Employment Contracts in Philippines

A Comprehensive Guide to Employment Contracts in the Philippines
The Philippine labor landscape is governed by the Labor Code of the Philippines, making it vital to understand the requirements for employment contracts. Whether you’re hiring directly or through an Employer of Record in the Philippines, this guide outlines the essentials.

1. When Does the Employment Contract Start?
The employment contract takes effect once the employee accepts the offer and signs the agreement. This legal document specifies the terms of employment, rights, and obligations of both parties.
💡 Pro Tip: Ensure all details are finalized and agreed upon in writing to avoid future disputes.

2. Key Components of a Philippine Employment Contract
To comply with local laws, employment contracts in the Philippines should include:
Job Title and Description: Clearly outline the role, responsibilities, and performance expectations.
Work Location: Specify whether the position is office-based, remote, or hybrid.
Contract Type: Employment contracts may be regular, probationary, project-based, or fixed-term, depending on the nature of the job.
Compensation: State the agreed salary, overtime rates, and allowances, ensuring compliance with the minimum wage laws in the region of employment.
Working Hours: The standard workweek is 40 hours, typically 8 hours per day, with provisions for overtime and rest days.
Leave Entitlements: Include statutory benefits such as:
Vacation Leave: Typically 5 days of service incentive leave after one year of service, depending on company policy.
Sick Leave: Often provided based on employer discretion.
Maternity/Paternity Leave: Governed by the Expanded Maternity Leave Act and other labor regulations.
Termination and Severance: Include notice periods, valid grounds for termination, and severance pay conditions as per labor laws.
💡 Why This Matters: A comprehensive contract ensures compliance, clarity, and smooth employee-employer relationships.

3. Salary Structure: Breaking Down Compensation in the Philippines
Compensation packages in the Philippines typically consist of:
Basic Salary: The core taxable income.
Allowances: Housing, transportation, or meal allowances, as applicable.
Bonuses: Such as the mandatory 13th-month pay, which must be paid by December 24 annually.
Benefits: Contributions to the Social Security System (SSS), PhilHealth, and the Pag-IBIG Fund.
💡 Key Takeaway: Structuring compensation with statutory contributions is critical for compliance and employee satisfaction.

4. Legal Considerations: Protecting Your Business
a. Non-Compete and Confidentiality Clauses
While non-compete clauses are generally enforceable, they must be reasonable in scope and duration. Confidentiality clauses safeguard sensitive company information.
b. Statutory Obligations
Employers must comply with legal requirements, including:
Social Contributions: SSS, PhilHealth, and Pag-IBIG Fund contributions for employees.
Payroll Deductions: Withholding and remitting income tax to the Bureau of Internal Revenue (BIR).
💡 Tip: Ensuring full compliance with these obligations avoids legal penalties and maintains your company’s reputation.

5. Background Checks and Employee Protections
Background checks are permissible in the Philippines, but employers must ensure they comply with data privacy laws under the Data Privacy Act of 2012. Written consent is required from the candidate for conducting checks.

6. The Importance of Written Contracts
Written contracts are strongly recommended in the Philippines as they provide legal clarity and serve as binding agreements. A well-crafted contract ensures both parties are clear on their responsibilities and rights.

7. Why Partner with GlobainePEO?
Expanding in the Philippines involves navigating intricate labor laws and compliance requirements. By partnering with GlobainePEO, you can:
Streamline hiring and employment processes.
Ensure compliance with local regulations and statutory contributions.
Focus on your business growth while we handle administrative complexities.

💡 GlobainePEO Advantage: As your trusted Employer of Record in the Philippines, we manage contract drafting, payroll, statutory contributions, and employee benefits, ensuring compliance and efficiency.

Having robust employment contracts is essential for building a legally compliant and successful workforce in the Philippines. Partnering with an in Philippines EOR like GlobainePEO simplifies this process and allows you to focus on your core business objectives.