Philippine Employment Law for Foreign Employers: What Your EOR Handles

Understanding the Labor Code of the Philippines is essential for foreign employers with a local Filipino team. These laws outline mandatory standards that need to be met for their staff including holiday pay, 13th month pay, service incentive leaves, social security contributions and more. 

To avoid non-compliance with these labor standards,  many foreign businesses opt to hire staff through an Employer of Record (EOR). Instead of starting a legal entity, the EOR acts as the legal employer of your staff. We handle all the HR and administrative side of local employment while you manage employee performance and project management. 

But what laws does your EOR need to comply with to employ your staff? In this guide, we’re going to break down the essential employment laws you need to know as an employer. We will dive deeper into the Labor Code of the Philippines and outline labor standards your Filipino employees are entitled to. 

Understanding the Labor Code of the Philippines

The 1987 Philippine Constitution (Art. XIII, Sec. 3) and The Labor Code of the Philippines (Presidential Decree No. 442, as amended)

The bedrock of all employment in the country is the Labor Code of the Philippines. It serves as the primary legal framework for governing employment practices, labor relations and worker protections in the country.  

The Code aims to protect labor, ensure industrial peace based on social justice, regulate employer-worker relations, and facilitate skilled worker deployment abroad while safeguarding the national interest. 

It applies to private sector employees, with exemptions for government workers covered by civil service rules, and has been amended multiple times to address evolving needs like overseas employment and safety standards.

Employee Classification in the Philippines

Labor Code of the Philippines, Articles 294-296 (formerly 280-282)

In the Philippines, the type of contract you offer matters immensely. The law recognizes several types of employment:

• Probationary Employment: By law (Art. 296), Probationary employment cannot exceed six months. During this time, you must clearly communicate the “standards of regularization” to the employee on day one. If you fail to provide these standards in writing, the employee could argue they were regular from the start.
• Regular Employment:  Regular employees enjoy full security of tenure. They cannot be terminated except for “just” or “authorized” causes.
• Project-Based Employment: The employment is tied to a specific project with a defined scope and duration. Crucially, the end date must be determined at the time of hiring. If you keep a project employee beyond the project’s completion, they may be deemed regular.
• Seasonal/Casual: Seasonal workers are hired for a specific season (like the Christmas rush), while casual workers perform work that is not usually necessary for the business’s main operations. If a casual employee renders at least one year of service (even if broken), they become regular for that specific activity.

How Employees Become “Regular”

Regularization is a situation where an employee automatically gains full benefits and protection. It occurs when:

1. By Operation of Law (Automatic): If a probationary employee is allowed to work beyond the six-month trial period without a new contract or a notice of termination, they are automatically deemed a regular employee on the first day of the seventh month. No paperwork is required for this to happen—it is a legal default.
2. By Meeting Standards: If an employee successfully meets the performance standards communicated to them at the start of their probation, the employer typically issues a Notice of Regularization or a Regularization Letter.
3. By Nature of Work: If an employee is hired as a “casual” but performs tasks that are necessary and desirable to the usual business of the employer for at least one year, they become regular by law.

For instance, you hire a Virtual Assistant on a probationary contract starting January 1st. On day one, you must give them a written list of “Regularization Standards” (e.g., hitting a specific lead target or maintaining a certain quality score). In the fifth month, you conduct a final performance review. 

If you forget to do the review and they simply show up to work on July 2nd, they are now a regular employee with full security of tenure. You can no longer let them go for “failing the trial period”; you would now have to prove “Just Cause” (like serious misconduct) to terminate them.

RecruitGo as your EOR partner flags such issues immediately, preventing potential labor lawsuits by automating the transition from probationary to regular status exactly at the six-month mark.

Mandatory 13th-Month Pay

Presidential Decree No. 851 (13th-Month Pay Law) and its Revised Implementing Rules and Regulations.

Every rank-and-file employee in the Philippines (regardless of their designation or the method by which their wages are paid) is entitled to a “13th-month pay”. 

This end-of-year bonus is a mandatory statutory requirement designed to help workers manage the increased expenses of the holiday season. It must be paid no later than December 24th of every year, though many companies pay half in June (to help with school enrollment) and half in December.

