Global HR Compliance in the Philippines

The Philippines combines a civil law–based Labour Code with active oversight by the Department of Labor and Employment (DOLE), strong union influence in some sectors, and detailed statutory protections for employees. For foreign employers, compliance is not just about understanding the law but also about adhering to DOLE’s administrative requirements, regional wage board rulings, and evolving case law from the labour courts.

Direct foreign employment is not recognised for social security, tax, or labour law purposes. Any business looking to engage staff without a local entity must do so through a registered Philippine employer. A Global Employer of Record (EOR) provides this legal presence, ensuring that payroll, statutory contributions, and contractual arrangements are fully compliant while allowing the foreign company to manage work and performance.

This guide sets out the key requirements for hiring, managing, and terminating employees in the Philippines. It highlights the areas where international employers are most exposed — wage compliance across regions, rigid dismissal rules, strict prohibitions on labour-only contracting, and mandatory social contributions — and explains how these risks can be mitigated through proper structuring and the use of an EOR model.

Employment Contracts in the Philippines

Employment in the Philippines is governed primarily by the Labour Code, supplemented by DOLE regulations and collective bargaining agreements where applicable. While employment contracts may be verbal or written, written agreements are strongly recommended, especially for foreign employers, to clearly set out terms and mitigate disputes.

Contracts typically fall into the following categories:

• Regular (indefinite) employment – This is the default status once an employee passes probation. Regular employees enjoy full statutory protections, including security of tenure, which makes dismissal strictly regulated.
• Probationary employment – Limited to six months unless extended under a bona fide apprenticeship or training programme. Employers must clearly communicate the performance standards for regularisation at the outset.
• Fixed-term contracts – Permissible only under specific circumstances, such as project-based work or seasonal employment. Courts often scrutinise fixed-term arrangements to prevent circumvention of security-of-tenure protections.
• Project or seasonal employment – Allowed for work tied to a specific project or season, but termination at project completion must be genuine and not used to avoid regularisation.

Mandatory contract inclusions include job description, work location, wage rate, employee benefits, hours of work, probationary period (if any), and termination conditions. Collective agreements may impose additional terms in unionised sectors.

Foreign employers relying on contractors rather than employees should be aware of the strict prohibition on “labour-only contracting.” If the arrangement suggests control and economic dependency, the contractor may be reclassified as an employee, exposing the company to liabilities.

A Global Employer of record (EOR) in the Philippines ensures that contracts are structured lawfully and that employment terms align with statutory requirements and DOLE interpretations.

Statutory Contributions and Payroll Taxes in the Philippines (2025)

Employers in the Philippines must withhold and remit statutory contributions for social security, health insurance, housing, and income tax. These obligations apply to both local and foreign employees, with contributions generally shared between employer and employee.

Social Security System (SSS)

• The total contribution rate in 2025 is 15% of the Monthly Salary Credit (MSC).
• Employers contribute 10%, while employees contribute 5%.
• The MSC ranges from ₱5,000 to ₱35,000, meaning contributions are calculated within this band.
• Employers also pay a fixed Employees’ Compensation (EC) premium on top of their share, which covers work-related injury and illness.

National Health Insurance (PhilHealth)

• The contribution rate in 2025 is 5% of the employee’s basic monthly salary.
• The salary ceiling is ₱100,000 per month, so the maximum monthly premium is ₱5,000.
• The premium is split equally between employer and employee, with each paying 2.5% of the covered salary.

Home Development Mutual Fund (Pag-IBIG)

• Employer contribution: 2% of monthly salary.
• Employee contribution: 1% or 2%, depending on the salary level.
• Both contributions are capped at ₱200 each, for a combined maximum of ₱400 per month (based on a salary ceiling of ₱10,000).
• Employers may choose to contribute more than the statutory minimum, but only the capped amount is mandatory.

Withholding Tax on Compensation

• Employers are required to deduct and remit personal income tax to the Bureau of Internal Revenue (BIR).
• Rates are progressive under the TRAIN and CREATE laws, with updated tax brackets applying from 2023 onwards.
• Employers are fully liable for correct calculation, withholding, and remittance, as errors can trigger penalties and audits.

Minimum Wages in the Philippines (2025)

Minimum wage rates in the Philippines are set not at the national level but by Regional Tripartite Wages and Productivity Boards (RTWPBs). Employers must comply with the statutory wage in the location where the employee actually performs their work.

National Capital Region (NCR)

Under Wage Order No. NCR-26, effective July 2024, the current minimum daily wages in Metro Manila are:

• ₱695 per day for non-agricultural workers
• ₱658 per day for agricultural, service, and retail workers

This order supersedes the earlier rates of ₱610 and ₱573 that were previously in effect.

