Essential Guide to Hiring Employees in the Philippines

The recruitment process in the Philippines is a long process requiring much of an employer’s time. After all, every employer wishes to hire top candidates for their organization. Considering the flourishing economy of the country, foreign investors are ready to reap the benefits of this upcoming market and hire skilled Filipino employees. As more companies plan to expand in this nation, they must know how to hire staff in the Philippines.

Setting up an entirely new business in the Philippines is not that difficult because the business environment is ideal. Companies also get a wide range of investors interested in the company. The country has a skilled workforce and an excellent infrastructure to support businesses.

Once you set up an office in the Philippines, you must understand the hiring process in the Philippines. Also, hiring local talent may require help from an established local firm well-versed with the country’s hiring and labor laws.

To hire people in the Philippines, you must first learn how payroll and employment contracts work in the country. Also, you must be well-versed with the country’s employment laws. 

Here are some of the crucial considerations for employers:

Contracts and termination

All jobs require contracts because at-will employment is not a concept in the Philippines, except for brief probationary periods. Though agreements can be made orally or in writing, it’s best to create a detailed written contract when you plan to hire people in the Philippines. The contract must include –

• The job title
• The annual compensation
• The terms and conditions of the employment
• Additional benefits
• Clauses of termination

It helps if you know the Filipino rules of termination of employees. In the Philippines, dismissing an employee is a delicate process that can only be carried out for a “fair” or “allowed” reason, as stated by the Labor Code. Trial periods and fixed-term contracts can be easily canceled, whereas open-ended contracts are given more protection. Hence, the prerequisites for terminating an employee are extensive. Knowledge of such rules can streamline the hiring process in the Philippines and help employers avoid legal hassles. 

A six-month probationary period is allowed in the Philippines. If there’s a mutual agreement between employers and employee(s) that their partnership isn’t working, they can part ways during the probation period itself.

If employers have a good reason, they can remove an employee without severance after the probationary period. However, managers must conduct a formal inquiry and produce convincing evidence proving the reason for termination.

Notice and severance

A company may fire its employee(s) on valid and justified grounds. In such a case, they must provide the employee with a 30 days notice period, giving them a window to look for alternatives. 

An employee may receive the following types of notice from their employer:

• A notice indicating the company’s intention to fire the employee: It must state the grounds for dismissal and give the employee a chance to reply to the allegations that led to their termination.
• A meeting or hearing where the employee can challenge the allegations: The employee has the opportunity to offer proof or refute the company’s claims of their wrongdoing.
• According to a notice of dismissal, the corporation has identified a valid ground to warrant termination: It should demonstrate that the employer has carefully evaluated the relevant factors before making a choice.

The employer must offer a written copy of the notice to the employee and send a copy to the Department of Labour and Employment’s (DOLE) Regional Office. 

The employee receiving the notice may file a grievance with an arbitrator, claiming their removal is unjust. If the arbitrator finds the employer did not adhere to the proper processes when firing the employee, they either have to pay for the damages or reinstate the employee at the company. 

The severance pay amount that the employee will receive also depends on the reason for the termination. According to the general norm, an employee must receive one month’s salary as severance pay. However, if you wrongfully fire the employee, you must pay an amount equivalent to a month’s compensation.

Employers must mention all such details in the employment contract when hiring an employee in the Philippines. 

Payroll and taxes

Employers and employees must contribute to the Social Security System (SSS). Enrolment in the SSS is a part of the recruitment process in the Philippines. The SSS offers disability and illness insurance. It also includes pensions that are paid after the retirement of the employees. Other security funds come into play to ensure that Filipino employees have access to the treatment they require.

Everyone under 60 years earning over 1,000 Philippine pesos per month must contribute to the SSS. Employers deduct the contributions as withholdings from each employee’s paycheck. Since 2020, employers have to contribute a maximum of 1,630 Philippine pesos per month for each employee.

Wages and working hours

In the Philippines, employees must work for at least 40 hours a week, translating to 8 hours in a working day. Overtime pay for Filipino employees must be 125% of their regular salary based on the additional hours worked. Furthermore, employers must pay overtime compensation in cash. 

Unless an employee’s work contract or Collective Bargaining Agreements (CBAs) specify otherwise, employees working on a paid holiday or a Sunday must be paid 130% of their standard rate for hours worked.

The minimum salary differs by sector and location in the Philippines. For example, the minimum salary in Manila is generally higher than in other places. Thus, you must look into the local minimum wage for your industry in the area where you plan to operate.

Leaves

By law, employees in the Philippines are only allowed five paid leaves every year. This period is called service incentive leave and includes vacation and sick days. However, generally, companies try to provide their employees with 15 days of paid leaves annually.

Employees are entitled to various paid holidays. There are two types of paid holidays in the Philippines – normal holidays and special non-working days. Holidays such as New Year’s Day, Good Friday, and Christmas Day are among the ten regular paid holidays. If the employees work during any paid holidays, they are eligible for overtime pay of 200% of their regular salary. 

Pregnant employees are eligible for paid maternity leave for their first four pregnancies if they have made the necessary contributions to the SSS fund. In addition, employers must pay pregnant employees 100% of their regular income for 60 days of absence. 