How is 13th Month Pay Calculated?

The formula for calculating 13th month pay is the total basic salary earned during the calendar year divided by 12. To give you a better idea of how this looks in practice, here is a simple calculation table for an employee who started mid-year:

Basic salary includes all remunerations or earnings paid by an employer for services rendered. However, it generally excludes allowances and monetary benefits which are not considered part of the basic salary (like unused vacation leave credits or overtime pay, unless specified in the contract). If an employee has worked for at least one month during the year, they are entitled to a pro-rated version of this pay upon resignation or termination.

An EOR builds this into your monthly cost-to-hire calculation from the start. This prevents the “sticker shock” many foreign employers experience when they realize they owe an extra month’s salary for their entire team at the end of the year.

Mandatory Work Hours, Overtime, and Night Differentials

Labor Code of the Philippines, Articles 83-90 (Working Conditions and Rest Periods)

The standard work week in the Philippines is 8 hours a day, typically for 5 or 6 days a week (totaling 40 or 48 hours). Given the global nature of modern work, many Filipino professionals support international clients in different time zones.

Night Shift Differential (Art. 86)

By law, any work performed between 10:00 PM and 6:00 AM entitles the employee to an additional 10% of their regular hourly rate for each hour worked. This is a common requirement for BPO and remote support roles.

Overtime and Rest Day Premiums (Art. 87-94)

Any work performed above the normal 8 hours is considered as overtime. Under the Philippine Labor Code, the premiums are as follows:

• Regular Overtime: 125% of the hourly rate.
• Rest Day/Special Holiday Work: 130% of the daily rate.
• Rest Day Work that is also Overtime: 169% of the hourly rate (130% x 130%).
• Regular Holiday Work: 200% of the daily rate (“Double Pay”).
• Regular Holiday that falls on a Rest Day: 260% of the daily rate.

Navigating these premiums requires a robust payroll system. An EOR handles the complex timekeeping and calculation, ensuring that you don’t underpay (which leads to labor complaints) or overpay (which hurts your bottom line).

Social Contributions to SSS, PhilHealth, and Pag-IBIG

Social Security Act of 2018 (R.A. 11199), National Health Insurance Act of 2013 (R.A. 10606), and HDMF Law of 2009 (R.A. 9679)

In the Philippines, payroll involves more than just tax withholding. Employers are mandated by law to contribute to three primary social security systems:

1. SSS (Social Security System): provides benefits for retirement, maternity, sickness, and death. Under R.A. 11199, the contribution rates have been gradually increasing to ensure the fund’s long-term viability.
2. PhilHealth (Philippine Health Insurance Corporation): This is the national health insurance program. It provides subsidies for hospitalization and certain outpatient procedures. Every employee must be enrolled.
3. Pag-IBIG (Home Development Mutual Fund): This fund focuses on providing affordable housing loans and a mandatory savings scheme for Filipino workers.

Each of these agencies requires monthly reports and payments. If you are a foreign company without a local presence, you cannot register as an employer with these agencies. An EOR uses its established local entity to manage these registrations and remittances, ensuring your employees have access to their benefits and you remain in good standing with the government.

Statutory Leave Credits: SIL, Maternity, Paternity, and Solo Parents

Labor Code Art. 95 (SIL), 105-Day Expanded Maternity Leave Law (R.A. 11210), Paternity Leave Act of 1996 (R.A. 8187), and Solo Parents’ Welfare Act (R.A. 8972)

Philippine leave laws are designed to protect the family unit, which is central to Filipino culture.

• Service Incentive Leave (SIL): After one year of service, employees get 5 days of paid leave. While this is the legal minimum, most competitive tech and BPO companies offer 12 to 15 days of Vacation Leave (VL) and 10 to 12 days of Sick Leave (SL).
• Maternity Leave (R.A. 11210): This is one of the most generous maternity leave laws in Southeast Asia. Female employees receive 105 days of fully paid leave. This applies to every instance of pregnancy, regardless of frequency. An additional 15 days are granted to solo mothers.
• Paternity Leave (R.A. 8187): Married male employees get 7 days of paid leave for the first four deliveries of their legitimate spouse.
• Solo Parent Leave (R.A. 8972): Employees who qualify as solo parents are entitled to an additional 7 days of paid parental leave per year.

