Effortless Hiring in Philippines

Employment Laws

The Labor Code of the Philippines governs employment practices, covering hiring, working conditions, benefits, and termination procedures. This code is applicable to all enterprises and employment relationships within the country.

Onboarding Process

Employers typically require new hires to provide the following documents:

• A valid ID (e.g., passport or national ID)
• Tax Identification Number (TIN)
• Social Security System (SSS) number
• PhilHealth number
• Pag-IBIG Fund (HDMF) number
• Clearances such as NBI or police clearance

Types of Employment Contracts

1. Regular Employment:

• Employees are hired for an indefinite duration with full benefits. They typically undergo a probationary period of up to six months before acquiring regular status.

2. Probationary Employment:

• Lasts up to six months, during which the employer assesses the employee's suitability for permanent employment.

3. Project-Based Employment:

• Employees are contracted for a specific project duration. The contract ends upon completion of the project.

4. Seasonal Employment:

• Applicable for work during specific seasons; employment lasts only for the duration of the season.

5. Casual Employment:

• For work that is not usually necessary or desirable to the employer’s usual business operations.

6. Fixed-Term Employment:

• Contracts are signed for a limited period, clearly stating that employment is temporary.

Payroll Frequency

Employees in the Philippines are typically paid bi-monthly, specifically on the 15th and 30th of each month. Employers can also opt for a monthly payroll cycle, but wages must be paid at least once every two weeks, with intervals not exceeding 16 days.

Minimum Wage

As of 2024, minimum wage rates vary by region. In Metro Manila, the daily minimum wage for non-agricultural workers is set at ₱645. The national minimum wage has been fixed at ₱537 per day since 2019, with adjustments made periodically based on regional economic conditions.

Payroll Deductions

Employers are required to make several statutory deductions from employees' salaries, including:

1. Income Tax:

• Withheld based on progressive tax rates defined by the Bureau of Internal Revenue (BIR). The tax brackets for annual income are as follows:
• Up to ₱250,000: 0%
• ₱251,000 to ₱400,000: 20%
• ₱400,000 to ₱800,000: 25%
• ₱800,000 to ₱2,000,000: 30%
• ₱2,000,000 to ₱2,410,000: 32%
• Above ₱2,410,000: 35%

2. Social Security System (SSS) Contributions:

• Employers contribute approximately 9.50% of monthly salaries between ₱4,000 and ₱30,000.

3. PhilHealth Contributions:

• Health insurance contributions are typically around 2.5% of the monthly salary.

4. Pag-IBIG Fund (HDMF) Contributions:

• Housing fund contributions are generally set at 2%, applicable up to a monthly salary ceiling of ₱10,000.

Additional Considerations

• The 13th Month Pay is mandated by law and must be paid on or before December 24 each year. This payment is equivalent to one-twelfth of an employee's total earnings within the calendar year.
• Employers should maintain payroll records for at least five years as part of compliance with labor regulations.

How Cadana Simplifies Payroll in Philippines

Cadana helps businesses navigate complex payroll regulations by:

• Managing tax withholdings and overtime calculations.
• Offering centralized platforms for payroll data and secure management.
• Ensuring accurate and compliant payroll processing.

Employee Income Tax in Philippines

The employee income tax in the Philippines is progressive, with rates ranging from 0% to 35% depending on the income brackets. The tax brackets as of 2024 are as follows:

• Up to ₱250,000: 0%
• ₱250,001 - ₱400,000: 20% of the excess over ₱250,000
• ₱400,001 - ₱800,000: ₱30,000 + 25% of the excess over ₱400,000
• ₱800,001 - ₱2,000,000: ₱130,000 + 30% of the excess over ₱800,000
• ₱2,000,001 - ₱8,000,000: ₱490,000 + 32% of the excess over ₱2,000,000
• Above ₱8,000,000: ₱2,410,000 + 35% of the excess over ₱8,000,000

Employers are responsible for withholding the applicable income tax from employees' salaries and remitting it to the Bureau of Internal Revenue (BIR).

Employer Contributions Employers in the Philippines are required to make several statutory contributions on behalf of their employees:

1. Social Security System (SSS):

• Employers contribute 9.5% of the employee's monthly salary credit (with a maximum salary credit of ₱30,000). This contribution includes both the employer's and employee's shares.

2. PhilHealth:

• Employers contribute 4.5% of the employee's monthly basic salary towards health insurance. This rate is shared equally between employers and employees.

