The Philippines is an archipelagic country in southeast Asia, consisting of around 7,641 islands. It is located between the Pacific Ocean and the South China Sea, and is home to gorgeous beaches and significant biodiversity.

The Philippines is considered an emerging market and a newly industrialized country whose economy is transitioning from agriculture-centered to services and manufacturing-centered.

Types of Contracts

The following types of contracts can be implemented in the Philippines:

• Project-based/fixed term (usually 1 year, can be extended)
• Regular/Permanent Contract
• Consultancy agreement (Contractors)

Part-time versions of the above contracts are possible.

Job Title Restrictions

There are no specific job title restrictions, however certain professions are regulated for health and safety reasons (e.g. nannies, construction workers).

Working Hours

The typical workweek in the Philippines consists of 8 hours per day and 40-45 hours per week, with one day designated as a rest day.

Minimum Wage

The minimum wage in the Philippines varies across regions, determined by respective tripartite wage boards. These rates typically span from PHP 282 to PHP 537 per day. The minimum wage is determined by the primary place of work, whether it be an office for commuters or a remote worker's home address. Additionally, the minimum wage is influenced by the industry sector.

Overtime

Hours exceeding the standard workweek constitute overtime and are governed by the employment contract. Typically, overtime is compensated at 125% of the regular pay.

Employees who are required to work on public holidays are entitled to an additional amount between +50% and +160%.

Note: The number of overtime hours is not restricted. Senior managers are exempt from receiving overtime pay.

Night Differentials

Night differential must be paid to employees working in specific night hours (+30% of the hourly rate for all hours in the night differential (10pm-6am).

1. If an employee works during both regular and night shifts, the night differential pay should be computed based on the actual hours worked during the night shift.
2. If an employee works overtime during the night shift, the night differential pay should be based on the overtime rate.
3. The night differential pay is not subject to income tax, but it is subject to mandatory deductions such as SSS, PhilHealth, and Pag-IBIG contributions.
4. Employers are required to keep a record of the night shift differential pay and must make it available for inspection by DOLE representatives.

Probation Period

In The Philippines, the probation period is between 3 and 6 months. A notice period of 7 days is required for termination of employment during the probation period.

Probation typically does not apply for project-based (fixed term) contracts).

13th-Month Salary

All employees in the Philippines are entitled to a 13th-month salary, which amounts to 1/12th of their annual salary. This benefit is mandatory and is distinct from other bonuses, which are at the employer's discretion.

The 13th-month pay can be either:

• Paid in full around December 24th.
• Split into 2, with half paid at the beginning of the school year in June.

Eligibility:

Employees who have worked for at least 1 month are entitled to receive the 13th-month pay. For those who have completed less than 1 year of work, the payment is prorated.

It is essential to distinguish the 13th-month salary from any optional Christmas bonuses. While the 13th-month pay is mandatory, Christmas bonuses are discretionary and may vary depending on the employer's policies.

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Taxes & Local Employment Costs

Employee Taxes

Employees pay between 0% and 35% in taxes depending on their income bracket. They also pay into social security, Home Development Mutual Fund (HDMF), and Health Insurance (PHIC).

Employers in the Philippines are not required to contribute to their employees' income tax. However, they are responsible for acting as withholding agents, deducting income taxes from their employees' monthly wages.

Graduated Income Tax Brackets:

• PHP 0 - PHP 250,000 = 0%
• PHP 250,001 - PHP 400,000 = 15%
• PHP 400,001 - PHP 800,000 = 20%
• PHP 800,001 - PHP 2.000,000 = 25%
• PHP 2,000,000 - PHP 8,000,000 = 30%
• Over PHP 8,000,000 = 35%

Employer Taxes & Contributions

Employers contribute PHP 2,880 to social security per employee. They also contribute 2% of the base salary to the Philippine Health Insurance Corporation (PHIC) and 2% to the Home Development Mutual Fund (HDMF) (Pag-ibig).

Annual Leave

Employees are entitled to 10 days of annual leave. Leave unused at the end of the year can be extended as approved by management until 31 March of next year. After that, it is forfeited.

