Labor Law in the Philippines

The Labor Code of the Philippines was officially enacted through Presidential Decree 442 in 1974 to regulate employment terms and conditions. Since then, it has been amended numerous times to reflect the changing needs of employment.

Table of Content

  • Types of Employment
    • Probationary Employment
    • Regular Employment
    • Project Employment
    • Seasonal Employment
    • Fixed Term Employment
  • Working Conditions
    • Hours of Work
    • Rest Day Work
    • Overtime Work
    • Night Shift Differential
  • Leave Benefits
    • Service Incentive Leave
    • Paternity Leave
    • Maternity Leave
    • Special Leave Benefit for Women
    • Solo Parent Leave
  • Employee Compensation Income
    • Minimum Wage
    • Withholding Tax on Compensation Income
    • Income Tax Refund
    • De Minimis Benefits
    • Non-Taxable Income
    • Personal Exemption and Additional Exemption
    • Social Security System (SSS)
    • National Health Insurance Act – Philhealth
    • Home Development Mutual Fund (HDMF) – Pag-IBIG
  • Termination of Employment
    • Just Causes of Termination
      • Serious Misconduct
      • Willful Disobedience
      • Gross and Habitual Neglect of Duties
      • Loss of Confidence
    • Authorized Causes of Termination
      • Installation of Labor-Saving Devices
      • Redundancy
      • Retrenchment to prevent losses
      • Closure or cessation of operation
      • Disease/ Illness
    • Separation Pay
    • Due Process
    • Constructive Dismissal

Types of Employment

The type of employment shall not be dictated by the employment contract but rather by the definition of law. It shall be determined by the nature of the activities to be performed, and in some cases, the duration of the engagement and the continued existence of such activities. Moreover, any terms and conditions of the employment contract that are constructed to circumvent employees’ security of tenure shall be disregarded as contrary to public policy.

Probationary Employment

According to the Labor Code of the Philippines, an employee shall not be placed on probation for more than 6 months; with the standards to qualify as a regular employee made known to the employee at the time of engagement.

In normal circumstances, an employee who is allowed to work after the probation period shall be considered a regular employee. This probation period may be mutually agreed to be less than 6 months.

Furthermore, if the duration of the probationary contract or the standards to qualify as a regular employee is not make known to the employee at the time of engagement, the employee shall be deemed as a regular employee from the start of the employment.

However, the probationary period may be extended out of goodwill and upon mutual understanding and agreement to grant a second chance to the employee to qualify for regular employment.

Regular Employment

A regular employment is a permanent employment whereby the employee is granted the security of tenure and may not be terminated without a just or authorized cause. In the event that the employee is illegally terminated, the employee may be entitled to the twin reliefs of reinstatement and backwages.

Project Employment

Project employment is a type of employment when employees are employed for a specific project. Therefore, the employee may be terminated at a predetermined time or upon the completion of the project.

In order to determine that it is a project based employment, the employer must prove that the employee was assigned to carry out a specific project or undertaking. Besides that, the duration of the employment and the scope of responsibilities were specified to the employee at the time of engagement.

Seasonal Employment

Seasonal employment is a type of employment when an employee performs work that is seasonal or periodic in nature. However, the employment itself is not automatically considered seasonal so as to prevent the employee from acquiring regular status.

To categorize the employment as seasonal employment, the employer must show that the employee must be performing work or services that are seasonal in nature; and the employment is for the duration of the season.

Fixed Term Employment

Fixed-term employment is whereby the service of the employee is engaged only for a definite period of time and the contract shall be deemed terminated upon the end of such period irrespective of the existence of just cause and regardless of the activity the employee is called upon to perform.

Fixed-term employment contracts are only upheld valid and not as a mean to circumvent the employee’s security of tenure when both parties entered into the agreement knowingly and voluntarily without external influence; or both parties were on more or less equal terms.

Working Conditions

The working conditions in the Philippines are regulated by the Department of Labor and Employment (DOLE).  There are laws regulating the employee’s compensation, benefits, working hours and other aspects of the employment.

Hours of Work

Normal working hours in the Philippines should not be more than 8 hours a day.

Beyond the normal 8 hours in a single workday, the employee shall be entitled to overtime pay. However, the company may adopt flexible work arrangement such as compressed workweek that allows an employee to work up to 12 hours without overtime premium.

Rest Day Work

An employee is entitled to at least 24 hours of rest period after every 6 consecutive normal work days.

An employee who is required to work on his rest day shall be paid with an additional compensation as premium pay of not less than 30% of his regular wage.

Overtime Work

Overtime work is defined as work performed beyond 8 hours in a work day. A work day is also defined as a 24 hours period from the start of work.

The overtime rate for a normal working day in the Philippines is 25% plus the employee’s regular wage. However, if overtime time is performed on a rest day or holiday, the overtime rate shall be increased to 30% plus the employee’s regular wage.

