The Labor Code of the Philippines sets out essential guidelines for employment practices. Here are the key employee entitlements specified by the Labor Code:
Minimum Wage
Under Republic Act No. 6727, known as the "Wage Rationalization Act," the minimum wage in the Philippines varies by sector—Agriculture, Retail, and Service Establishments—and is set regionally. Daily minimum wages range from PHP 315 to PHP 570, reflecting differences across regions and industries.
Working Hours
In the Philippines, the standard working hours are 8 hours per day, typically including a one-hour meal or break period. In some cases, breaks may be shortened to 20 minutes due to the nature of the work or urgent tasks.
Overtime Pay
Overtime pay rates in the Philippines vary depending on when the extra work is performed. Here’s a breakdown:- Ordinary Weekday Overtime: Hourly rate x 125%
- Rest Days or Special Days: Hourly rate x 130%
- Scheduled Rest Days: Hourly rate x 150%
- Regular Holidays: Hourly rate x 200%
For overtime worked on these days:- Rest Days or Special Days Overtime: Hourly rate x 130% x 130%
- Scheduled Rest Days Overtime: Hourly rate x 150% x 130%
- Regular Holidays Overtime: Hourly rate x 200% x 130%
Night Shifts
The Labor Code mandates a Night Shift Differential for employees working between 10 PM and 6 AM. Those working these hours are entitled to an additional 10% of their hourly rate for each hour worked during the night shift.
Holidays
The Philippines has a well-defined holiday structure that includes 12 regular holidays, six special non-working holidays, and 52 rest days each year. Additionally, various regions may have their own provincial holidays that are observed locally.
However, if employees are required to work during these holidays or rest days, they are entitled to special compensation as per the overtime pay rates.
Service Incentive Leave
Filipino employees who have been with a company for at least one year are entitled to 5 days of paid service incentive leave annually. This leave can be utilized for personal vacation or for sick days, offering employees the flexibility to manage their time off as needed.
Furthermore, any unused service incentive leave at the end of the year can be converted into cash on a pro-rata basis, ensuring that employees benefit from their accrued leave even if they don’t use it all.
Maternity Leave
In the Philippines, female employees are entitled to 105 days of paid maternity leave, allowing ample time for recovery and bonding with their newborn. For employees classified as solo parents under the “Welfare Act of 2000,” an additional 15 days of paid leave is provided to support their unique circumstances. In the unfortunate event of a miscarriage, the maternity leave is extended to 60 days with full pay.
During maternity leave, employees receive cash benefits from the Social Security System (SSS), and employers cover any remaining amount to ensure that the employee receives her full salary throughout her leave.
Special Leaves for Women
In the Philippines, there are two special leave entitlements designed to support employees during significant life events:- Gynecological Surgery Leave: Under the Magna Carta of Women Act, female employees who undergo surgery for a gynecological disorder are entitled to up to two months of paid leave. This provision ensures that employees can recover without financial stress.
- Leave for Victims of Violence Against Women and Their Children: This leave is available to employees who have experienced domestic abuse. They are granted up to ten days of paid leave to address their immediate needs and seek necessary support.
Thirteenth Month Pay
In the Philippines, every employee is entitled to a Thirteenth Month Pay, which is equivalent to one-twelfth of their annual basic salary. This extra pay is typically given at the end of the year but can also be split into two payments, usually in June and December. This practice helps employees manage expenses, especially during back-to-school season.
Even employees who have resigned, retired, started their job mid-year, or are on maternity leave are entitled to a prorated Thirteenth Month Pay. The calculation is straightforward:
13th Month Pay = Total Basic Pay Earned in the Year / 12
Termination Process and Separation Pay
The Labor Code of the Philippines outlines various grounds for terminating employment and specifies how severance pay is determined. For terminations due to misconduct, fraud, criminal activity, or neglect of duty, employees are generally not entitled to severance pay. However, in cases of authorized termination—such as resignation, retrenchment, or the completion of a contract—employees are eligible for severance pay.
The amount of severance pay varies depending on the reason for termination. Here’s a breakdown of the entitlements:
Reason for Contract Termination
Just Causes (e.g., misconduct, fraud, criminal activity, neglect of duty)
Just Causes (e.g., misconduct, fraud, criminal activity, neglect of duty)
None:
Employees
terminated
for just
causes are
generally
not entitled
to severance
pay.
2nd
Authorized Causes (e.g., redundancy, retrenchment, or end of a fixed-term contract)
Yes: Employees are entitled to severance pay, typically computed based on their length of service.
Prorated: Employees who resign are not typically entitled to severance pay, but they may be entitled to certain final benefits.
Yes: Employees who retire are entitled to retirement benefits, which are often higher than severance pay.
5th
End of a Fixed-Term Contract
Yes: Employees are entitled to severance pay if the contract is terminated before its end.
Reason for Contract Termination
Just Causes (e.g., misconduct, fraud, criminal activity, neglect of duty)
None: Employees terminated for just causes are generally not entitled to severance pay.
Authorized Causes (e.g., redundancy, retrenchment, or end of a fixed-term contract)
Yes: Employees are entitled to severance pay, typically computed based on their length of service.
Prorated: Employees who resign are not typically entitled to severance pay, but they may be entitled to certain final benefits.
Yes: Employees who retire are entitled to retirement benefits, which are often higher than severance pay.
End of a Fixed-Term Contract
Yes: Employees are entitled to severance pay if the contract is terminated before its end.
Retirement
In the Philippines, employees aged 60 to 65 are typically subject to mandatory retirement, with some exceptions for government employees and those in retail, service, and agricultural sectors. Upon retirement, employees are entitled to a severance package that includes:- Retirement Pay: Equivalent to half a month’s pay for every year of service
- 13th-Month Pay: A prorated amount based on years of service
- Service Incentive Leave: Cash equivalent for five days of unused leave
- Additional Compensation: 15 days’ worth of salary, calculated at the rate effective at the time of retirement
Penalties
Book Seven of the Labor Code of the Philippines outlines the penalties for failing to meet labor requirements. Unlawful labor practices can result in fines ranging from PHP 1,000 to PHP 10,000 or imprisonment for up to three years, or both.
To ensure justice, complaints about violations must be lodged within three years of the incident, while grievances related to unfair labor practices should be addressed within one year.
Compliance Strategies for Employers
To ensure compliance with labor laws in the Philippines and streamline your HR practices, consider these strategies:- Streamline Payroll Schedule: The Labor Code emphasizes timely salary and compensation disbursements. Implement a clear payroll schedule that accounts for overtime, leave credits, and deductions. Ensure all payroll activities adhere to these deadlines to avoid compliance issues. Employees can report unmet compensation to the Department of Labor and Employment (DOLE), so it’s crucial to maintain punctual and accurate payroll processing.
- Be Transparent: Build trust by providing detailed pay slips for every payroll cycle. Digital copies of pay slips can support paperless transactions and enhance efficiency. Supplementing contracts with comprehensive employee handbooks helps communicate rights and responsibilities effectively. Regular updates to these handbooks will keep them aligned with the latest regulatory changes. Consider subscribing to industry newsletters to stay informed about updates in labor laws.
- Automate HR Processes: Simplify your HR operations with automation tools for tasks like compliance, payroll management, and employee onboarding. PEO (Professional Employer Organization) and EOR (Employer of Record) solutions can help manage these functions seamlessly, ensuring your business remains compliant with local regulations while reducing manual workload.
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