Introduction

The Philippines is a growing hub for global talent - particularly in BPO, tech, and digital services. But while hiring Filipino workers can offer flexibility, skill, and cost benefits, many international businesses underestimate the complexity of compliance in this jurisdiction. Labour law in the Philippines is rooted in employee protection, and the Department of Labor and Employment (DOLE) takes enforcement seriously.

For global employers entering the market, missteps can be expensive - from fines and back pay to reputational damage and legal action. If you're managing employees or contractors in the Philippines, it's vital to get the details right from the outset.

Quick Tips

• Always issue a written employment contract that aligns with DOLE standards.

• Avoid misclassifying employees as contractors - this is heavily regulated.

• Factor in mandatory 13th month pay - it's a legal entitlement, not a bonus.

• Understand termination restrictions - unfair dismissal cases are common.

• Keep records of timekeeping, wages, and benefits - inspections can be unannounced.

Understanding the Employment Framework

The Philippines Labour Code sets out strong protections for workers, including security of tenure, minimum wage, and statutory benefits. Unlike at-will systems, termination is only lawful with just or authorised cause, and dismissal processes must follow due process.

Probationary periods are limited to six months, and failure to regularise an employee correctly can default them into permanent status. Benefits like social security (SSS), health insurance (PhilHealth), and the Home Development Mutual Fund (Pag-IBIG) are mandatory for all regular employees.

A key mistake I often see is foreign employers using offshore contractor models that do not hold up under scrutiny. DOLE is increasingly cracking down on these practices, especially if the contractor has a fixed schedule, receives direction, or has been engaged long-term.

Contracting vs. Employment: A Fine Line

The difference between a contractor and an employee in the Philippines hinges on four key factors: control, tools, pay structure, and exclusivity. If your business dictates how and when the work is done, or if the person relies solely on your company for income, they are likely an employee under the law.

In one recent case, a US firm we advised had a team of ‘contractors’ working regular hours on fixed monthly fees with performance reviews. We advised a local entity setup, issued compliant employment contracts, and registered them for statutory benefits. The team transitioned smoothly, and the company avoided a growing risk of claims.

Separation and Termination: Tread Carefully

Ending employment in the Philippines requires both valid grounds and strict adherence to due process. This includes issuing written notices, allowing the employee to respond, and documenting everything. Failure to comply can result in awards for both separation pay and damages.

I once supported a UK client whose local manager terminated a staff member via email without formal process. The employee filed a case, and the employer was ordered to pay six months’ wages in damages - not for the dismissal itself, but for failing to follow procedure. We immediately revised their policies, trained their managers, and introduced HR support to prevent recurrence.

A Real Example: Getting Setup Right from the Start

A European SaaS business wanted to hire five developers in Manila. Rather than risk contractor misclassification, we helped them partner with a local employer of record (EOR), ensuring full compliance from day one. They benefitted from a swift setup, happy employees, and no unexpected obligations down the line.

Final Thoughts

Labour law in the Philippines isn’t just a legal hurdle - it’s an opportunity to build a stable, loyal team in a high-talent market. With the right advice and structure, you can engage Filipino workers in a way that’s both compliant and sustainable.

What’s next for your global people strategy?

Book a free compliance check-in or HR audit with ThinkGlobal HR. Whether you're hiring in the Philippines or reassessing how your contractors are classified, we’ll help you build legally sound systems and avoid the pitfalls of international employment.