Complete Guide to Hiring Employees in the Philippines: Compliance and Requirements

Hiring your first employee is an exciting milestone, but it comes with significant legal responsibilities. This comprehensive guide covers all requirements for employing workers in the Philippines, ensuring compliance with labor laws and government regulations.

Before You Hire: Employer Registration

Required Registrations

1. SSS (Social Security System)

• Employer Registration (ER-1 Form)
• Required before hiring first employee
• Processing: 1-3 days
• Online registration available

2. PhilHealth

• Employer Data Record (ER1 Form)
• Health insurance registration
• Processing: 1-2 days
• Coordinates with SSS

3. Pag-IBIG

• Employer Registration (FPF040)
• Housing fund registration
• Processing: 1-2 days
• Multiple branch options

4. BIR Updates

• Register as withholding agent
• Update registration (1905 Form)
• New books for payroll
• Processing: 1-3 days

Types of Employment

Regular Employment

• Passed probationary period
• Full benefits and security
• Just cause termination only
• Most protected status

Probationary Employment

• Maximum 6 months
• Can be terminated for standards
• Must inform standards at hiring
• Automatic regular if exceeded

Project-Based Employment

• Specific project duration
• Ends with project completion
• Must be clearly defined
• Common in construction

Seasonal Employment

• Specific seasons only
• Regular for the season
• Off-season not counted
• Agriculture, tourism common

Fixed-Term Employment

• Specific period agreed
• Must be justified
• Cannot circumvent security
• Rare and regulated

Mandatory Benefits

1. SSS Contributions

Monthly Contribution Table 2024: | Monthly Salary | Total | Employer | Employee | |----------------|-------|----------|----------| | Below ₱4,250 | ₱570 | ₱390 | ₱180 | | ₱20,250-₱20,750 | ₱2,830 | ₱1,930 | ₱900 | | ₱29,750 and up | ₱4,230 | ₱2,830 | ₱1,400 |

Benefits Provided:

• Retirement pension
• Disability benefits
• Death benefits
• Maternity/paternity
• Sickness benefits
• Loan privileges

2. PhilHealth Contributions

2024 Premium Rate: 5% of monthly salary

• Employer: 2.5%
• Employee: 2.5%
• Minimum: ₱500/month
• Maximum: ₱5,000/month

Coverage Includes:

• Hospitalization
• Outpatient services
• Emergency care
• Preventive services

3. Pag-IBIG Contributions

Monthly Contributions:

• Employee: 1-2% of salary
• Employer: 2% of salary
• Maximum salary base: ₱5,000

Benefits:

• Housing loans
• Calamity loans
• Savings program
• Dividend earnings

4. 13th Month Pay

Requirements:

• Mandatory for all employees
• Minimum: 1/12 of annual basic
• Due before December 24
• Prorated for less than a year

Computation:

Total Basic Salary for the Year ÷ 12 = 13th Month Pay

Leave Benefits

Service Incentive Leave (SIL)

• 5 days per year minimum
• After 1 year of service
• Convertible to cash
• Use it or lose it

Maternity Leave

• 105 days (extended from 60)
• Additional 15 days for solo parent
• 100% salary from SSS
• Job security guaranteed

Paternity Leave

• 7 days for married fathers
• 100% salary from employer
• First 4 deliveries only
• Must notify in advance

Special Leaves

• Solo Parent: 7 days
• VAWC Leave: 10 days
• Calamity Leave: Varies by company
• Bereavement: Varies by company

Compensation Requirements

Minimum Wage

Metro Manila (2024):

• Non-agriculture: ₱610/day
• Agriculture: ₱573/day
• Retail/Service (≤15 employees): ₱573/day

Rates vary by region - check DOLE website

Overtime Pay

• Regular OT: +25% of hourly
• Rest day OT: +30%
• Holiday OT: +30%
• Rest day + Holiday: +50%

Computation Example:

Regular hourly rate: ₱76.25 (₱610 ÷ 8)
OT hourly rate: ₱95.31 (₱76.25 × 1.25)

Night Differential

• 10% additional for 10PM-6AM
• Applies to regular hours
• Additional to OT if applicable

Holiday Pay

Regular Holidays:

• No work: 100% pay
• With work: 200% pay

Special Holidays:

• No work: No pay (unless policy)
• With work: 130% pay

Tax Obligations

Withholding Tax

Monthly Process:

1. Compute tax based on table
2. Deduct from salary
3. Remit to BIR by 10th
4. File BIR Form 1601C

Tax Table Application:

• Use BIR withholding tax table
• Consider dependents
• Apply proper bracket
• Include all compensation

Year-End Requirements

BIR Form 2316:

• Certificate of Compensation
• Due January 31
• One per employee
• Include all income/tax

Alphalist Submission:

• Summary of employees
• Electronic submission
• Due January 31
• Penalties for late filing

Employment Contracts

Required Contents

• Position and duties
• Compensation and benefits
• Work schedule
• Probationary period
• Company policies
• Termination grounds

Probationary Standards

• Must be written
• Reasonable and clear
• Made known at hiring
• Consistently applied

Do's and Don'ts

Do:

• Use clear language
• Include all benefits
• Specify work location
• Define success metrics

Don't:

• Waive statutory benefits
• Include illegal provisions
• Discriminate
• Violate labor standards

Workplace Policies

Required Policies

1. Code of conduct
2. Anti-sexual harassment
3. Health and safety
4. Leave policies
5. Grievance procedure

Company Handbook

• Not legally required but recommended
• Protects both parties
• Clear expectations
• Uniform application

Common Compliance Issues

1. Misclassification

Problem: Treating employees as contractors Solution: Apply four-fold test Penalties: Back wages, benefits, fines

2. Unpaid Benefits

Problem: Missing SSS/PhilHealth payments Solution: Regular remittance Penalties: Surcharges, imprisonment

3. Illegal Termination

Problem: Firing without just cause Solution: Follow due process Penalties: Reinstatement, back wages

4. Wage Violations

Problem: Below minimum wage Solution: Regular rate review Penalties: Pay difference, damages

Hiring Process Best Practices

1. Job Posting

• Clear requirements
• Non-discriminatory
• Accurate description
• Proper channels

2. Interview Process

• Structured questions
• Document responses
• Multiple evaluators
• Reference checks

3. Job Offer

• Written offer letter
• Clear conditions
• Benefit details
• Start date

4. Onboarding

• Contract signing
• Policy orientation
• Benefits enrollment
• ID and access

Cost of Employment

Direct Costs

For ₱20,000 Monthly Salary:

Basic Salary:        ₱20,000
SSS (Employer):      ₱1,900
PhilHealth:          ₱500
Pag-IBIG:           ₱400
13th Month:         ₱1,667
TOTAL COST:         ₱24,467/month

Indirect Costs

• Training expenses
• Equipment/workspace
• Administrative time
• Potential liabilities

Small Business Considerations

Simplified Options

• Start with consultants
• Use payroll services
• Outsource HR functions
• Join employer groups

Growing Your Team

• Plan compensation structure
• Budget for benefits
• Create scalable systems
• Document everything

Technology and Tools

Payroll Software

• CloudPayroll
• PayrollHero
• JustPayroll
• Sprout Solutions

HR Management

• BambooHR
• Workday
• Local solutions
• Google Sheets templates

Government Portals

• SSS online services
• PhilHealth portal
• Pag-IBIG virtual
• BIR eFPS

Legal Termination

Just Causes (No separation pay)

• Serious misconduct
• Gross negligence
• Breach of trust
• Commission of crime

Authorized Causes (With separation pay)

• Redundancy
• Retrenchment
• Closure
• Disease

Due Process Requirements

Just Causes:

1. First notice (show cause)
2. Opportunity to explain
3. Second notice (decision)

Authorized Causes:

1. 30-day notice to employee
2. 30-day notice to DOLE
3. Separation pay

Avoiding Labor Cases

Prevention Strategies

• Clear policies
• Consistent application
• Proper documentation
• Regular training
• Open communication

When Issues Arise

• Address immediately
• Document everything
• Seek legal advice
• Consider mediation
• Learn from mistakes

Conclusion

Hiring employees is a significant responsibility that extends beyond paying salaries. Compliance with Philippine labor laws protects both your business and your workers, creating a foundation for sustainable growth.

While the requirements may seem overwhelming, proper systems and professional guidance make compliance manageable. Remember: investing in proper employment practices pays dividends in employee loyalty, productivity, and legal protection.

Start right, stay compliant, and build a team that drives your business forward.

Need help with employer registration and compliance? Philfile assists businesses with complete employer setup, from government registrations to policy development. Ensure your employment practices are legally sound. Contact us today!