Basics of entering into an employment relationship
i Employment relationship
Under Philippine law, employment relationships are contractual in nature but imbued with public interest such that labour contracts must yield to the common good. An employment contract may be perfected in oral or written form because, generally, no specific form of contract is required. Despite this, the best practice is to have a written employment contract signed at the beginning of the engagement.
One exception to the rule involves the contracts of employees hired by independent contractors as these must be executed in writing and must contain a specific description of the job, work or service to be performed by the employee, the place of work, the conditions of employment, and a statement of the applicable rate of pay.
The Labour Code classifies employees as regular, seasonal, project or casual. Regular employees are engaged to perform activities that are usually necessary or desirable in the usual business or trade of the employer and those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed. Seasonal employees are those who are engaged to work or perform services that are seasonal in nature, and the employment is only for the duration of the season. Project employees are those hired for a specific project or undertaking, the completion or termination of which has been determined at the time of the engagement of the employee. Casual employees are those who are not regular, project or seasonal employees and perform work that is usually not necessary or desirable as part of the usual business or trade of the employer.
Additionally, Philippine jurisprudence recognises the validity of fixed-term employment contracts that meet the following criteria: (1) the fixed period of employment must be knowingly and voluntarily agreed upon by the parties without any force, duress or improper pressure upon the employee and absent any other circumstances vitiating his or her consent; or (2) it satisfactorily appears that the employer and the employee dealt with each other on more or less equal terms and neither exercised moral dominance.
ii Probationary periods
An employee may be required to complete a probationary period, provided that at the start of employment, the employee is (1) informed of his or her status as a probationary employee, and (2) informed of the reasonable standards that must be met to qualify as a regular employee. Failure to satisfy these requirements means that the employee is hired as a regular employee from the start of their employment.
The probationary period must not exceed six months from the date the employee starts working. An employee who is allowed to work after the probationary period shall be considered a regular employee.
iii Establishing a presence
A foreign company may directly hire employees to carry on its business in the Philippines without being officially registered in the country. In such cases, the foreign company is considered as a foreign corporation doing business in the Philippines without a licence and is subject to the following significant risks: it is not allowed to bring suit or to defend itself in any litigation before any Philippine court or tribunal; and its directors, trustees and officers are at risk of being penalised with a fine of not less than 10,000 Philippine pesos but not more than 1 million Philippine pesos. Notably, the direct hiring of Filipinos for work to be performed outside the Philippines must be carried out through licensed recruitment agencies.
An employee is entitled to the following minimum statutory benefits:
- the minimum wage (as determined by the regional tripartite wages and productivity in the region where the company operates);
- overtime pay for work rendered beyond eight hours a day;
- one 24-hour rest day for every six consecutive days of work;
- premium pay for work performed at night, on rest days and on holidays;
- 13th-month pay equivalent to one-twelfth of an employee's annual pay;
- paid leave days for eligible employees, namely: (1) five days of service incentive leave after rendering one year of service; (2) seven days of paternity leave and up to 120 days of maternity leave; (3) seven days of single parent leave; (4) two months of leave for a gynaecological disorder; and (5) up to 10 days of leave for victims recognised under the VAWC Law;
- mandatory employer's share in the social security system, Philippine Health Insurance Corporation and Home Mutual Development funds; and
- retirement pay of at least half-a-month's pay for every year of service, when the employee reaches the age of 65.
Employers are also required to withhold the appropriate amount of the employee's income taxes, and to report and remit the same to the Philippine tax authority (the Bureau of Internal Revenue).
An offshore foreign company may validly hire an independent contractor to perform a specific job or work in the Philippines. A valid contracting arrangement shall not establish an employer-employee relationship between the offshore foreign company and the independent contractor's employees. Similarly, for the purposes of seeking tax treaty relief, hiring an independent contractor will generally not create a permanent establishment in the Philippines, provided that the contract does not exceed the maximum periods under the applicable tax treaties.
Originally published at Lexology by the International Law Office (11 March 2020).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
