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Published:
January 12, 2026
Last updated:
January 9, 2026
For businesses aiming to expand into the Philippines, understanding the Labor Code framework is essential for compliant hiring, payroll management, and workforce operations.
The Philippines represents a strategic APAC market for mid-sized companies. Strong English proficiency, semi-monthly payroll cycles, and established BPO infrastructure make it attractive for scaling operations.
However, employment regulations differ significantly from Singapore, Malaysia, and Vietnam, requiring jurisdiction-specific compliance expertise.
The Labor Code of the Philippines governs all employment relationships—specifying rules for hiring practices, employment contracts, work conditions, mandatory benefits, working hours, overtime calculations, and termination procedures. While the law applies to all Philippine enterprises and joint ventures, it extends to employment relationships between Filipino nationals and foreign enterprises operating in the country.
The Department of Labor and Employment (DOLE) serves as the principal government agency enforcing employment laws, monitoring company compliance with labor standards, and addressing labor-related disputes. For organizations without in-country HR specialists, understanding DOLE's regulatory framework and enforcement priorities becomes critical for avoiding compliance exposure.
Article 6 of the Labor Code states that all rights and benefits apply to all workers in the Philippines, whether in agricultural or non-agricultural sectors. An employment contract is defined as an agreement whereby an employee renders services in exchange for compensation paid by the employer.
The Labor Code recognizes several employment types based on contract structure—each with different regulatory implications for probation, termination, and mandatory benefits:
Employees perform full-time work for a business over an indefinite period. Regular employees receive full statutory benefits (SSS, PhilHealth, Pag-IBIG contributions), annual leave entitlements, 13th-month pay, and security of tenure protections. Termination of regular employees requires just cause or authorized cause with proper procedural compliance—arbitrary dismissal creates legal exposure and reinstatement obligations.
For organizations scaling operations in the Philippines, most core operational roles should be structured as regular employment to ensure compliance and workforce stability.
A trial period following hire during which employers assess new hire performance and suitability for the position. Probationary periods generally last 6 months maximum, though some roles (like project-based positions) may have shorter probation. Employers must communicate performance standards at the start of probation—failure to do so may result in automatic regularization.
Critical compliance requirement: If an employee is not regularized or terminated for just cause by the end of probation, they automatically become regular employees with full security of tenure. This automatic conversion creates compliance risk when probation tracking systems are inadequate.
Employees contractually agree to complete work tasks within a finite period. Fixed-term contracts are legally valid when:
DOLE scrutinizes fixed-term arrangements to prevent employers from using them to avoid regular employment obligations. Repeated fixed-term contracts for the same role may be deemed regular employment relationships.
Employees hired for specific projects with defined completion timelines. Employment automatically terminates upon project completion. Project-based arrangements are common in construction, IT development, consulting, and seasonal campaign work.
Compliance requirement: Employers must file project completion reports with DOLE within 30 days of project end. Failure to file may result in employees being deemed regular rather than project-based.
Applies mainly to agricultural workers or employees hired during specific seasons (harvest periods, holiday retail rushes, tourism high seasons). Seasonal employees may become regular if they work beyond one season or if their work is necessary year-round.
Employees who engage in tasks not considered usual or necessary to the employer's main business. Casual employees transition to regular employment status once they work for one year continuously—even if engaged for non-core tasks.
Risk consideration: Misclassifying regular work as "casual" creates compliance exposure. If DOLE determines work is actually necessary to core business operations, employees gain regular status with retroactive benefits and security of tenure.
Normal working hours: Maximum 8 hours per day. The Labor Code doesn't specify weekly hour limits, but the 8-hour daily maximum applies universally.
Overtime compensation: Work performed beyond 8 hours per day entitles employees to regular wage plus at least 25% additional compensation. For overtime on rest days or special days, premium rates increase significantly (see holiday pay section below).
Compressed workweek arrangements: Employers may implement compressed schedules (e.g., 4 days × 10 hours) without triggering overtime premiums, provided weekly hours don't exceed 40 and arrangements are agreed upon with employees or unions.
For organizations operating 24/7 operations (customer support, manufacturing, logistics), understanding overtime calculations and shift premium requirements becomes critical for accurate payroll and labor cost management.
Employers must provide each employee with a rest period of not less than 24 consecutive hours after every 6 consecutive normal workdays. This applies regardless of whether the employer operates for profit.
Rest day work compensation: If employees work on their scheduled rest day, they receive regular wage plus at least 30% additional compensation. If the rest day is Sunday (and Sunday is the employee's established rest day), the 30% premium applies.
Critical for scheduling: For organizations running continuous operations, rest day scheduling and premium calculation must be tracked carefully. Payroll systems must accommodate semi-monthly cycles while accurately calculating rest day premiums that may span pay periods.