3. Pag-IBIG Fund (HDMF):

• Employers contribute 2% of the employee's monthly compensation to the housing fund. This contribution is applicable only if the employee's monthly compensation exceeds ₱5,000.

Types of Leave in Philippines

1. Annual Leave

• Employees who have rendered at least one year of service are entitled to five days of service incentive leave. This leave can be used for vacation or sick leave.
• If no carryover policy is in place, unused leave should be paid out.

2. Parental Leave

• Maternity Leave:

• Female employees are entitled to 105 days of paid maternity leave for live childbirth, as per the 105-Day Expanded Maternity Leave Law (Republic Act No. 11210).

• An additional 30 days of maternity leave can be taken without pay if desired.

• Solo parents receive an extra 15 days of paid leave.

• In cases of miscarriage or emergency termination of pregnancy, female workers are entitled to 60 days of paid leave.

• Paternity Leave:

• Married male employees are entitled to seven days of paid paternity leave from the date of childbirth.

3. Sick Leave

• There is no statutory requirement for sick leave in the Philippines; however, employees typically use their service incentive leave for this purpose. Many employers establish their own sick leave policies that may exceed the statutory minimum.

4. Public Holidays

• The Philippines observes 12 regular holidays and several special non-working days annually. Regular holidays include:
• New Year's Day (January 1)
• Maundy Thursday (date varies)
• Good Friday (date varies)
• Araw ng Kagitingan (April 9)
• Labor Day (May 1)
• Independence Day (June 12)
• National Heroes Day (last Monday of August)
• Bonifacio Day (November 30)
• Christmas Day (December 25)
• Rizal Day (December 30)

Special non-working days include:

• Chinese New Year (date varies)
• EDSA People Power Revolution Anniversary (February 25)
• All Saints' Day (November 1)
• All Souls' Day (November 2)

Mandatory Benefits

1. 13th Month Pay:

• The 13th month pay is a mandatory benefit provided to employees in the private sector, equivalent to one month's salary. It must be given on or before December 24 each year. This benefit is governed by Presidential Decree No. 851, which mandates that all rank-and-file employees who have worked for at least one month during the calendar year are entitled to this payment.
• For employees who have worked less than a year, the 13th month pay is prorated based on the number of months worked.
• The 13th month pay is tax-exempt up to ₱90,000; any amount exceeding this threshold is subject to income tax.

2. Retirement Pay:

• Employees aged 60 or above with at least five years of service are entitled to retirement pay, which is typically equivalent to one month’s salary for every year of service.

3. Social Security System (SSS):

• Employers are required to contribute to the SSS, which provides retirement, disability, and death benefits.

4. PhilHealth:

• Employers must also contribute to PhilHealth, which offers health insurance coverage for employees.

5. Pag-IBIG Fund (HDMF):

• This housing fund requires employer contributions that help employees save for housing and provide access to affordable housing loans.

Supplemental Benefits

Many employers in the Philippines offer additional benefits to enhance employee well-being and retention, including:

• Health Insurance: Employers often provide private medical insurance plans that offer comprehensive coverage beyond what is mandated by PhilHealth.

• Transportation Allowances: Some companies offer allowances to help cover commuting costs.

• Meal Subsidies: Employers may provide meal allowances or subsidized meals at work.

• Bonuses: Many organizations offer performance-based bonuses as an incentive for employees.

• Professional Development: Support for further education and training programs is often provided to encourage skill enhancement and career growth.

Process

Termination of employment in the Philippines must be based on just or authorized causes as defined by the Labor Code. The due process for termination involves several steps:

1. Written Notice: Employers must provide a written notice to the employee specifying the grounds for termination. This notice should detail the reasons and any evidence supporting the decision.

2. Opportunity to Respond: The employee must be given an opportunity to respond to the allegations. This often includes a hearing or conference where the employee can present their side of the story.

3. Notice of Decision: After considering all evidence and responses, the employer must issue a notice of decision to the employee, indicating whether termination is justified based on the findings.

Notice Period

• For resignations, a general notice period of 30 days is required, as stated in Article 300 of the Labor Code.
• For terminations initiated by the employer, the notice period may vary depending on the cause:
• If termination is for just cause (e.g., misconduct), no advance notice is required.
• If termination is for authorized causes (e.g., redundancy), a 30-day notice must be provided to both the employee and the Department of Labor and Employment (DOLE).

Severance Pay

• Employees terminated due to authorized causes (such as redundancy or business closure) are entitled to separation pay, which is typically calculated as one month's pay for every year of service.
• Employees dismissed for just causes generally do not receive severance pay.