Night Shift Differential

Employees who work between 10 p.m. to 6 a.m the following day shall be entitled additional pay also known as Night Shift Differential. It shall be not less than 10% of the employee’s regular wage.

Leave Benefits

Not all the employee’s leave benefits can be found in the Labor Code of the Philippines. Some are enacted into law through various republic acts.

Service Incentive Leave

In other countries, Service Incentive Leave may also be known as vacation leave or annual leave. In the Philippines, every employee who has rendered at least 1 year of service shall be entitled to 5 days of service incentive leave every year.

Sick Leave

There is no sick leave provision in the Labor Code of the Philippines.

Marriage Leave

There is no marriage leave provision in the Labor Code of the Philippines.

Paternity Leave

According to Republic Act No. 8187 also known as the ‘Paternity Leave Act of 1996’, a male employee is entitled to 7 days of leave for the first 4 deliveries of his wife. The entitlement is regardless of the employee’s length of service and employment status so long as he meets the requirements.

Maternity Leave

According to the Labor Code of the Philippines, a female employee who has served at least 6 months in the 12 months period immediately preceding the expected date of delivery, or the complete abortion or miscarriage, shall be entitled to a total of 6 weeks of maternity leave with full pay based on her regular wages or average weekly wages. Maternity leave benefit is only given to the first 4 deliveries or miscarriages of the employee.

This is however integrated and provided through the maternity benefit of the social security system enacted through Republic Act No. 8282. Under SSS maternity benefit, a pregnant female member who has contributed at least 3 months in the 12 months period immediately preceding the semester of her childbirth or miscarriage shall be entitled to 60 days of paid maternity leave benefit for normal delivery or 78 days of paid maternity leave benefit for cesarean delivery. Maternity leave benefit is only given to the first 4 deliveries or miscarriages of the said member.

Special Leave Benefit for Women

The special leave benefits for women are enacted through Republic Act No. 9710, also known as ‘The Magna Carta of Women’ stipulating that a female employee who has rendered continuous aggregate employment service of at least 6 months for the last 12 months prior to surgery is entitled to 2 months of special leave with full pay following surgery caused by gynecological disorders.

“Gynecological disorders” refers to disorders that would require surgical procedures such as, but not limited to dilatation and curettage and those involving female reproductive organs such as the vagina, cervix, uterus, fallopian tubes, ovaries, breast, adnexa and pelvic floor, as certified by a competent physician. It shall also include hysterectomy, ovariectomy and mastectomy.

Solo Parent Leave

According to Republic Act No. 8972 also known as the “Solo Parents’ Welfare Act of 2000”, a solo parent who has rendered at least 1 year of service and has a valid Solo Parent Identification Card is entitled to 7 days of parental leave,  or more commonly known as solo parent leave, per year. It is a leave benefit granted to solo parents to perform their parental duties and responsibilities where physical presence is required.

Bereavement Leave

There is no bereavement leave or compassionate leave provision in the Labor Code of the Philippines.

Employee Compensation Income

In the Philippines, employees are usually paid on a fortnightly basis. Besides basic salary, many employers also offer cost of living allowance, rice subsidy, clothing allowance, laundry allowance and etc. There are also mandatory deductions such as withholding tax deduction as well as SSS, Philhealth and Pag-IBIG contributions.

Minimum Wage in the Philippines

In the Philippines, different cities have a different daily minimum wage rates. Check the latest minimum wage rate from DOLE national wages and productivity commission. For non-daily paid workers, the estimated equivalent monthly rate can be used for compliance with the minimum wage rate.

Withholding Tax on Compensation Income

Employers in the Philippines are required to act as withholding agents to withhold and remit taxes from income payments to individuals arising from an employer-employee relationship to the Bureau of Internal Revenue.  The amount withheld from the employees’ salary is known as withholding tax on compensation income.

Income Tax Refund

Income tax refund refers to the return of the excess withholding tax that the employer withheld from the employee. The employer is also authorized to withhold any shortfall income tax from the employee’s salary in December in the current year to be remitted to BIR.

At the end of the calendar year but prior to the payment of the compensation for the last payroll period, the employer shall perform a reconciliation process also known as annualization to determine each employee’s income tax based on the employee’s actual annual compensation.

The employer shall then withhold the shortfall or refund the excess through the employee’s salary in December of the current calendar year, not later than January 25 of the succeeding year. Separated employees shall have the shortfall withheld or excess refund to them in their final pay.

De Minimis Benefits

The ‘De Minimis Benefits’ are facilities or privileges that are of relatively small value given to the employees by the employer which are not subjected to income tax nor fringe benefit tax.

Non-Taxable Income

According to Republic Act No. 10653, 13th-month pay, productivity incentives, Christmas bonus and other benefits shall not be included in gross income and shall be exempt from taxation. The total exclusion shall not exceed P82,000.

Personal Exemption and Additional Exemption

An employee is entitled to P50,000 personal exemption to be deducted from the taxable gross income.