Employees are entitled to regular daily wage during regular holidays—even if they don't work. The Philippines observes regular holidays (New Year's Day, Maundy Thursday, Good Friday, Araw ng Kagitingan, Labor Day, Independence Day, National Heroes Day, Bonifacio Day, Christmas Day, Rizal Day) and special non-working days with different pay requirements.
Holiday premium rates:
For organizations managing semi-monthly payroll with employees working varied schedules, holiday premium calculations create complexity—especially when holidays fall mid-pay period or on rest days.
All rank-and-file employees are entitled to 13th-month pay equivalent to at least 1/12 of total basic salary earned during the calendar year. Payment deadline is December 24 annually, though many employers split payment (half in May, half in December).
Calculation basis: 13th-month pay is based on basic salary only—excludes allowances, overtime pay, holiday premiums, and other supplementary compensation. For employees who worked less than one year (new hires, resignations), 13th-month pay is pro-rated based on months worked.
Compliance tracking: Organizations must ensure 13th-month pay calculations are accurate and timely. Late or incorrect payment creates employee disputes and DOLE compliance risk.
All employees must be enrolled in three mandatory benefit programs:
Social Security System (SSS): Provides retirement, disability, sickness, maternity, death, and funeral benefits. Contribution rates and ceilings adjust periodically—most recently updated with higher maximum salary credits.
PhilHealth (Philippine Health Insurance Corporation): Provides health insurance coverage. Contribution rates are based on monthly salary brackets with employer and employee cost-sharing.
Pag-IBIG Fund (Home Development Mutual Fund): Provides housing loans and savings programs. Fixed contribution rates apply with ceiling amounts.
Employers must remit contributions monthly by the 10th of the following month. Late remittance incurs penalties and interest—significant for organizations managing cash flow across multiple APAC markets with different statutory payment deadlines.
Learn more about managing statutory compliance across APAC markets.
The Philippines provides strong security of tenure protections—regular employees cannot be dismissed without just cause or authorized cause following due process.
Performance-based or conduct-based reasons: serious misconduct, willful disobedience, gross neglect of duty, fraud, commission of crime, or other similar causes. Just cause termination requires procedural due process (written notice specifying grounds, opportunity to explain, notice of decision).
Business-related reasons: installation of labor-saving devices, redundancy, retrenchment to prevent losses, closure of business. Authorized cause termination requires 30-day advance notice to employee and DOLE, and payment of separation pay (typically one month salary per year of service or one-half month salary per year of service depending on cause).
Employees who undergo illegal dismissal are entitled to reinstatement without loss of seniority rights, full back wages from dismissal date until reinstatement, and potentially moral and exemplary damages. This creates significant financial exposure—back wages can accumulate for years during legal proceedings.
For organizations managing workforce reductions, restructuring, or performance management, understanding proper termination procedures and documentation requirements becomes critical for avoiding legal disputes.
Beyond termination scenarios, separation pay applies to other employment end situations:
For regional HR leaders managing employee exits across APAC, Philippines termination calculations are more complex than Singapore or Malaysia—requiring jurisdiction-specific expertise to avoid underpayment or legal disputes.
For organizations scaling across APAC with operations in Singapore, Malaysia, Vietnam, and the Philippines, compliance complexity compounds:
Semi-monthly payroll cycles in the Philippines differ from monthly cycles in most other APAC markets—requiring separate payroll processing calendars and cash flow management.
Higher overtime and premium rate complexity compared to Singapore's straightforward overtime calculations or Malaysia's relatively simple premium structures.
Stronger security of tenure protections than most APAC markets—termination procedures require more documentation and longer timelines than Singapore or Vietnam.
Mandatory 13th-month pay creates year-end cash flow considerations that must be planned alongside other market-specific bonuses (Singapore AWS, Malaysia bonuses, Vietnam Tet bonuses).
Organizations managing 100–300 employees across multiple APAC markets benefit from consolidated payroll infrastructure that handles jurisdiction-specific calculations, statutory filing deadlines, and regulatory compliance automatically.
Explore common payroll compliance challenges during APAC expansion.
For organizations expanding into the Philippines without dedicated in-country HR specialists, maintaining Labor Code compliance while managing operational hiring, payroll, and employee relations requires either building internal Philippines expertise or partnering with providers who have direct entity presence and local advisory capabilities.
AYP's Employer of Record services in the Philippines provide compliant hiring infrastructure, automated payroll processing (including semi-monthly cycles, SSS/PhilHealth/Pag-IBIG contributions, 13th-month pay, and premium rate calculations), and in-market HR advisory support for complex scenarios like terminations, performance management, and labor dispute resolution.
If you are looking to hire in The Philippines, let AYP help you with our Employer of Record Philippines services – start here to discover more of our award-winning EOR services, or talk to our HR experts for more information to drive your business growth today!
