For businesses, who want to get its grips in the Philippines the main problem is the complicated legal background of the Philippines. Labor laws in the state of the Philippines are strict and include the requirements of the income tax law to pay minimum wages for the employees and retirements, insurance policies, termination policies and similar. To those who do not know the law well, the consequences of non-compliance can be severe, including a fine of the company or its closure.
This is the way a Philippine Employer of Record Services can help. EOR services do not only remove the hiring burden but also ensure the compliance of employers with Philippine labor laws. This article details the advantages of an Employer of Record in the Philippines to give small businesses the tools to engage with the law and grow their business, while at the same time mitigating risks of breaking the law.
Understanding the Philippine Labor Code
The basic concept of the EOR form depends on the legal and labor relations framework in the country. One of the biggest key bills in the Philippines is the Philippine Labor Act, which aims to control the activities of workers, as well as the employer’s rights, privileges, salary rates, standards, leave, contract termination, and the like. These regulations also constitute a work environment that is both safe and supportive of rights and growth for the employee.
Key components of the Philippine Labor Code include:Pieces of the Philippine Labor Code encompasses:
Minimum wage laws: The salaries in the various locales, which are fixed in some areas and determined by the government in others, vary greatly.
Mandatory benefits: Statutory social security, health care (PhilHealth), and housing (Pag-IBIG) are some of the facilities that employers should give in addition to other statutory benefits.
Overtime pay: The employer shall pay not less than one and a half times the regular rate to the worker for the hours he or she works in excess of the legal daily line of work.
Termination rules: The pieces of legislation and case law give the worker an adequate amount of time to react to the allegations of the employer and if he/she fails there must be proper pathways to continue with the dismissal.
Role of an Employer of Record in Compliance
The Philippine Labor Code has detailed rules and regulations and only a few companies, mostly foreign-owned, really understand some of the stipulations. An EOR is a significant partner for businesses in compliance with the law. Below are the ways:
1. Payroll Compliance
One of the legal requirements of payroll in the Philippines is the calculation of mandatory deductions for taxes, social security, and employee benefits. The EOR is involved in the correct payroll processing with the help of the right deductions that are made for such matters as:
Income tax: Employers are obliged to withhold no rework taxes due to employees and bear them over to the Internal Revenue office within their annual tax returns.
Social Security contributions: The EOR deducts and remits contributions to the Social Security System (SSS), a government program that provides employees with benefits in cases such as sickness, maternity, or retirement.
PhilHealth contributions: Employers also have to contribute money to the Philippine Health Insurance Corporation (PhilHealth), which takes care of the worker’s health care needs.
Pag-IBIG contributions: Participants in the Government Housing Loan Industry System (Pag-IBIG) are connected with the EOR who takes care that the necessary money for the housing loans are deducted from their salaries.
An EOR that operates with payroll in line with the applicable laws thus helps companies to stay away from the penalties and legal troubles.
2. Employee Benefits Management
Apart from the basic social security premiums, employees in the Philippines are entitled to other labor benefits like paid leaves, medical care and 13th month pay. Company employees, in most cases, benefit from labor codifications that may hence tickle the vending machines of newbies in the industry.
An EOR takes care of:An EOR takes care of:
Statutory leave: They can be given sick leave, maternity leave and vacation leave by employers who have employees who work in the Philippines. The EOR also makes certain that the employees are provided with the leave as they are provided by the law.
13th-month pay: Although seemingly small, it is worth mentioning one advantage which is very popular in the Philippines called the Thirteenth-month pay, paid for all employees. It is calculated at one-twelfth basis of the employee’s weekly wage and payable before the 24th of December year. EOR makes certain that this benefit is paid as and when it is due and without any omission.
These are some of the benefits the EOR has to oversee so that they are legal in the country and the employees are happy.
3. These are the job offering letters and follow up on labor laws.
Recall that the EOR is useful in one of the areas indicated, namely, in the development of the compliant contracts. In the employment contract of the Philippines, the contract must adhere to the Labor Code of the Philippines which contains provisions such as wages, work and employment conditions among others. They help to prevent cases of legal suits emanating from failure to observe the rules on these contracts.
An EOR ensures that employment contracts are drafted in line with Philippine law, covering areas such as:An EOR makes certain the employment contracts are, prepared in Philippines legal frameworks such as:
Wages and hours of work: Work below minimum wages cannot be included in contracts while working hours should be included in a contract.
Termination clauses: In the Philippines, the law lays down the procedures required to dismiss employees as highlighted in the Philippine Labor Code and in the contracts, there must be correct and compliant provisions for dire.
Probationary periods: As will be explained in the following sections, the EOR operates for probationary employment consistent with laws that set the allowable maximum probationary period at six months.
The EOR also takes legal liability for the management of employment contracts and ABSORBS from the businesses the risks of contract-related disputes or violations.
4. Termination and Severance Pay
On the issue of employment termination, the Philippines has strict laws as much as employment is concerned. Workers cannot be dismissed unfairly or without regard to procedures and there are legal ways employers can dismiss an employee. Noncompliance normally attracts litigation or penalties.
An Philippine Employer of Record helps businesses navigate the complex termination process by:An EOR helps businesses navigate the complex termination process by:
Non-performance of the duties as follows; To ensure that all the terminations face the legal measures that are required before the process is complete.
Offering advice on when an employee can be let go based on just cause such as when an employee violates company policies or if the company has laid off workers due to the reduction of its workforce.
Paying off the various terminated Employee relations affects within the terms of the relevant national legislation, and providing the terminated employees with the respective severance pay.
The EOR helps to reduce the impact of wrongful termination lawsuits, thus, making sure that all the dismissed employees are dismissed following legal procedures.
5. This section facilitates
The identification of the legal obligations associated with risk management and legal liability.
Employment related issues are some of the issues that are supposed to be handled by the EOR and not the company because the EOR is legally responsible for all the activities related to employment. This minimizes the legal risks of the company in as much as non-compliance with the labor laws is concerned. Should there be any issues and/or claims on employment contracts, payrolls, or termination of services, then these are for the EURO to resolve.
This makes it possible for businesses to outsource most of the employment risks through engaging an EOR as they concentrate on expanding their ventures in the Philippines.
Conclusion
Conforming to local labor laws, which are prerequisites for the compliance of any business in the Philippines is a must in order to avoid legal problems and also to keep the operations going on smoothly. The Philippine Labor Code is a comprehensive one that tackles payroll, employee benefits, contracts, and termination procedures. Without the help of a local expert, tackling these laws can be a challenge and hazardous.
Philippines Employer of Record, which provides a ready-made solution for fidelity, is the one that manages everything right from the salary management to contract making and practicing of exit terminologies applying in Philippine labor laws. Companies can focus on the main things that they do, while at the same time, the law is taken care of by an EOR. A company that is willing to come into the Philippine market needs an EOR who is a partner in managing the legal and administrative responsibilities.
