PEO Philippines

World Bank Ease of Doing Business Ranking

• DB Rank – 95
• DB Score – 62.8

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Global PEO in Philippines

The Philippines, as a PEO (Professional Employer Organization) country, presents an attractive destination for businesses seeking to expand their global footprint. Known for its skilled and English-speaking workforce, the Philippines offers a conducive environment for outsourcing various business functions. PEO services in the country enable foreign companies to easily navigate through the complexities of local labor laws, taxes, and regulations. By partnering with a PEO, international businesses can tap into the Philippines’ vast talent pool without the need to establish a physical entity in the country. This allows for cost-efficiency and faster market entry, making the Philippines a favored choice for companies looking to outsource key operations while maintaining focus on their core competencies. Moreover, the country’s strategic location in Southeast Asia and its rapidly growing economy further enhance its appeal as a PEO destination, attracting a diverse range of industries seeking reliable and skilled talent to drive their success in the region and beyond.

What Is a PEO?

A PEO, or Professional Employer Organization, is a company that provides a range of HR and payroll services to small and medium-sized businesses. These services can include employee benefits, payroll, compliance with labor laws, and recruiting and training.

PEOs work by entering into a co-employment agreement with the businesses they serve. In this arrangement, the PEO becomes the employer of record for the business’s employees, taking on responsibilities such as payroll, tax withholding, and employee benefits. The business, however, retains control over its day-to-day operations and the supervision of its employees.

PEOs can help businesses streamline their HR and payroll processes, reduce costs, and free up time and resources to focus on their core business activities. They can also provide access to a range of benefits and resources that small businesses may not be able to afford or manage on their own.

PEOs are also understood as employer of record / EOR at times.

Philippines – Country Overview

The Philippines is the 13th largest economy in Asia and the third-largest in the Association of Southeast Asian Nations (ASEAN). The Philippine economy is rapidly transitioning from agriculture to services and manufacturing as it emerges as a newly developed country. Transport equipment, electrical products, clothes, copper goods, coconut oil, and fruits are among the items exported. The economy is doing well thanks to a healthy macroeconomic climate with low inflation and a surge in exports.

Capital City

Manila

Currency

Philippine Peso (₱)

Principal Language

Filipino

Government

Presidential Democratic Constitutional Republic

Employment Contracts in the Philippines

In the Philippines, an employment contract can be either in writing or verbal. 

The Labor Code of the Philippines contains no requirements for written contracts. 

Some of the details typically mentioned in the written contract include:

• Names of both parties
• Employment start date
• Job title and description
• Location and hours of work
• and more

The different types of employment relationships are:

• Permanent Employment – Employees recruited to undertake duties that are typically necessary or desirable for the employer’s usual business are considered regular or permanent employees, according to the Philippine Labor Code.
• Fixed-Term Contracts – An employee hired for a specific project that has a set completion or termination date when employment begins.
• Temporary Employment – Per the Philippine Labor Code, temporary workers are casual workers who perform seasonal work. Laborers hired for a single season are temporary workers.

Probationary Period

In the Philippines, a probationary period is typically 6 months.

Working Hours in the Philippines

Employees are required to work 8 hours per day. Night shifts or any work between 10 p.m. and 6 a.m. is compensated by a minimum of 10% of regular wages. Employers must give at least a day off in a week. Working more than 8 hours a day is considered overtime and the overtime pay in the Philippines is 25% of regular wages. Compensation is 30% for working overtime on holiday.

Employee Leave in the Philippines

Employees are entitled to the following leaves:

• Annual leave in the Philippines – Per the Philippines’ Labor Code, employees who have worked for at least 1 year are allowed 5 days of paid leave.
• Maternity leave in the Philippines– Female employees receive a minimum of 2 weeks of maternity leave before and 4 weeks after delivery or abortion, provided the employees have worked for at least 6 months over the past 12-month period. 
• Sick leave in the Philippines – The labor code does not have provisions for sick leave, but collective bargaining agreements generally provide it. Social security sickness benefits are available to employees who have contributed to social security for at least 3 months in the past year and who have been unfit for work for at least 4 days due to an injury or illness. A maximum of 120 days of sickness benefits are paid in a year at 90% of regular wages.
• Paternity leave in the Philippines – Employers must provide 7 days of paid paternity leave to male employees after the child’s birth or wife’s miscarriage, regardless of their employment status. The leave is limited to the birth of an employee’s first 4 children.
• Parental Leave for Single Parents – Employees can take up to 7 days of parental leave in a year with full pay. They qualify for this leave if they:
  • complete at least 1 year of service
  • notify the employer about using this leave within a reasonable period
  • present a Solo Parent Identification Card obtained from the Department of Social Welfare and Development office
• Leave for Victims of Violence against Women and Their Children – Employees who are victims under the Republic Act No. 9262 receive a paid leave of up to 10 days that can be extended if necessary.
• Special Leave Benefits for Women under the Republic Act No. 9710 – Female employees receive a special leave of 2 days of paid leave for surgery related to gynecological disorders. There is no minimum employment period required, and the leave is available to employees of all ages and civil statuses.

