is the amount withheld from an employee’s salary and remitted to the Bureau of Internal Revenue. The amount is dependent on the total salary earned in one year, as well as the income tax bracket that the employee falls under.
Starting in 2018, the Tax Reform Acceleration and Inclusion Act, more popularly known as the TRAIN Law, mandates that employees earning an annual gross of Php250,000 gross and below are exempt from paying their income tax.
The prevailing rates may be viewed from the Bureau of International Revenue’s website.
Mandatory Deductions
Employers are likewise compelled to contribute to national health and social insurance systems that their employees can use when the need arises
SSS
The Social Security System, or SSS, is the government-mandated program in the Philippines for workers employed by private institutions. It is a social insurance program that offers numerous benefits over the course of an SSS member’s lifetime. For those working in the public sector, its equivalent is the Government Security Insurance System, or GSIS.
In the Philippines, employers are required to withhold SSS or GSIS contributions from employee salaries.
PAG-IBIG
The Pag-ibig Fund, also known as the Home Development Mutual Fund (HDMF), is a national savings program of the Philippines that intends to offer employees all around the nation access to cheap home financing.
Employers are obligated to withhold contributions from their employees’ salaries and pay them to the Pag-ibig Fund on their behalf.
Philhealth
The government mandates that all workers be covered by the Philippine Health Insurance System, or PhilHealth, in order to provide working Filipinos with affordable health insurance coverage.
Because of this, companies are required to withhold a portion of each employee’s wages and send the corresponding amount to PhilHealth.
Conclusion
We hope this article gave you a better understanding of the Philippine labor environment. Whether you’re an avid investor looking to set up operations in the country or a potential employee keen on gaining a headstart before joining the working world, your knowledge of labor laws can help you make informed decisions.
References
“Guide to Philippine Employment Laws for the Private Sector.” https://Www.Bakermckenzie.Com/En/Locations/Asia-Pacific/Philippines, Quisumbing Torres, https://www.bakermckenzie.com/-/media/files/insight/publications/2016/01/guide-to-philippine-employment/qrg_philippines_employmentlaw_jan16.pdf.
“Holiday Pay – Labor Law PH.” Labor Law PH, 29 May 2022, https://laborlaw.ph/holiday-pay/10886/.
“Holidays | Official Gazette of the Republic of the Philippines.” Official Gazette of the Republic of the Philippines | The Official Gazette Is the Official Journal of the Republic of the Philippines. Edited at the Office of the President of the Philippines Under Commonwealth Act No. 638, https://www.officialgazette.gov.ph/nationwide-holidays/2022/.
“Labor Code of the Philippines.” Bureau of Labor Relations, https://blr.dole.gov.ph/2014/12/11/labor-code-of-the-philippines/.
MacDougall, Caitlin. “Vacation Laws and Paid Leave in the Philippines: A Guide for US Companies.” Pilot: Hire Anywhere | Global Payroll, Benefits & Compliance, https://pilot.co/blog/vacation-laws-and-paid-leave-in-the-philippines-a-guide-for-us-companies-hiring-internationally/.
“Summary of Current Regional Daily Minimum Wage Rates by Region, Non-Agriculture and Agriculture | National Wages Productivity Commission.” National Wages Productivity Commission | NWPC, https://nwpc.dole.gov.ph/stats/summary-of-current-regional-daily-minimum-wage-rates-by-region-non-agriculture-and-agriculture/.
“Understanding Statutory Leaves of Employees in the Philippines.” Nicolas & De Vega Law Offices, https://ndvlaw.com/understanding-statutory-leaves-of-employees-in-the-philippines/.
