Employment Act And Labor Laws In The Philippines

The primary step in establishing a presence in the Philippines is to be familiar with the labor laws that the
government has set to protect its workers. It serves as a legal framework that determines employment in
the country and the best practices that must be observed.

The Philippines Labor Code is the law governing all things related to employment. It was written and
made possible by President Ferdinand Marcos in 1974 as Presidential Decree No. 442. This law
specifies the rules regarding employment in the country, which include hiring practices, work conditions,
benefits, working hours, and termination.

The Labor Code is written in a way that benefits laborers. It sets provisions to protect the welfare of the
workers against unjust and discriminatory practices. The Department of Labor and Employment (DOLE)
is the government agency responsible for promulgating the labor code’s advocacies.

In this article, we will discuss the elements of the Philippines’ employment law and other labor relations
in the country.

What does the Employment Law include?

The employment laws in the Philippines specify regulations on every aspect of employment in the
country. Particularly, the labor code covers the following areas:
 Offices and Government agencies responsible for regulating employment laws
 Training policies for employees and special workers
 Work conditions – working hours, holidays, and leaves
 Work conditions for employees in special groups – minors, house helpers, homeworkers, and
night workers
 Health, Safety, and Social Welfare benefits
 Unfair Labor Practices
 Post-employment – Termination and Retirement

Who is covered by the Employment Law?

The Labor Code of the Philippines applies to all workers in the country. According to Article 6, all the
rights and benefits indicated in the code shall apply to all workers, whether they belong to an agricultural
or non-agricultural sector.

Employment Contract
An employment contract is a signed document that formalizes the agreement between the employer and
the employee. It specifies the terms and conditions of their rights and responsibilities.

Employment contracts in the Philippines must abide by the minimum standard set by the Labor Code of
the Philippines. It usually includes the following information:
 Employee’s details (name, address, contact number, etc.)
 Job position
 Job description
 Remuneration and Employee benefits
 Length and condition of probationary period, if any
 Periods of notice
 Code of conduct
 Employee grievance mechanism
 Company policies

The Labor code further identified different types of employment based on the tenure and the job
responsibilities in their employment contract. Below are the following:

Regular employment
An individual’s role and responsibility with the employer is deemed necessary with the business
operations and trade. Employees under this type of employment are employed for an indefinite period.
Casual employment
An individual has been with the employer for a year and will be employed indefinitely so long as their
responsibility and activities exist in the business operations.

Probationary employment
An individual is subject for a period where employers are to assess and evaluate their performance and
suitability for the position. The maximum period for employees to be under probation is six months. After
which, the employer may decide whether to change the employee’s status to regular or terminate their
contract.

Project-based employment
An individual is employed only for the duration of a specific project. Their contract legally ceases once
the project is completed.

Fixed period or Term-based employment

An individual is employed for a specified period. According to the Labor Code, a term-based employee
shall be regularized if the contract exceeds a year.

Seasonal employment
An individual is employed only for a given season or term. Since they are hired out of necessity, they
shall be considered a regular employee for the season they are obliged to work in.

Key Provisions of the Act

The Labor Code of the Philippines sets the minimum requirements for employers and employees to
observe during employment. Below are the employee entitlements as mentioned in the Labor provision

Minimum Wage
According to Republic Act No. 6727 or the “Wage Rationalization Act” of the Labor Code, the Minimum
wage in the Philippines varies across three major industrial sectors – Agriculture, Retail Establishment,
and Service Establishment. It is furthermore determined regionally. The minimum wage range in the
Philippines may range from PHP 315 to PHP 570 per day.

Working hours
The regular working hours in the Philippines are 8 hours. However, meal/break periods of an hour are
inserted in between these hours. However, there are instances where employee breaks are shortened to
20 minutes due to the nature of work or urgent tasks.

Overtime Pay
Overtime Pay rate varies based on the day the extra work was performed. Below are the following rates:
 Ordinary weekday, overtime – hourly rate X 125%
Below is the pay rate for working extra but on regular time (8 hours) on following days:
 Rest days or Special days – hourly rate X 130%
 Scheduled Rest day – hourly rate X 150%
 Regular Holiday – hourly rate X 200%
When workers have to do overtime on special days, rest days, regular holidays, etc. then the
overtime rate is:
 Rest days or Special days, overtime – hourly rate X 130% x 130%
 Scheduled Rest day, overtime – hourly rate X 150% x 130%
 Regular Holiday, overtime – hourly rate X 200% x 130%

Night Shifts
The Labor Code specifies an added payment for employees working the night shift. The Night Shift
Differential is given to employees working a shift between 10 PM to 6 AM. They are entitled to a 10%
additional payment for each hour worked during the night shift.
Holidays
The Philippines have 12 regular holidays, six special-non-working holidays, and 52 rest days.
Additionally, each region recognizes provincial holidays that most businesses observe. Employees
working during these days are entitled to compensation, as indicated in the previous overtime pay rate.

