As you plan to hire workers in the Philippines, it is critical to ensure compliance with the local labour laws and regulations. This includes following standard employment contract policies and understanding best practices to avoid any potential legal and financial risks.
In this comprehensive guide, we will provide the necessary information you need to draft compliant and standard employment contracts in the Philippines, including contract extensions, casual employment contracts, probationary employment contracts, working hours, and remote work considerations.
These insights will equip you to find and attract highly skilled talent in the Philippines, allowing you to expand your operations with confidence and ease.
While employment contracts in the Philippines are not mandatory, a written agreement is still advisable for the clarity and protection of employee and employers. This means that both parties involved are free to negotiate and agree upon the terms of the employment contracts, as long as these terms do not go against the law, good customs, moral values, public policy, or public order.
In the Philippines, there are different types of employment contracts, such as regular employment and fixed-term contracts. Regular employment contracts have no predetermined end date, while fixed-term contracts are for a specific period.
For companies looking to engage workers in the Philippines, it is strongly encouraged to establish key policies in their employment contracts. These include critical areas such as disciplinary measures, data protection, the prevention of sexual harassment, etc. It is also recommended to have policies in place for non-competition agreements, grievance procedures, and IT/electronic communications. To effectively communicate these policies, various employers in the Philippines provide employees with a handbook that outlines these guidelines and procedures.
Employers in the Philippines can establish a probationary period not exceeding six months to assess an employee’s performance and suitability for the role. Probationary employees are entitled to all benefits stipulated by law. During this period, employers have the flexibility to terminate probationary employees for valid reasons related to work performance or conduct issues, without the need to provide a notice of separation or pay separation benefits. When an employee successfully completes the 6-month probationary period, they transition to regular employee status within the company.
In the Philippines, it is common for companies to have policies regarding the employment of relatives. These policies may outline guidelines on hiring individuals who are related by blood or marriage, including spouses, children, siblings, parents, and other extended family members. It set limitations on direct reporting relationships between relatives to avoid conflict of interest, favouritism, and other issues that may arise due to familial connections.
Companies must ensure that all disciplinary actions align with the provisions of the Labour Code of the Philippines and related regulations set forth by the Department of Labour and Employment (DOLE) to prevent legal disputes and protect the rights of both employers and employees.
To prevent any potential legal repercussions, companies can follow a progressive discipline approach that typically involves verbal warnings, written warnings, suspensions, and eventual termination for repeated or severe infractions. They should also provide employees with an opportunity to be heard and present their side of the story before any disciplinary action is implemented. To maintain a transparent record of the process, all disciplinary actions imposed against an employee must be documented.
For complicated cases, it is advisable to seek legal advice and consultation to ensure that disciplinary actions are in line with legal requirements and do not infringe on the rights of employees.
Companies hiring in the Philippines must align their equal employment policy with the Anti-Age Discrimination in Employment Act, or Republic Act No. 10911.
The Anti-Age Discrimination in Employment Act (Republic Act No. 10911) was put in place to prevent any form of age-based discrimination in the workplace and establish consequences for such unfair treatment.
Under this law, certain acts are considered unlawful, including but not limited to, considering age as a determining factor in hiring, compensation and benefits, promotion, transfer, training opportunities, and termination or dismissal. The law recognises the importance of evaluating employees based on their abilities rather than their age and emphasises fair treatment in the workplace.
With the exception of hiring foreign nationals, there is no need to submit employment contracts or policies to any external entity for approval.
ThThe terms in employment contracts should meet the essential requirements and minimum statutory standards outlined by the Labour Code of the Philippines. Any terms in the employment contract that do not comply with these standards are considered invalid. While employers must comply with the basic minimum standards, they can still offer terms or other benefits that go beyond the standards set by the law.
In general, employment contracts are written in English. Some key provisions that may be included in employment contracts in the Philippines are:
Job description and duties: Outline the employee’s job title, responsibilities, reporting structure, and performance expectations.
Probationary period: Employers may implement a probationary period, not exceeding six months, to assess the employee’s suitability for the job.
Compensation and benefits: The contract should specify the employee’s salary, benefits, allowances, and other forms of compensation.
Working hours: The contract should outline the employee’s regular working hours, rest periods, and overtime arrangements, in compliance with labor laws.
Leaves: The contract should address the employee’s entitlement to various types of leaves, such as annual leave, sick leave, maternity/paternity leave, and special leaves as mandated by law.
Termination procedures: The contract may specify the grounds and procedures for termination, including notice periods, severance pay, and the process for resolving disputes.
When extending an employment contract in the Philippines, employers should take into account the nature of the extension, whether it involves a fixed-term renewal, a shift to regular employment, or a continuation under specific project-based terms. Understanding the specific employment arrangement is crucial for defining the rights and obligations of both the employer and the employee.
In the Philippines, there are no specific legal requirements that limit the number of renewals for a contract with an independent contractor. However, when considering the renewal or extension of a contract, it is important to carefully review the specific terms stipulated in the existing contract and ensure compliance with labour laws and regulations in the Philippines.
The probationary contracts can be extended under certain conditions as specified by the Philippine labour laws. According to Article 281 of the Labour Code of the Philippines, probationary employment shall not exceed six months from the date the employee started working, unless it is covered by an apprenticeship agreement stipulating a longer period.