A pending House Bill proposes a ₱200 across-the-board daily increase for all private-sector minimum wage earners nationwide. While it has passed on third reading in Congress, it has not yet been enacted into law as of early 2025. Employers should monitor this closely as its passage would significantly alter wage obligations.

Monthly Wage Conversion

The Department of Labor and Employment (DOLE) provides formulas for converting daily minimum wages into monthly equivalents, commonly using a 313-day factor for workers who do not work on rest days. Based on this method:

• ₱695 x 313 ÷ 12 = ₱18,100.42 per month
• ₱658 x 313 ÷ 12 = ₱17,175.17 per month

Other regions in the Philippines set lower minimums, generally between ₱390 and ₱470 per day, depending on sector and local economic conditions.

Compliance Considerations

Failure to observe regional wage orders exposes employers to DOLE enforcement actions, back wage liabilities, and reputational risk. For foreign companies, monitoring wage board issuances across multiple regions can be complex.

A Global Employer of Record (EOR) in the Philippines ensures that employees are engaged at the correct statutory wage, with automatic updates when new wage orders or laws take effect, protecting employers from inadvertent non-compliance.

Working Hours, Rest Days, and Overtime

Standard Hours

• The normal workweek in the Philippines is 8 hours per day, 6 days per week, or 48 hours weekly.
• Alternative arrangements (compressed workweeks, flexible schedules) may be implemented if agreed in writing and approved by the Department of Labor and Employment (DOLE).

Rest Days

• Employees are entitled to at least 24 consecutive hours of rest every 7 days, usually on Sundays unless work requires otherwise.
• Employers may determine the rest day, but must respect religious practices when possible.

Overtime Work

• Any hours worked beyond 8 per day are subject to overtime pay.
• Overtime premium is 25% above the hourly rate for work on ordinary days.
• Work on rest days or holidays attracts 30% above the hourly rate, increasing further if combined with overtime.

Night Work

• Work performed between 10:00 pm and 6:00 am is subject to a 10% night shift differential on top of the regular hourly rate.

Public Holidays in the Philippines (2025)

The Philippines observes two categories of public holidays: regular holidays and special (non-working) days. The distinction is critical for payroll compliance, as compensation rules differ between the two.

Regular Holidays

Employees are entitled to 100% of their daily wage, even if no work is performed. If they work, they must receive 200% of their daily wage for the first eight hours.

For 2025, the main regular holidays include:

• New Year’s Day – 1 January
• Maundy Thursday – 17 April
• Good Friday – 18 April
• Araw ng Kagitingan (Day of Valor) – 9 April
• Labour Day – 1 May
• Independence Day – 12 June
• National Heroes Day – 25 August
• Bonifacio Day – 30 November
• Christmas Day – 25 December
• Rizal Day – 30 December

Special (Non-Working) Days

On these days, the “no work, no pay”principle applies, unless company policy or collective agreements provide otherwise. If employees work, they must receive an additional 30% of the basic wage for the first eight hours.

Common special days in 2025 include:

• Chinese New Year – 29 January
• Ninoy Aquino Day – 21 August
• All Saints’ Day – 1 November
• All Souls’ Day – 2 November (often declared special)
• Christmas Eve – 24 December (special working day)
• New Year’s Eve – 31 December (special working day)

Eid’l Fitr and Eid’l Adha

The dates of these Islamic holidays are based on lunar calendars and confirmed by presidential proclamation each year. They are observed as regular holidays, with pay rules applying accordingly.

Leave Entitlements in the Philippines

Unlike many jurisdictions, the Philippines does not have a single unified framework for paid annual and sick leave. Instead, entitlements are drawn from the Labour Code, special statutes, and company or collective agreements. Employers often provide leave benefits that exceed the statutory minimums to remain competitive.

Service Incentive Leave (SIL)

Employees who have rendered at least one year of service are entitled to 5 days of paid Service Incentive Leave per year. SIL may be used for any purpose (sickness, vacation, or personal reasons) unless the employer has a more generous policy. Unused SIL must be converted to cash at year-end.

Sick Leave

The Labour Code does not mandate a specific number of paid sick leave days beyond SIL. However, employees covered by the Social Security System (SSS) can receive sickness benefits:

• Granted for up to 120 days per year, if the employee is confined at home or in hospital for at least 4 days.
• Benefit is 90% of the average daily salary credit, paid by SSS but advanced by the employer and later reimbursed.

Many employers grant separate contractual sick leave entitlements to supplement SSS coverage.

Vacation Leave

Annual paid vacation leave is not mandated by law outside of the 5 days SIL. In practice, companies usually provide 10 to 15 paid vacation days per year, either by policy or through collective agreements, especially for professional or managerial staff.