The recruitment fees in the Philippines vary according to the company. There are several costs associated with the hiring process in the Philippines, depending on the business and the industry. 

Hence, employers must consider both indirect and direct hiring costs when hiring new personnel, such as:

• Advertisements for jobs
• Hours spent reviewing and interviewing applicants
• Payroll and taxes
• Salaries, benefits, bonuses, and allowances
• Insurance

These costs are an integral part of the recruitment process in the Philippines. 

Companies must give their employees a bonus, better known as the 13-month pay, latest by December 24. This bonus amount is equivalent to one month’s salary for individual employees. Some companies offer two bonuses if they make ample profit in a year or are impressed by their employees’ hard work.

As mentioned earlier, employers must consider numerous factors during the hiring process in the Philippines. Therefore, it requires meticulous screening by a company’s HR staff to source and select the best candidates for a position. 

When you hire staff in the Philippines, you must fulfill the necessary legal requirements, including:

• Notify the Securities and Exchange Commission (SEC) of your formal company name
• Notarize the treasurer’s affidavit and the articles of incorporation
• Obtain a Taxpayer Identification Number (TIN)
• Open a bank account
• Put down a minimum share capital deposit with the bank
• Obtain the business permit from the Business Permit and Licensing Office (BPLO)
• Obtain barrio clearance to prove your company’s adherence to local regulations
• Obtain a community tax certificate (CTC) to pay your annual community taxes

This procedure is usually lengthy and could cost thousands of Philippine pesos.

So, if you wish to streamline operations and hire staff in the Philippines, you could collaborate with a professional employer organization (PEO), also known as an Employer of Record (EOR) like Multiplier. Getting professional help will speed up the process of recruiting and onboarding employees. Plus, it will ensure that your employment contracts are legally compliant. Overall, a global PEO-EOR firm can help you build a viable and profitable multinational team.

In the Philippines, the local and federal laws determine the rights of all foreign employees. You can consider different employee options while hiring staff in the Philippines.

Regular employees

Regular or permanent employees in the Philippines are individuals whose work is crucial to the employer’s business operations. If you hire an employee in the Philippines for an indefinite period, they are your permanent employees. It is vital to classify employees accurately to avoid legal troubles. Also, you must define the probation period for permanent employees.

Project-based employees

When you hire staff in the Philippines to work on a specific project, they are project employees. Such employees will terminate their engagement when the project’s duration ends. According to the Philippine Labour Code, it is necessary to specify the project where one is employed. Employers must determine and mention the project duration while hiring an employee. If these employees are rehired for different projects, they may gain the regular employee status.

Seasonal employees

Sometimes, employers hire people in the Philippines only for short durations (one season). They are seasonal employees. For instance, during Christmas, employers may recruit workers to promote seasonal offers and handle the sales burden. Seasonal employees are part-time, or temporary employees hired to cater to increasing job demands. They are laid off during the off-season but can be rehired when their services are necessary. 

Casual employees

Casual employment in the Philippines is when an employee is hired for a task/project that’s beyond the scope of the employer’s core business. The task must be for a specific period, well-known to both parties. A casual employee is entitled to all rights and perks available to permanent employees during the employment period. It also means that employers and casual employees must adhere to their duties and commitments during the engagement period.

Fixed-term employees

Fixed-term employees or contractual employees are hired to execute a task/service for a fixed period with an end date. Both sides must agree on the contract’s period and terms. All fixed-term employees are terminated immediately when the contract expires.

One of the best ways to source and hire talent is to partner with a reputed PEO. A PEO will help you attract and connect with the right talent suited for your company roles, thereby helping you avoid bad hiring decisions. In addition, a PEO can seamlessly handle employee payroll, multi-currency payments, international team management, employment contract generation, and much more.

The recruitment process in the Philippines is relatively straightforward. However, everything you do must come under the purview of the law. 

Listed below are a few steps you must take during the hiring process in the Philippines:

• When discussing job openings with candidates, use the local language and currency (Philippine pesos). Even if a candidate can speak English, making an effort to speak in their language and vocabulary will make them feel at ease during the interview. Plus, it will ensure they understand the job’s finer points.
• Filipino enterprises frequently use “net salary” instead of “gross salary.” If your organization makes job offers in terms of gross compensation, you may need to rethink your pay negotiations to match Filipino norms and avoid misunderstandings.
• It would be best to publish the job advertisements for posts you’re looking to hire people in the Philippines. You can use job portals like LinkedIn, Indeed, etc., to advertise job openings.
• After posting the advertisements, shortlist the applicants for the role. 
• Once you have shortlisted the candidates, conduct background checks and schedule interviews for them. This is a crucial step when planning to hire staff in the Philippines.

Hiring employees demands dedicated time and effort, which employers may not always have. However, partnering with a reliable and worldwide EOR platform like Multiplier can make the hiring process in the Philippines a hassle-free affair.

Multiplier will operate as the primary employer for your overseas staff, saving you the trouble of forming a company in the Philippines. We always abide by the country’s labor laws and tax rules while administering your employees’ payroll, benefits, taxes, and other HR-related tasks.