Labor laws and compliance in the Philippines

This guide has important information for businesses looking to hire employees or contractors in the Philippines. It has been one of the most dynamic economies in the East Asia Pacific region between 2010-1019, averaging an annual growth rate of 6.4%. The country has a growing middle class with a large and young population. The Philippines is a major destination for outsourcing/offshoring for the US businesses due to cultural affinity between the two countries.

Labor Law Compliance Guide for the Philippines

Minimum Wage

Varies by state

Overtime Wage

1.25x Regular Wages

Meal Breaks

60 minutes (unpaid)

Rest Breaks

No federal mandate

Working hours

8 hours/day, 40 hours/week

Salary Payment Cycle


Payroll Taxes

Social security, Public health insurance, Home development mutual fund

Paid Vacation

5 days after one year of service

Overtime Hours

Beyond 40 hours in a week

Night Shift Hours

110% of regular pay
Between 10PM and 6AM


10 holidays/year

No Work Days

8 days/year in addition to Saturdays and Sundays

Hiring in The Philippines

A business needs a local entity in Philippines to hire locally.
Setting up an entity in Philippines involves registering with multiple agencies and can take 30 days. If you want to register a subsidiary in The Philippines, you will need to invest at least $200,000 as equity. A business requires at least four officials, two of whom must be residents of the country.

Setting up an entity in The Philippines is a 5-step process that requires you to register with SEC, provincial government, mayor’s office, Bureau of Internal Revenue, Social Security, and the health insurance corporation.
You will also need to comply with benefits, payroll, tax, and HR laws.
Philippines differentiates between employees and contractors. There are different rules for both, and incorrect classification can lead to fines.

Minimum Wage in Philippines

Philippines does not have a national minimum wage rate. It’s set at the provincial level.
While all employers must pay the specified minimum wage for the region, in the outsourcing industry, you need to pay significantly more to attract good talent.
The current minimum wage rate (June 2022) in different parts of the country are:

Accordion Content
RegionMinimum Wage (Daily)
Metro Manila570 Pesos
Cordillera Administrative Region380 Pesos
Ilocos Region372 Pesos
Cagayan Valley400 Pesos
Central Luzon414 Pesos
Calabarzon390 Pesos
Mimaropa355 Pesos
Bicol365 Pesos
Visayas410 Pesos
Central Visayas382 Pesos
Mindanao378 Pesos
Davao Region443 Pesos
Soccsksargen368 Pesos
Caraga350 Pesos
Working Hours in Philippines

Work hours are tightly regulated in Philippines.
Standard working hours in Philippines are 8 hours per day and one hour of lunch break. Working hours include the time during which the employee is required to be at the workplace and all hours that he is asked to work. It also includes any short breaks or rest periods during the working hours.

Accordion Content

Employees must be given one day off after every six consecutive days of work.
Employers must pay 10% extra for nightshift.
Overtime is to be paid at 125% of regular pay for extra hours worked on a regular workday. Any work done on a holiday or weekend is to be paid at 130% of regular work.

Payroll and Taxes in Philippines

Employers typically follow a monthly payment schedule, with salaries paid on the first of every month. Salary is prorated for employees joining in the middle of a month.
Salary must be paid in cash, by check, or by direct deposit to the employee’s account at a bank or other financial institution.
Employers also need to pay the 13th month salary to every eligible employee by December 24th . Any employee who has worked for at least one month in the year is eligible to receive the 13th month salary.

Accordion Content
It’s mandated by the government through a presidential decree in 1975. Many employers pay the 13th salary in two installments with the second one paid in December. Failing to pay the 13th month salary can lead to legal action and penalties against the employer.
Many employers also pay a Christmas bonus to their employees in December. But that is not mandated by law.

Individual Income Tax

In Philippines, domestic income is subject to income tax for both citizens and foreigners. Any foreign income of a resident is also taxed in the Philippines.
Philippines income tax system follows a slab structure. It means individuals pay income tax based on their income level. This is also called the progressive tax system in which a person with higher earnings pays higher taxes.
Employers must deduct and withhold income tax on employees’ compensation. Failing to do so has legal consequences. This tax is paid to the government by the employer.
The following table shows income tax rates in Philippines as of July 2022:
Annual Salary (Pesos)Applicable Tax Rate
0 – 250,000No tax
250,000 – 400,00020%
400,000 – 800,00025%
800,000 – 2,000,00030%
2,000,000 – 8,000,00032%
Above 8,000,00035%
Employer Costs in Philippines
Employers bear the following costs in Philippines:
  • Social Security: Employers contribute 8.5& of the salary towards employee’s social security. This contribution is mandatory. It’s capped at 1700 Pesos for salaries above 24750 Pesos. Employers also need to withhold 4.5% of salary towards employee’s contribution towards social security. Employee contribution is capped off at 900 Pesos.
  • Public Health Insurance (PhilHealth): Employers must contribute 1.75% of salary towards public health insurance program. They also need to deduct 1.75% from the salary towards employee’s contribution. The minimum salary for PhilHealth contribution is 10,000 Pesos and maximum salary is 70,000 Pesos.
PhilHealth provides several benefits including inpatient & outpatient treatments, coverage for long-term treatments and specialized care like malaria.
Many employers provide a secondary health insurance cover to attract high-quality employees. Secondary health cover is valued by employees as it helps them avoid delays and access benefits not covered by PhilHealth.
  • Home Development Mutual Fund (HDMF or Pag-IBIG) – It provides housing loans and offers financial assistance to Filipinos so they can afford decent housing. Employers contribute 2% of the monthly salary (maximum 100 Pesos). Employee contribution is 1% if the salary is below 1,500 Pesos and 2% above this, subject to a monthly cap of 100 Pesos.
Statutory Leave Policies in Philippines

There are 12 paid public holidays in Philippines. In addition, there are six special holidays that are unpaid holidays.
Employers in the Philippines must give five days of paid leave to employees who have worked for at least one year. Employees can get paid for unused portion of the leave.

Accordion Content

Employees get 90% of their average daily salary for up to 120 days in a year if they fall sick. The employer pays the salary to the employee. This is reimbursed by the social security system.
All female employees get 60 days of paid maternity leave for their first four pregnancies. If a C-section or surgery is needed, the employee can get up to 78 days of leave.
Women employees who undergo a gynecological surgery get up to 60 days of paid leave, provided they have worked for at least six months.
Married male employees get seven days of paternity leave for the first four pregnancies of their wives.
In Philippines, a solo parent can take up to seven days’ leave.

Employee Benefits

Philippines has a comprehensive social security system that offers several mandatory benefits to employees:

Accordion Content
  • maternity pay
  • sickness pay
  • pensions
  • disability benefits
  • salary loans
  • life insurance
  • funeral grants

In addition, many employers also provide supplemental health, dental and vision insurance to their employees. In fact, a good health insurance plan can be a very attractive recruiting tool in Philippines.

Employee Termination

An employee can be terminated for authorized causes as per the Labor Code. Employer can also terminate an employee for violation of corporate rules and regulations.
An employee can terminate the employment at will.
Employer must give a notice period of 30 days for terminating the employee.
Employees are eligible for one month of severance pay for every year of service.

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