Service Incentive Leave, Vacation & Sick Leave

At a minimum, employees receive 5 days of paid “service incentive leave” for every 12 months of service, which can either be taken as vacation or sick leave. In practice, most employers provide specific vacation days and sick leave above this amount in contracts, for example:

• 7 days vacation leave, 7 days sick leave
• 10 days vacation leave, 10 days sick leave
• 15 days vacation leave, 15 days sick leave

In general, unused leave days can be carried into the following year; the Philippines employment year does not specify a maximum, so employers wishing to limit how many days can be carried over should specify this in their agreements with employees.

Sick Leave

Employees are entitled to 5 days of sick leave for the entire calendar year.

Sickness Insurance

• Coverage: Insured employees are entitled to receive a minimum of 90% of their average daily wage if they are hospitalized or incapacitated at home for at least 3 days.
• Exceptions: The three-day waiting period does not apply to cases of injuries and acute diseases.
• Duration: Ill employees can receive 90% of their average daily salary for up to 120 days in a year. However, the benefit cannot be claimed for more than 240 days for the same illness.
• Eligibility: To qualify, employees must have contributed to the Social Security System for at least 3 months in the prior 12 months.
• Responsibility: Employers are responsible for paying sickness benefits to their employees, which can be reimbursed from the Social Security System (SSS).

Maternity Leave

Female employees who have completed at least 1 year of service are entitled to 105 calendar days of maternity leave. For single mothers, the entitlement is increased to 120 calendar days of leave.

If the worker has made at least 3 monthly contributions to the Social Security System in the 12-month period immediately preceding their childbirth or miscarriage, they will be paid a daily maternity leave benefit equivalent to 100% of the average daily salary.

The employer will make the full payment and will be reimbursed by the Social Security System up to a cap of PHP 70,000.

Mothers can also choose to take an additional 30 days of maternity leave without pay. Employees should inform their employer of pregnancy and the expected due date at least 30 days before the intended date of leave. A medical certificate should also be provided to support the leave application.

Paternity Leave

• Employees are eligible for 7 days of paid paternity leave.
• Parental leave is a statutory benefit that permits new parents to care for and bond with their newborns.
• To qualify for paternity leave, employees must have a minimum of 1 year of service with the company.

Public Holidays

There are approximately 18 public holidays in the Philippines, depending on the region. These are broken down into the following types:

• Regular holiday: holidays which repeat every year (e.g. , with +100% pay if worked
• Special non-working holiday: holidays decided by President in Q4 of the previous year (e.g. , with +30% pay if worked
• Special working holiday - no different to a normal working day, but marked on the holiday calendar (e.g. Christmas Eve)

Other Types of Leave

Bereavement Leave:

• Bereavement leave is a paid leave provided to employees following the death of an immediate family member.
• Employees are granted 10 days of temporary leave to attend funeral arrangements and address other concerns related to the death of a loved one.

Special Leave for Gynecological Surgery:

• Female employees undergoing surgery for gynecological disorders are entitled to 2 months of special leave with full pay.
• Pay is calculated based on the employee’s gross monthly compensation, in accordance with existing Philippine laws, rules, and regulations.

Notice Period

For probationary employees, a minimum of 7 days’ notice is required. For resignations, employees must provide a minimum of 30 days’ notice. It is also possible to provide payment in lieu of notice.

The notice period for dismissals without cause (business or health reasons) is 30 days. However, depending on the gravity of the offense, termination can occur immediately, with payment for the notice period.

In cases of poor performance or attendance, a more extended process is followed to give the employee ample opportunity to improve before termination.

Note: It is important to note that local laws generally discourage the termination of employment.

Severance Pay

In the event of termination without cause, employees are eligible to receive severance compensation equivalent to half a month's salary for each year of service.

Upon issuance of Clearance, the Employee's final payment is calculated. It includes any unpaid days worked, accrued unused leave credits, the 13th Month Pay, and any applicable Tax Refund, regardless of the reason for termination.

The clearance process is valid and has legal bases. Final pay subject to clearance process. Wages may be withheld for debts or obligations to the employer.

It is mandatory to pay a 13th-month salary bonus to employees every year that is equal to 1 month of pay, usually paid in December.