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Before you hire in the Philippines

Set up a legal entity in the Philippines

Choosing a suitable entity for you depends on what will be the nature of your activities. The below table will give you a brief overview of the types of legal entities in which foreign investors can engage.

Entity type
Key characteristics
Branch (fully foreign-owned)
  • Can do business and earn income in the Philippines
  • Excellent for trading and manufacturing
Representative Office
Prohibited to engage in any commercial activities but allowed to:
  • Provide customer service
  • Promote the company’s products
  • Conduct market research
Domestic Corporation
  • Not required to have a parent company, unlike a representative office or a branch
  • Can operate in different types of business as per the purposes of registration
  • Suitable for rendering any types of services, trading, import, manufacturing, or realty operations
Joint Venture (<40% foreign ownership)
  • A corporation with local joint venture partners
  • These are either individuals or corporations regarded as shareholders of your corporation
  • Similar structure to a domestic corporation. Has a different minimum capital requirement and foreign ownership percentage


Alternative to setting up a company: Remote Staffing

An alternative to setting up a company in the Philippines is hiring through REMOTE STAFFING. A REMOTE STAFFING is a third-party service provider that allows you to employ employees in countries where you don’t have a legal presence.

REMOTE STAFFING is especially useful when hiring staff in the Philippines. Your service provider, such as CBOS, takes necessary employees on their payroll. Therefore you don’t need to open an entity of your own.

So, if you and your current business are in a foreign country, using an REMOTE STAFFING would be an option to hire staff and expand to new markets, including the Philippines.

Types of employment in the Philippines

In addition to having access to an abundant pool of laborers, Philippines work opportunities are flexible. There are several types of employment to consider.

Note that you can ask for a probation period for skill testing before your employees become regular employees. It can last up to 6 months, starting from the first day the employee started practicing.

Regular employment allows employment indefinitely. Though, hiring on a project basis or choosing a seasonal, casual or fixed-term worker is an option.

Type of employment
Main employment terms
Regular
Indefinite
Project-based
Fixed employment period with completion timeframe
Seasonal
If work is seasonal and performable only at a particular time of the year, the employment is with a limited deadline
Casual
Sudden or incidental need to engage in employment matters. If a casual employee provides one year of service to a company, they qualify as regular employees
Fixed period
Commencement and termination dates of the employment relationship have been set before the employment begins


Managing employees in the Philippines

Office hours in the Philippines

In the Philippines, the regular hours of work for any employee are 8 hours per day, five days a week. Another solution for an employer is to follow the principle of 40 hours per week.

Each employee also has the right for an hour of a non-compensable meal break during every workday which the 8-hour workday does not include.

Working beyond 8 hours per day is only allowed if the employee receives overtime pay for that. Compensation in the Philippines equals the employee’s regular wage plus at least an additional 25% of the salary.

Note the terms of compensation when working beyond 8 hours during holiday or rest day. The amount must be equal to the rate of first 8 hours on holiday or rest day plus at least 30%.

Working nighttime (R.A. NO. 10151) – Night Shift Differential

Every employee in the Philippines must receive at least 10% of their regular wage for the night shift differential for each hour of work they perform from 10 PM until 6 AM.

Working part-time

The employer must issue at least a minimum of 50% of the wages and other benefits to employees working 4 hours per day, between 6 AM and 10 PM.

Compensation to part-time workers must be in proportion to the hours they attend or equal to only 4 hours per day pay. As per company agreements and policies, part-time employees may receive a higher basis of computation of wages.

Calculating daily salaries

The daily rate is a constant figure for computing overtime and night differential pay. As well as commutation of sick and vacation leave credits. Assuming no intervening salary increases. Keep in mind that the daily rate must also be the same ground when computing the ten unpaid holidays.

Annual leave and days off

At least one day off per week

All employees must have a rest period of at least 24 consecutive hours after every six regular work days. As per the scheduling of the employer, a weekly rest day is subject to a collective bargaining agreement. The weekly rest day follows the rules and regulations of the Secretary of Labor and Employment.

Note that the employer must respect the rest preference of employees if it is related to their religion.

Emergency rest day work

In general, no one must work against their will during the scheduled rest day, unless any actual or impending emergencies occur.

For example:

Also, when urgent work must be done on machinery, equipment, installations to avoid a severe loss which would otherwise occur for the employer.

Attending work may be necessary also when:

Paying salaries in the Philippines

Calculating wages in the Philippines

Your workers must receive the wage rates as per the 8 hours of work a day. Or, the payment may cover a proportion of the amount, in case the work lasts less than the mentioned time frame. For example, on piecework, takay, pakyaw or when assisting on a task basis.

Deductions from wages

Allowed deductions as per Article 113:

Allowed deductions as per the Labor Code and other laws:

Calculating wage for interns and apprentices

The wage rate when hiring an intern or an apprentice in the Philippines is at 75% of the statutory minimum wage. Also, note that if the person under discussion has a disability, the total amount of applicable minimum wage rates is set.

Other payments by the employer

Holiday pay

Everyone must receive the regular daily wage during regular holidays. Unless in retail and service establishments that are regularly employing less than ten workers.

Regular holiday – refers to paying the compensation to an employee during regular holidays accordingly:

Special holiday:

Premium overtime pay

According to the law, the employer must pay extra compensation on work performed within the regular 8 hours during non-working days (rest days, regular and special holidays).

13th-month pay

An additional monthly salary applies to all Philippine employees once per year. The bonus does not reflect on how much is the basic salary of the employee, what is their employment status or designation, neither the chosen payment method.

The only consideration is the employment must have lasted for at least one month during a calendar year. Payment to the employee must be conducted no later than December, 24th annually.

Depending on the company regulations and agreements, half of the payment may be given in June (opening of the regular school year). Note that the exact payment frequency and terms may also be a subject of internal agreements and bargainings.

Reduction of benefits

Note the impact that the decrease in benefits may have on the team you have or are planning to create. Non-diminution of benefits explicitly prohibits employers from eliminating or reducing the benefits received by their employees. It applies only if the benefit is based on any of the following:

Take a look at our previous article to learn more about the minimum wages and related benefits in the Philippines.

Termination of an employee in the Philippines

Ending employment contracts is not as simple in the Philippines as it might be in other countries. The Philippines’ Labor Law is coherently in favor of the employees rather than the employer.

You can only terminate an employee if you have a just or an authorized cause for it. Just causes arise from employee’s unacceptable behavior. Authorized reasons have legal grounds, for example, upon company closure.

To learn more about the process of ending employment contracts, read our previous article about how to duly terminate an employment contract in the Philippines.