Employer of Record in the Philippines: A Comprehensive Guide

The Philippines, located in Southeast Asia, is known for its diverse culture, stunning natural beauty, and growing economy. With a population of over 100 million, it boasts a vibrant workforce that has become an attractive destination for businesses seeking skilled and cost-effective labor.

Currency: Philippine Peso (PHP)

Payroll Frequency: Bi-Monthly

Capital: Manila

Geographical and Cultural Diversity:

The Philippines is an archipelagic country in Southeast Asia, comprising 7,641 islands and an estimated population of over 117 Million, making it the 13th most populous country in the world.

The population is culturally diverse, influenced by indigenous traditions, Spanish colonization, and various Asian cultures. English and Filipino are the official languages.

Economic Landscape:

The Philippine economy has experienced consistent growth, driven by industries such as services, manufacturing, agriculture, and information technology-business process outsourcing (IT-BPO).

The IT-BPO sector, which includes call centers, back-office operations, and other outsourced services, has been a significant contributor to economic growth and employment.

Workforce Dynamics:

The Philippines has a young and growing workforce. A large percentage of the population is under 30 years old, contributing to a dynamic and adaptable labor pool.

According to the Philippine Statistics Authority, there were 43.1 million employed persons in the Philippines in 2022. Of these, 14.6 million were employed in the professional and technical services sector, including software development, data entry, and customer service.

Government Support and Incentives:

The Philippine government offers incentives to attract foreign investments and promote job creation. These incentives include tax breaks, streamlined regulatory processes, and special economic zones.

Employment Regulations and Compliance:

The Philippine labor laws regulate various aspects of employment, including wages, working hours, benefits, and termination procedures. Navigating these regulations can be complex, making it beneficial to partner with an EOR like LennorHive to ensure compliance.

Expanding your team in the Philippines can be a strategic move to tap into a skilled and cost-effective workforce and enhance global operations. As an Employer of Record (EOR) and recruitment company based in the Philippines, LennorHive specializes in helping businesses achieve their expansion goals while saving up to 60% on salaries.

Here are compelling reasons why hiring in the Philippines can be a strategic and beneficial choice:

Cost-Effective Labor: One of the most significant reasons to hire in the Philippines is the cost-effectiveness of labor. Wages and operational expenses are generally lower compared to many Western countries, allowing businesses to achieve substantial cost savings without compromising on the quality of work.

Skilled Workforce: The Philippines boasts a well-educated and skilled workforce with expertise in various industries, including information technology, customer service, finance, engineering, healthcare, and creative fields. Many Filipinos are proficient in English, making communication seamless for international companies.

Language Proficiency: English is widely spoken and understood in the Philippines, making it an ideal destination for companies that require seamless communication with clients, customers, and partners in English-speaking countries.

Time Zone Advantage: The Philippines is strategically located in a time zone that overlaps European and American business hours. This advantage allows real-time collaboration and smoother communication with teams and clients worldwide.

Strong Work Ethic: Filipinos are known for their strong work ethic, dedication, and positive attitude. They are willing to go the extra mile to deliver high-quality work and meet deadlines.

Cultural Compatibility: The Philippines has a strong cultural affinity with Western countries, making bridging cultural gaps and establishing effective working relationships easier.

Large Talent Pool: The country's young and growing population ensures a steady influx of skilled professionals entering the workforce. This ample talent pool gives businesses a diverse range of candidates.

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‍Innovation Potential: With a tech-savvy and adaptable population, the Philippines offers a fertile ground for innovation and developing new solutions across industries.

Outsourcing Hub: The Philippines has a strong reputation as an outsourcing destination, with a robust infrastructure and established remote work and collaboration processes.

Cost Savings: Hiring in the Philippines can result in significant cost savings, allowing businesses to allocate resources to other critical areas of their operations.

Option For Hiring Employees In The Philippines

How you hire your employees in the Philippines depends on various factors, including your business goals, resources, timeline, and risk tolerance. Let's explore the advantages and considerations of each option to help you make an informed decision:

Setting Up a Legal Entity:

Advantages

1. Full Control: Establishing a legal entity (such as a branch office or subsidiary) gives you complete control over your operations, hiring, and decision-making processes.
2. Long-Term Presence: If you plan to have a substantial and long-term presence in the Philippines, establishing a legal entity provides a foundation for expansion and growth.
3. Direct Hiring: You can directly hire employees and manage their contracts, benefits, and payroll according to your company's policies and standards.
4. Brand Establishment: A legal entity helps build a local brand identity and presence, which can be important for customer trust and relationships.

Considerations:

1. Complexity and Cost: Setting up a legal entity involves legal, financial, and administrative complexities. It requires registering with government agencies, adhering to local laws, and incurring setup costs.
2. Time-Consuming: The process of establishing a legal entity can be time-consuming, potentially delaying your ability to start operations.
3. Compliance Burden: You'll be responsible for ensuring compliance with local regulations, taxes, employment laws, and ongoing reporting requirements.
4. Resource Intensive: Operating a legal entity requires dedicated resources for HR, legal, compliance, and administration.

Employer of Record (EOR) Services:

Advantages:

1. Streamlined Process: Partnering with an EOR like LennorHive simplifies the hiring process, payroll, benefits administration, and legal compliance.
2. Quick Setup: EOR services allow you to start hiring and operating in the Philippines swiftly without the delays associated with setting up a legal entity.
3. Cost Savings: EOR services can help you save on administrative costs and resources required for managing HR and compliance.
4. Expertise: EORs have local expertise and knowledge of labor laws, taxes, and regulations, ensuring you remain compliant and avoid legal pitfalls.
5. Flexibility: EOR services offer flexibility to scale your workforce up or down as needed without the long-term commitment of a legal entity.