An EOR tracks these leave credits meticulously. Managing these manually as a foreign employer is a recipe for administrative errors and disgruntled employees.

Termination of Employment Due Process

Labor Code Articles 297-299 and DOLE Department Order No. 147-15

Unlike many Western countries (particularly the US) where “at-will” employment is the norm, the Philippines operates on a “security of tenure” principle. 

This means that once an employee is hired, they have a legal right to keep their job unless there is a very specific, legally-recognized reason to let them go. You cannot simply “fire” someone because they aren’t a “good fit” or because you’ve had a bad day. In the eyes of Philippine law, the burden of proof always rests on the employer to show that the dismissal was for a valid cause and followed the correct procedure.

Just Causes (Art. 297)

These refer to grounds for termination based on the direct actions, behaviors, or failures of the employee. In the eyes of Philippine law, these are “fault-based” dismissals, meaning the employee has committed a serious breach of the employment contract or the law that makes the continuation of their employment untenable. 

Here are some examples of employee termination with Just Cause:

• Serious Misconduct: Brazenly violating company rules.
• Willful Disobedience: Refusing a valid, work-related order.
• Gross and Habitual Neglect: Repeatedly failing to perform duties.
• Fraud or Breach of Trust: Often applicable to “position of trust” employees like managers or accountants.

Unlike business-driven reasons, just causes require the employer to prove specific misconduct or negligence through a rigorous evidentiary process.

Authorized Causes (Art. 298-299)

In contrast to just causes, authorized causes are business-necessity reasons. These dismissals are not a result of the employee’s wrongdoing but are necessitated by the legitimate economic or operational needs of the business. 

Because these terminations are “no-fault” in nature, the employer is legally required to pay separation pay to the employee. This payment serves as a financial cushion as they transition to new employment.

Examples of Authorized Causes:

• Redundancy: The position is no longer needed.
• Retrenchment: Downsizing to save the company from financial loss.
• Disease: If the employee’s continued employment is prohibited by law or prejudicial to their health/others’ health.

The “Twin Notice” Rule

To legally terminate an employee for Just Causes, you must strictly adhere to the “Twin Notice” rule of due process. Even if the evidence against them is overwhelming, skipping a single step in this sequence can transform a legitimate firing into a legal nightmare involving expensive penalties and forced reinstatement.

1. First Written Notice (Notice to Explain): Detail the specific charges and give the employee at least 5 calendar days to respond.
2. Administrative Hearing/Conference: Provide the employee a chance to present their side and evidence.
3. Second Written Notice (Notice of Decision): State the final decision based on the evidence.

Failure to follow these steps can lead to an “Illegal Dismissal” ruling, forcing you to pay “Nominal Damages” or, worse, full back-wages. An EOR provides the HR expertise to manage these “Show Cause” meetings and accurate documentation.

Ensure Labor Law Compliance with RecruitGo

As the legal employer of your staff in the Philippines, RecruitGo assumes the primary responsibility for adhering to these specific laws under the Labor Code. By partnering with us, we can hire, onboard, and manage payroll on your behalf. 

Here’s how RecruitGo can help your business:

• Total Legal Compliance: We ensure that every employment contract, from probationary to regular status, is fully compliant with local regulations. We handle the registrations with SSS, PhilHealth, and Pag-IBIG, so you never have to worry about missing a contribution or a filing deadline.
• Risk Mitigation: RecruitGo provides the HR expertise to manage sensitive situations, such as disciplinary actions or terminations, strictly following the “Twin Notice” rule. This minimizes the risk of costly illegal dismissal lawsuits and potential labor disputes.
• Accurate Payroll & Tax Management: Our systems are built to handle the granular math of night differentials, overtime, and mandatory 13th-month pay. We manage the withholding and annualization of taxes, ensuring your team is paid correctly and on time, every single time.

Ready to hire in the Philippines without the legal stress? Let’s talk about how an EOR can streamline your global expansion.