However, there are some exceptions, such as when the parties agree in the employment contract, and the extension is justified by the nature of the work. It is essential for employers to carefully assess the need for extension, communicate effectively with the employees, and ensure compliance with labour laws and regulations when considering extending probationary contracts to avoid any potential legal disputes.
In the Philippines, a fixed-term employment agreement is a contractual relationship between an employer and a fixed-term employee, where the employee will undertake work for a specific period. Although labour laws do not specify a maximum duration for such contracts, the Philippine Supreme Court has affirmed the legitimacy of a fixed-term employment agreement lasting up to five years.
Fixed-term contracts should be established in good faith, and the duration of the contract should be agreed upon by both parties without any force, duress, or improper pressure on the employee. Fixed-term contracts must comply with the regulations set forth in the Labour Code of the Philippines and should not be used to bypass the rights of employees under labour laws.
Employers should be cautious when deciding not to renew a fixed-term contract. Non-renewal without a valid and just reason may be deemed unlawful termination and can lead to potential legal consequences.
Continuous renewal or extension of fixed-term contracts, especially when employees perform the same functions as regular employees, may indicate a regular employment status regardless of the contract period. Employers must consider the potential implications of regular employment and may need to grant regular employee benefits and protections.
Under the Philippines’ labour laws, employees under fixed-term contracts are entitled to various rights and protections, which are often similar to those of permanent employees. Companies hiring in the Philippines must ensure full compliance to avoid legal complications. These include:
Fair compensation: Employees under fixed-term contracts are entitled to receive fair and equitable compensation for their work, in accordance with the minimum wage rates and applicable benefits prescribed by law. Employers must uphold these standards to ensure that employees are justly compensated for their contributions.
Benefits and entitlements: Fixed-term employees have the right to certain benefits and entitlements, such as holiday pay and overtime pay. Fixed-term employees are also covered by statutory benefits, such as the Philippine Health Insurance Corporation (PhilHealth), the Home Development Mutual Fund (Pag-IBIG), and the Social Security System (SSS).
Workplace safety: Employers have a legal obligation to ensure the safety and health of all employees, including those under fixed-term contracts.
Security of tenure: While fixed-term contracts have a predetermined end date, workers are entitled to security of tenure during the contract period. This means that they should not be unfairly dismissed or terminated without just cause, and they have the right to fulfill their contractual obligations without undue interference.
Non-Discrimination and equal treatment: Fixed-term employees have the right to be treated fairly and without discrimination in the workplace. Employers must treat all employees with respect, regardless of their employment status, and offer equal opportunities for career advancement and development.
The working hours policy in the Philippines adheres to certain regulations outlined in the Labour Code. According to the law, the standard working hours are 8 hours a day and should include a one-hour daily lunch break. Companies have a maximum of 40 hours per week, or a six-day workweek with a total of 48 hours in a week.
Employers must allow employees at least one hour of non-compensable time off for regular meals. In certain cases, employers may give employees a meal break of less than one hour, but it should be considered as compensable hours worked and should not be less than 20 minutes.
Employers are also required to compensate employees for work done beyond regular hours. The rate for overtime pay is higher than the regular hourly rate. In general, overtime is paid at the rate of 125% of the regular pay. On regular holidays, a double salary must be given. On special holidays, a minimum of 30% additional pay must be given. Senior managers are typically not eligible for overtime pay.
Companies should also consider the night shift differential rate for those working in a graveyard shift between 10 p.m. and 6 a.m.
To avoid any disputes, employers must clearly define the conditions under which employees may work beyond regular hours, including overtime rates, limits on overtime hours, and procedures for requesting and approving overtime work.
Monday to Saturday
Remote work in the Philippines is governed by the Telecommuting Act, or Republic Act No. 11165. This act provides the legal framework for telecommuting, institutionalising work-from-home arrangements in the private sectors. The Telecommuting Act was signed into law on December 20, 2018, and released to the public on January 10, 2019.
This legislation defines telecommuting as an arrangement in which an employee works from an alternative workplace with the use of telecommunication and/or computer technologies. It outlines the rights and responsibilities of employers and telecommuting workers, ensuring fair treatment and compliance with labour standards.
Employers in the Philippines must adhere to the Telecommuting Act when implementing remote work policies, addressing aspects such as work hours, benefits, training, and access to collective bargaining rights for telecommuting workers. Understanding and complying with this policy is essential for employers to provide a fair and conducive environment for remote workers in the Philippines.
Here are some key provisions that employers must keep in mind:
The Bureau of Immigration (BI) is set to launch a digital nomad visa, or a remote work visa in the Philippines. This grants foreign nationals who are digital nomads the opportunity to work remotely in the Philippines for up to 12 months with the possibility of an extension based on certain criteria, such as income.
Foreign nationals that engage in remote work, but who are not considered “in the service of another” within the Philippines, do not require a work permit or visa. However, this should be considered on a case-by-case basis, and foreigners should ensure compliance with immigration laws and regulations to avoid being out of status.
Like all countries, the Philippines has its own set of rules and regulations regarding employment contracts — and non-compliance could land your company in hot water.
With CXC as your trusted partner, you can have a tailored, compliant contract in the Philippines (and in more than 100 countries worldwide). That means you will not need to worry about whether you’ve got it right. Instead, you can focus on what matters: growing your business, while our team of compliance experts handles time-consuming HR and administrative tasks tied to hiring international workers, including crafting legally compliant contracts for your global workforce.
Get in touch with us today and we will guide you every step of the way.
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