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SALARY PAYMENT IN Philippine Peso (₱)
CONTRACT LANGUAGES Tagalog / English
PAYROLL TAX 11.75% + Provident Fund
PAYROLL CYCLE Monthly
TIME TO HIRE 24 hours
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Employment contracts in the Philippines serve as the foundation for the employer-employee relationship, establishing the terms of employment, duties, and rights of each party. Philippine labor laws are particularly stringent when it comes to the protections and benefits afforded to workers, making the understanding and crafting of employment contracts essential for both employers and employees in order to avoid legal disputes and ensure a harmonious working environment. These contracts are not only legally binding documents but also outline expectations and establish the framework for the tenure of employment.
Here we set out everything you need to know about employment contracts in the Philippines.
An open-ended employment contract is a type of employment agreement between an employer and an employee that does not have a fixed end date, open-ended contracts continue until either party initiates termination.
Under these contracts, employees are afforded full benefits and security of tenure as mandated by Philippine labor laws. Regular employees cannot be dismissed without just or authorized cause.
This type of contract is common in the Philippines.
A fixed-term contract, also known as a temporary or term contract, is a type of employment agreement between an employer and an employee that has a predetermined end date. In other words, it specifies a fixed period during which the employment relationship will exist. Once the contract reaches its expiration date, the employment relationship ends automatically, and no notice of termination is required.
Philippines law also allows for project-based and seasonal employment contracts.
The legal framework governing employment contracts in the Philippines is principally rooted in the Philippine Labor Code, with supplemental regulations enforced by the Department of Labor and Employment (DOLE).
The Philippine Labor Code, Presidential Decree No. 442, is the cornerstone of labor laws in the Philippines. It establishes the fundamental rights of workers, including terms of employment, working conditions, wages, benefits, and labor relations. Employment contracts must comply with the provisions of the Labor Code to ensure the protection of workers’ rights. Specifically, Articles 82 to 302 of the Code detail the various aspects of employment such as:
Types of Employment
Minimum Employment Standards
Employee Benefits and Welfare:
Employment contracts cannot stipulate terms less favorable than what is prescribed by the Labor Code, as this would be deemed against public policy and, therefore, illegal and unenforceable.
In addition to the Labor Code, the Department of Labor and Employment (DOLE) issues regulations that employers must observe. The DOLE acts as the regulatory body ensuring the enforcement of the Labor Code and is empowered to inspect workplaces, resolve labor disputes, and process claims and complaints regarding employer-employee relationships. Some key DOLE regulations that impact employment contracts include:
Adherence to DOLE regulations is mandatory when drafting employment contracts to ensure legality and prevent labor disputes. Employers who violate these regulations may be subject to fines, penalties, or other legal consequences.
In the Philippines, creating an accurate and comprehensive employment contract is critical to establish clear expectations and legal protection for both the employer and the employee.
An employment contract must include specific clauses to be legally binding and clear. These clauses include:
The contract must clearly state the duties and responsibilities of the employee. This includes:
The section on compensation and benefits should cover all forms of remuneration and perks offered. It typically includes:
The contract terms regarding its lifespan and conditions for termination are crucial:
Employment contracts in the Philippines can be amended or modified under certain conditions. These changes must be mutually agreed upon by both the employer and the employee. In compliance with Philippine labor laws, any amendment to the contract is subject to the provisions of the Labor Code, which ensures that the rights of the workers are not diminished.
Key Points on Contract Amendments:
A standard process for amendments generally involves the following steps:
Specific Cases for Amendments may include:
Any modifications should be clearly specified to avoid ambiguities. It is advised that companies seek legal counsel when amending contracts to ensure compliance with the prevailing labor laws and regulations.
This framework ensures that amendments serve the interest of both parties while adhering to the legal standards set forth by Philippine law.
In the context of Philippine law, a breach of contract occurs when one party fails to fulfill their obligations, leading to possible dispute resolutions and penalties. It is vital for both employers and employees to understand the consequences and remedies provided by the legal system.
Disputes arising from employment contract breaches are initially subject to negotiation between the parties involved. If unresolved, parties may proceed to mediation or arbitration, as specified in the contract, or pursue litigation. The Department of Labor and Employment (DOLE) and the National Labor Relations Commission (NLRC) facilitate dispute resolution, with the latter handling labor disputes that require adjudication.
Non-compliance with an employment contract in the Philippines can lead to various penalties, depending on the severity of the breach.
Courts or administrative bodies impose penalties to compensate the aggrieved party and deter future breaches. Employers found in violation of labor standards may face additional sanctions under the Labor Code of the Philippines or relevant labor laws.
When employment contracts in the Philippines are due for renewal, both employers and employees have the opportunity to negotiate terms. Key points of negotiation typically include salary, benefits, and job responsibilities.
Negotiation steps include:
It’s critical to remember that in the Philippines, labor laws give employees a degree of protection in terms of tenure and fair labor practices. Changes in the contract should be mutually agreed upon, and should not violate labor standards set by the Department of Labor and Employment (DOLE).
Timelines are also important; discussions should start well before the current contract expires to ensure a seamless transition. Should negotiations stall, it’s beneficial to have a contingency plan.
Documentation of Agreements:
Employers must provide a Contract of Renewal which should be reviewed by the employee before signing to prevent future disputes. It’s advisable to seek legal advice for clarity on implications of proposed contract changes.
Your business can easily hire employees in the Philippines without opening a local entity. We handle local employment law, complex tax regulations, and international payroll in 180+ countries worldwide. All you need to do is focus on your business.
The main difference between an open-ended contract and a fixed-term contract lies in their respective durations and termination conditions.
Duration:
Termination:
Each type of employment contract, whether open-ended or fixed-term, presents its own set of advantages, making it essential to weigh the specific needs and objectives of the business.
An open-ended employment contract provides a level of continuity and stability to the workforce, fostering long-term commitment and loyalty among employees.
Fixed-term contracts offer flexibility and adaptability to the business, particularly in scenarios where temporary or project-specific roles are necessary. Such contracts allow the company to respond efficiently to fluctuating demands.
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71 Robinson Road #13-153
068895, Singapore
+65 3105 1170
Skalitzer Str. 85/86
10997, Berlin
+49 30 3119 9653
1700 S. Lamar Blvd Suite 338
Austin, Texas 78704
+1 (737) 265-6065
See more locations
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