Public Holidays

The following are the statutory national holidays in the Philippines:

• Jan. 1: New Year’s Day
• Maundy Thursday
• Good Friday
• Bravery Day
• Labor Day
• Independence Day
• Christmas Day
• Rizal Day

The government announces several special holidays each year. These days off are unpaid and may change from year to year. These are:

• Chinese New Year
• End of Ramadan
• Festival of Sacrifice
• Monday nearest Aug. 21: Ninoy Aquino Day
• Last Monday in August: National Heroes Day
• Nov. 1-2: All Saints Day
• Monday nearest Nov. 30: Bonifacio Day
• Dec. 24: Christmas Eve
• Dec. 31: Last Day of the Year

Leave

When doing business in the Philippines, keep in mind that the rules and regulations surrounding leave are generally more favorable to the employee than in other countries. What you’ll need to know is:

• Paid Leave. Assuming an employee has paid contributions to Social Security for at least 3 months, they are entitled to 120 days of paid leave earning 90% of their usual pay.
• Maternity Leave: Female employees are entitled to 105 days of relevant maternity leave with full pay which can be extended for another 30 days without pay.
• Paternity Leave. Men legally married to the mother of their child are eligible for 7 days of paid leave to be taken within 60 days of a birth or miscarriage.
• Deductible Pay. An employee who arrives late to work or who leaves early can have their salary legally deducted by their employer equal to the time they missed.

Taxation

Tax deductions and certain exemptions are some of the many reasons why more and more companies have been drawn towards expanding their employee base within the Philippines. There are some facts about tax you should know.

• Income Tax. Personal income tax in the Philippines ranges between 0 and 35% based on tax brackets. Once an income reaches ₱400, 000, the employee pays an additional lump sum.
• Non-residents. Employees who are not residents of the Philippines pay a flat-tax rate of 25% regardless of income, though there are some exceptions.
• Allowances. Certain allowances an employee receives as part of their compensation, such as meal and uniform allowances, may not need to be taxed.

Employee Termination in the Philippines

The employee may terminate the employment relationship by giving the employer one month’s advance written notice.

The termination of an employment relationship can take place by the completion of a project (or a phase of that project).

Global Mobility in Philippines

There are typically the following categories of visas in the Philippines:

• Temporary visit visa
• Transit visa
• Investor/ Treaty trader visa
• Diplomatic visa
• Employment visa (prearranged)
• Permanent resident visa
• Student visa
• Special non-immigrant visa
• Seaman’s visa

The Philippine government issues 3 options for foreigners seeking work permits in the Philippines and they are:

• Alien employment permit (AEP) – issued by the Department of Labor and Employment (DOLE)
• Special work permit (SWP) – issued by the Bureau of Immigration
• Provisional work permit (PWP) – also issued by the Bureau of Immigration

Employee Benefits in the Philippines

The compulsory retirement age in the Philippines is 65. Employees aged 60 or more who have contributed for at least 120 months can retire with benefits. The minimum retirement pay is half of a month’s salary for each year of service.

Employees receive a monthly pension based on their contributions, coverage period, and the number of dependent children after 120 monthly contributions. If an individual hasn’t made 120 monthly contributions they receive a lump sum based on the number of contributions including interest made by them and the employer.

Workers’ Compensation

All employees below the age of 60 are required to register with the State Insurance Fund (SIF) for insurance coverage. Additionally, it is mandatory for employees over 60 to contribute toward life insurance benefits provided under the Social Security System in the Philippines and must register with the SIF.

Temporary Total Disability

Employees who sustain a work-related illness or injury that results in temporary total disability qualify for a disability benefit of 90% of their average daily wages for a maximum of 120 days. The period can be extended to 240 days if the condition requires more care or treatment. In case the condition remains the same beyond 240 days, it is considered a permanent total disability.

Permanent Total Disability

Permanently disabled employees receive a monthly benefit equal to the old-age pension benefit that is determined using the number of contributions made to the Social Security System and the duration of the membership. A supplemental allowance of 575 pesos each month and an extra 10% is granted for every dependent child up to 5.

Permanent Partial Disability

Employees who suffer a permanent partial disability due to work-related injury or illness receive the same benefits as those who suffer a permanent total disability, but with certain time limits. In case of less than a year of injury, an employee is given a lump-sum amount.

Death

If an employee dies due to work-related injury or illness, their primary beneficiaries receive the equivalent of a monthly pension and an extra 10% until their children turn 5. The person who pays for the funeral is paid a funeral benefit of 10,000 pesos.

Mandatory Employee Benefits in the Philippines

The Social Security System in the Philippines consists of:

• Social Security System (SSS)

The SSS protects against old age, sickness, disability, and death to private employees and their families. The Government Service Insurance System (GSIS) is a similar system for government employees.

• Home Development Mutual Fund (HDMF)

HDMF provides housing loans to Philippine government employees, self-employed individuals, and private employees who join the Fund.

• Philippine Health Insurance Corporation (PhilHealth)

PhilHealth, managed by the Philippine National Health Corporation, provides practical means for employees to pay for adequate medical care.

Coverage in the Philippines

Employees aged less than 60 who earn more than 1,000 pesos per month must contribute to the SSS. Government employees must contribute to the GSIS. Employees are required to make contributions to PhilHealth and the HDMF. Membership is optional only for self-employed individuals. Even foreign workers are required to contribute.