Maternity Leave

Female employees are entitled to 105 days of fully paid maternity leave for live childbirth, regardless of civil status or legitimacy of the child. Solo parents receive an additional 15 days. Payment is advanced by the employer and reimbursed by SSS.

Paternity Leave

Married male employees are entitled to 7 days of paid paternity leave for the first four deliveries or miscarriages of their spouse.

Parental Leave for Solo Parents

Solo parents (as defined under Republic Act No. 8972) are entitled to an additional 7 days of paid parental leave per year.

Special Leave for Women

Under Republic Act No. 9710 (Magna Carta for Women), female employees are entitled to up to 2 months of paid leave following surgery due to gynaecological disorders.

Holiday Leave

Employees required to work on a regular holiday must be paid 200% of their daily wage, while those working on special non-working holidays are entitled to 130% of their daily wage.

Employment Termination in the Philippines

Terminating employment in the Philippines requires strict compliance with the Labour Code, particularly around legal grounds, separation pay, and procedural due process. Employers must distinguish between just and authorised causes and follow proper notice requirements to avoid exposure to claims of illegal dismissal.

Legal Grounds for Termination

Just Causes (Labour Code, Article 297):
Termination may be effected for serious employee misconduct, such as willful disobedience, gross neglect of duty, fraud, breach of trust, or other analogous causes. In these cases, no separation pay is due.

Authorised Causes (Articles 298–299):

• Installation of labour-saving devices
• Redundancy
• Retrenchment to prevent losses
• Closure or cessation of operations not due to serious financial loss
• Disease declared incurable within six months by a competent medical authority

Separation pay is required for these causes.

Separation Pay

In the Philippines, the equivalent of severance pay is known as separation pay under the Labour Code. This entitlement applies only in cases of authorised termination (e.g., redundancy, retrenchment, closure, or illness certified as incurable). Employees dismissed for just cause are not entitled to separation pay.

• Redundancy / Installation of labour-saving devices: One month’s salary per year of service, or at least one month’s pay, whichever is higher.
• Retrenchment / Closure (without serious losses): Half a month’s salary per year of service, or at least one month’s pay, whichever is higher.
• Disease (incurable within six months): Half a month’s salary per year of service, or at least one month’s pay, whichever is higher.

Fractional years of six months or more are treated as a full year.

Procedural Requirements

• Just Causes: Employers must observe the “two-notice rule” — first notice informing the employee of the charges and giving them an opportunity to respond, and a second notice conveying the final decision.
• Authorised Causes: Employers must provide 30 days’ written notice to both the employee and the Department of Labor and Employment (DOLE), together with the effective date of termination and computation of separation pay.

Voluntary Resignation

Employees resigning voluntarily must give at least 30 days’ written notice unless they can demonstrate just cause. Employers may stipulate longer contractual notice periods, especially for managerial or executive roles.

Termination is one of the most litigated areas of Philippine labour law. Any failure to comply with procedural or financial obligations can result in findings of illegal dismissal, potentially leading to reinstatement orders and back pay. Employers engaging through a compliant EOR arrangement can ensure correct classification of the termination, accurate computation of separation pay, and timely fulfilment of notice and filing requirements.

Employer of Record Services in the Philippines by Acumen International

Acumen International enables companies to hire and manage staff in the Philippines without setting up a local entity. We deliver end-to-end employment solutions that cover the full compliance and operational scope:

Payroll and benefits administration
We run compliant payroll in line with Philippine law, ensuring timely payment of salaries, correct calculation of income tax, and remittance of social security contributions (SSS, PhilHealth, Pag-IBIG). We also administer mandatory 13th month pay and statutory leave benefits.

Employment contracts
We issue contracts fully compliant with the Philippine Labour Code. These secure both the employer’s and employee’s rights, covering tenure protections, probationary terms, and mandatory benefits from day one.

Immigration and mobility support
For foreign professionals, we manage Alien Employment Permits (AEPs), work visas, and supporting registrations. This enables expatriates to work legally while shielding the client from regulatory delays or sanctions.

Termination and compliance guidance
Dismissal in the Philippines is heavily regulated, with strict grounds and procedural rules. We guide employers on compliant exits and ensure documentation is defensible in case of challenge.

Dedicated coordination
Our team provides a single point of contact for managing employment in the Philippines, ensuring smooth coordination between client, employee, and local statutory authorities.

Cost clarity
We provide visibility on the true employer cost of hiring in the Philippines, including all mandatory social contributions and benefits, enabling accurate budgeting and workforce planning.

Entity-free market entry
Instead of investing time and resources into incorporating a subsidiary, clients engage through our Employer of Record structure, achieving compliant presence in the Philippines within days.