Considerations:

1. Limited Control: With an EOR, you share some control over employment matters, as the EOR handles certain administrative and legal aspects on your behalf.

The best option for you will depend on your specific circumstances and needs. Suppose you want complete control over hiring and building long-term relationships with your employees. In that case, hiring them directly or setting up a legal entity may be the best option. However, if you want a quick and easy way to hire employees in the Philippines, an EOR may be a better option.

Labor laws in the Philippines

Labor laws in the Philippines are designed to protect the rights and welfare of employees while providing guidelines for employers to ensure fair and ethical employment practices. These laws cover various aspects of employment, including wages, working conditions, benefits, termination, and more. Here is an overview of some fundamental labor laws in the Philippines:

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Labor Code of the Philippines:

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• The Labor Code of the Philippines is the primary legislation governing labor and employment practices in the country.
• It covers various aspects, including employment standards, working conditions, wages, work hours, holidays, and rest periods.

Minimum Wage

The Department of Labor and Employment (DOLE) sets the minimum wage in the Philippines. The minimum wage varies depending on the region and the industry. As of January 2023, the minimum wage in Metro Manila is PHP 537 per day.

Working Hours and Overtime:

• The standard workweek is 48 hours, with a maximum of eight hours per day. Employees who work beyond eight hours are entitled to overtime pay.

• 125% of the hourly rate on working days
• 130% of the hourly rate on holidays

• Night shift employees are eligible for a night shift differential of 10%

Probationary Period:

• Employers may subject new employees to a probationary period not exceeding six months to assess their performance and suitability for regular employment

Leaves and Holidays:

• Employees are entitled to various leaves, including annual (vacation), sick, maternity, paternity, and special leave.

• Female employees are entitled to 105 days of maternity leave for normal childbirth and cesarean section deliveries.
• Male employees are entitled to a seven-day paternity leave for the birth of their child.
• Solo parents, both male and female, are entitled to an additional seven days of parental leave per year.

• Employees are also entitled to paid holidays and special non-working days as declared by the government.

Regular Holidays

Regular holidays are days that have a fixed date and are widely observed throughout the country. Employees are entitled to certain benefits and payment rates when they work on regular holidays.

1. New Year's Day - January 1
2. Maundy Thursday - Date varies (movable)
3. Good Friday - Date varies (movable)
4. Araw ng Kagitingan (Day of Valor) - April 9
5. Labor Day - May 1
6. Independence Day - June 12
7. National Heroes Day - Last Monday of August
8. Bonifacio Day - November 30
9. Christmas Day - December 25
10. Rizal Day - December 30

• Employees who work on a regular holiday are entitled to receive at least 200% of their regular daily wage for the first eight hours of work.
• If the employee works in excess of eight hours (overtime work) on a regular holiday, they are entitled to an additional 30% of their hourly rate.

Special Non-Working Days: Special non-working days are declared by the government to commemorate specific events or occasions. These days are not as widely observed as regular holidays, and employees have different entitlements when they work on special non-working days.

List of Special Non-Working Days:

1. Chinese New Year - Date varies (movable)
2. EDSA People Power Revolution Anniversary - February 25
3. Black Saturday - Date varies (movable)
4. Ninoy Aquino Day - August 21
5. All Saints' Day - November 1
6. Additional special non-working days in specific regions or localities

• Employees who work on special non-working days are entitled to receive at least 130% of their regular daily wage for the first eight hours of work.
• If the employee works in excess of eight hours (overtime work) on a special non-working day, they are entitled to an additional 30% of their hourly rate.

Employers and employees need to be aware of the different classifications of holidays and the corresponding entitlements to ensure proper compensation and compliance with labor laws. Additionally, specific regions or localities may have special non-working days unique to their area.

13TH MONTH

In the Philippines, 13th-month pay – a payment that is 1/12 of an employee's annual pay – is mandatory. The payment is usually prorated if the person is not a full-time employee. This is paid on or before December 24 or with the first December salary.

Termination of Employment:

• Termination must follow due process and be for valid reasons, such as causes or authorized reasons. Wrongful termination may result in liability for reinstatement and back wages.

• Just Causes: These are serious and grave reasons that directly relate to the employee's performance, conduct, or behavior. Examples include gross misconduct, willful disobedience, habitual neglect of duties, and fraud or willful breach of trust.
• Authorized Causes: These refer to circumstances beyond the employee's control, such as retrenchment, closure of the business, or disease. Employers must provide a written notice to employees and the Department of Labor and Employment (DOLE) at least 30 days before the intended termination.

• Employers must provide written notice and may conduct hearings before terminating an employee.

Notice Period:

• Depending on the grounds for termination, a notice period may be required. The notice period allows the employee time to prepare for the termination and explore alternative options.
• For authorized causes, a 30-day written notice to both the employee and the DOLE is generally required.

Separation Pay:

• In some cases of authorized termination, employees are entitled to receive separation pay. This is typically provided for authorized causes, such as retrenchment or closure of business.
• The amount of separation pay depends on factors such as the reason for termination, length of service, and the employee's salary.

Voluntary Resignation:

• Employees who voluntarily resign are required to give a written notice in advance, usually 30 days.
• Resigned employees may not be entitled to separation pay unless stipulated in the employment contract or company policy.

Health and Safety:

• Employers are responsible for providing a safe and healthy working environment, including compliance with occupational health and safety standards.
• Employees have the right to refuse unsafe work conditions.

In conclusion, partnering with Lennorhive offers businesses a strategic and efficient solution for expanding their operations and workforce in the Philippines. With a deep understanding of the local landscape, Lennorhive is a reliable Employer of Record (EOR), simplifying the complex recruitment, onboarding, compliance, and payroll management processes.

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