The employee can also claim an additional of P25,000 tax exemption for each qualified dependent, up to a maximum of 4 qualified dependents.

Social Security System (SSS)

The coverage under the social security system is compulsory for all employees not over 60 years of age. Employers are required to remit both employee and employer contributions to the Social Security System of the Philippines according to the schedule of contribution.

Employers are also required to assist in the administration of the employee benefits under the Social Security System.

National Health Insurance Act – Philhealth

Coverage for an employee under the the national health insurance program is mandatory. Employers are required to remit both employee and employer contributions to the Philippine Health Insurance Corporation.

Home Development Mutual Fund (HDMF) – Pag-IBIG

The coverage under the home development mutual fund is compulsory for all employees covered by the SSS. Employers are required to remit both employee and employer contributions to the home development mutual fund of the Philippines according to the schedule of contribution.

Employers are also required to assist in the administration of the employee benefits under the home development mutual fund.

Termination of Employment

The termination of employment must be accordance with established rules, principles and in a manner as required by law. The employer may only terminate an employee when there is a valid cause of termination and in accordance with the due process.

Just Causes of Termination

Just causes of termination refers to valid causes of termination arising from an employee’s fault and or negligence. In such cases of termination, the employer bears the burden of proof that the employee has committed an infraction of such grave that commensurate with the sanction of termination.

Serious Misconduct

Serious misconduct is a just cause for termination of employment, however, not every act of misconduct is a valid cause for dismissal. For misconduct to be a just cause for dismissal, the misconduct act must be serious and not merely trivial or unimportant; it must relate to the performance of the employee’s duties showing that the employee has become unfit to continue working for the employer and it must have been performed with wrongful intent. In other words, the penalty of dismissal has to commensurate to the gravity of the misdeed.

Willful Disobedience

As part of the employment contract, it is understood that employees are bound to follow reasonable and lawful orders of the employer which are in connection with their work. Therefore, intentionally or willfully disobeying such orders is a just cause of termination. Such disobedience need not be habitual and the damage to the employer is not a consideration for the termination. To uphold a dismissal due to willful disobedience, it must be established that the given orders were reasonable and lawful; sufficiently known to the employee; and, in connection with the duties which the employee has been engaged to discharge.

Gross and Habitual Neglect of Duties

In the Labor Code of the Philippines, gross and habitual neglect of duties is a just cause of termination. It refers to the repeated absence of diligence that a normal employee would undertake to perform one’s duties.

However, an employee may also be terminated even if the act of gross negligence is not habitual. It may become a valid cause of termination when the continued employment of the employee is inimical to the interest of the employer.

Loss of Confidence

Loss of confidence refers to a condition arising from fraud or willful breach of trust by employee of the trust reposed in him by his employer.

Authorized Causes of Termination

The Labor Code of the Philippines has established the authorized causes of termination that permits the employer to dismiss the employee on grounds that do not necessarily arise from the employee’s fault or negligence.

Installation of Labor-Saving Devices

The installation of labor-saving devices is an authorized cause of termination as it results in lesser manpower requirement for company operations. However, to effect the termination of employment, the employer must prove that there is an introduction of such labor-saving devices; the introduction is for an economic reason; and the employer must adopt a fair and reasonable criteria in selecting the employees to be terminated.

Redundancy

Redundancy is a situation whereby the number of employees are in excess than what is reasonably required by the company’s operations. Therefore the employer has no obligation to keep the excess number of employees on the payroll.

Retrenchment to prevent losses

Retrenchment is an economic ground to reduce the number of employees due to serious business losses or economic difficulties. The employer is required to provide proof of such economic difficulties for retrenchment to be a valid cause of termination.

Closure or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of the Labor Code

The continuation of the business is the employer’s prerogative. Therefore, the employer may, in good faith, choose to cease the company operations. In the event that the cessation of the establishment or undertaking is due to serious financial losses, the employer may not be obligated to pay separation pay.

Disease / illness.

An employer may terminate the services of an employee who has been found suffering from an disease that cannot be cured within a period of 6 months even with proper medical treatment certified by a competent public health authority and his continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees.

Separation Pay

An employee who is terminated for an authorized cause is entitled to separation pay of at least 1 month pay. It is a form of compensation provided for the transitional period during which the employee is looking for another employment after the employee is separated from the company.

Due Process

Due process refers to the procedure in which an employee is terminated. It is a requirement by law to provide fairness to the employee by being notified of the reason for dismissal and in some cases, to give the employee ample opportunity to defend himself or herself.

In just cases of termination, the due process involves a 2-notice rule while in authorized causes of termination, the due process is deemed complied by serving a 30 days notice to the employee. If due process is not accorded to the employee before the termination of the employment, the employee shall be entitled to payment of indemnity or nominal damages even if the termination is for a valid cause.

Constructive Dismissal

In a constructive dismissal, the employee resigned involuntarily due to unbearable working conditions created by the employer. Since the resignation is involuntary, it is essentially a termination of employment.