Service Incentive Leave

Filipino employees with at least one year of service in a company are entitled to 5 days of leave with pay.
This leave may be used as either a vacation or sick leave. Unused service incentive leave may be
converted into cash on a pro-rata basis.

Maternity Leave
Maternity Leave for female employees is 105 days with full pay. But for female employees who qualify as
solo parents under the “Welfare Act of 2000”, an extra 15 days with full pay will be added. In case of
miscarriage, they will be given an additional 60 days’ leave with full payment.
Employees on this leave will be receiving a cash benefit from their Social Security. The employer will pay
the difference to provide their employees full pay during their leave.

Special Leaves for women

There are two special leaves that Filipino employees may be entitled to under special circumstances.

The first one, The Magna Carta Of Women Act, is provided for female employees that have undergone
surgery due to a gynecological disorder. Eligible employees will be entitled to 2 months of leave with full
pay.

The second one, the Leave for Victims of Violence Against Women and Their Children, is granted to
employees who had been victims of domestic abuse. They are given ten days of leave with full pay to
attend to their needs during difficult times.

Thirteenth Month Pay

All Filipino employees are entitled to 1/12 extra pay at the end of each year as a Thirteenth Month Pay.
However, companies may have the option to split the payment and release it during the months of June
and December. This has been the practice by most businesses in the country to accommodate
employees with children to have a sizable budget upon school enrollment season.
Employees who have resigned, retired, new hires, or are under maternity leave will still be entitled to a
prorated 13th-month pay. The computation for the 13th-month pay will be as follows:
Total number of their basic pay earned in the year/ 12 (months) = 13th-month pay

Termination Process and Separation Pay

The Labor Code of the Philippines has listed down the various reasons for an employee’s termination.
Severance pay will be based on whether the reason is of just cause or not. For termination due to
misconduct, fraud, a commission of a crime, or neglect of duty, a separation pay will not be provided. But
for authorized termination, such as resignation, retrenchment, or end of a contract, an employee is
entitled to severance pay.
The amount of separation pay varies based on the reason for the end of the contract. Below are the
following entitlements:

Reason for Contract Termination Severance Pay

 Employee Retrenchment

 Business/Establishment closure
½ month’s worth of pay for
 An employee is suffering from an illness or disease that may every year served.
not be cured for a period of 6 months.

 Security guard employees without assignment for a continuous

period of 6 months.
  Employee termination due to labor-saving devices

 Employee termination due to redundancy.

One month’s worth of pay for
 Employees that cannot be reinstated to their former position or every year served.
to an equivalent position.

 Security guard employees without service assignment due to

age

Retirement
Filipino employees who are of 60 years or more (up to 65 years of age) shall be retired from their
services. However, government employees and those working in the retail, service, and agricultural
sectors are exempted from this ruling.
Filipino retirees will be given a ½ month’s pay for every year of service. Additionally, retirement pay will
include employee compensations such as :
 13th-month pay (½ of pay for each year served),
 service incentive leave (cash equivalent for five days), and
 15 days’ worth of salary (based on the salary rate at the time of retirement)

Penalties
Book seven of the Labor Code of the Philippines highlights the penal regulations for unmet labor
requirements. Generally, unlawful labor practices shall be sanctioned with a fine of PHP 1,000- PHP
10,000 or imprisonment of not more than three years or both.
Complaints about the offenses committed in the Labor Act must be filed within three years after their
occurrence. For unfair labor practices, complaints must be filed within a year.

Compliance Strategies for Employers

In the Philippines, the following strategies can help employers to comply with the labor laws in the
country.
 Streamline payroll schedule
 The Labor Code is very particular, with salaries and compensation being released promptly.
Additionally, employees can report any unmet compensation to the Department of Labor and
Employment. It should be noteworthy to allot a designated cut-off period for overtime, leave
credits, and payroll deductions.
 Be transparent
Providing a pay slip as a backing document for every payroll release is a good way to establish credibility
with your employees. Moreover, employers may provide digital copies for paperless transactions.
Distributing employee handbooks on top of their contracts is a better way to communicate their rights. By
subscribing to daily or weekly newsletters, employers must be on the lookout for regulatory changes in
labor laws. In turn, Employee handbooks must be updated to accurately reflect these changes.
 Automate HR processes
Manual computing, scheduling, and contract drafting may be tedious, especially when working in a big
company. Fortunately, HR tasks such as compliance, payroll management,, and employee on boarding,
can be processed by PEO and EOR solutions. These solutions help businesses streamline their
processes while staying compliant with the country’s regulations.
Conclusion
Labor Regulations in the Philippines can become complicated when one is unfamiliar with them.
But Multiplier can help you ensure that your business complies with the requirements when on boarding
Filipino employees.

Compliance experts craft our SaaS-based platform to ensure smooth HR management. Employers can
grow their business with ease through our solution.