Labor Code of the Philippines: An Overview

Posted on April 5, 2011 | Leave a comment

Presidential Decree No. 442, otherwise known as the Labor Code of the Philippines, revised
and consolidated Philippine labor and social laws for the purpose of protecting labor,
promoting employment and human resources development and insuring industrial peace
and stability based on social justice. It became effective on November 1, 1974.
The Labor Code and other legislated labor laws are implemented primarily by government
agencies, namely, Department of Labor and Employment and Philippine Overseas
Employment Agency. Non-government entities, such as the trade unions and employers,
also play a role in the countrys labor policy by actively ensuring their proper
implementation and on the political level, by lobbying for development or modification of
work-related laws.
The Labor Code regulates the following:
(a) pre-employment, such as the hiring and recruitment of workers;
(b) human resources development, which includes the training and employment of
apprentices and learners;
(c) conditions of employment, such as working conditions, rest periods, and payment of
wages;
(d) health, safety and social welfare benefits;
(e) labor relations, which covers unions, strikes, unfair labor practices and collective
bargaining agreements;
(f) post-employment, which covers termination of employment, security of tenure and
retirement from the service.
Pre-employment policies[edit]
Minimum employable age[edit]
The minimum age for employment is 15 years old and below that age is not allowed.
Persons of age 15 to 18 can be employed given that they work in non-hazardous
environments.[8]
Overseas employment[edit]
As for overseas employment of Filipinos, foreign employers are not allowed to directly hire
Philippine nationals except through board and entities authorized by the Secretary of Labor.
Travel agencies also cannot transact or help in any transactions for the employment or
placement of Filipino workers abroad. Once Filipinos have a job in a foreign country, they are

required to remit or send a portion of their income to their families, dependents, and/or
beneficiaries in the Philippines.[8]
Regulation on conditions of employment[edit]
Minimum wage rate[edit]
Minimum wage rates in the Philippines vary from region to region, with boards established
for each region to monitor economic activity and adjust minimum wages based on growth
rates, unemployment rates, and other factors.[9] The minimum wage rate for Non-Agriculture
employees, in Manila region, established under Wage Order No. NCR 15 is P404 per day, but
in May 9, 2011, a (cost of living allowance) of P22 per day was added to P404 wage, making
the minimum wage P426 as of the current date. COLA was also added to the previous P367
minimum wage for the following sectors: Agriculture, Private Hospitals (with bed capacity of
100 or less), and manufacturing establishments (with less than 10 workers), leaving the
sectors with P389 as minimum wage.[10] The 426 combined rate is locally referred to in the
Philippines as "Manila Rate" due to this regional disparity.[2]
Regular work hours and rest periods[edit]
Normal hours of work. - The normal hours of work of any employee shall not exceed eight (8)
hours a day.
Health personnel in cities and municipalities with a population of at least one million
(1,000,000) or in hospitals and clinics with a bed capacity of at least one hundred (100) shall
hold regular office hours for eight (8) hours a day, for five (5) days a week, exclusive of time
for meals, except where the exigencies of the service require that such personnel work for
six (6) days or forty-eight (48) hours, in which case, they shall be entitled to an additional
compensation of at least thirty percent (30%) of their regular wage for work on the sixth day.
For purposes of this Article, "health personnel" shall include resident physicians, nurses,
nutritionists, dietitians, pharmacists, social workers, laboratory technicians, paramedical
technicians, psychologists, midwives, attendants and all other hospital or clinic personnel.
Meal periods. - Subject to such regulations as the Secretary of Labor may prescribe, it shall
be the duty of every employer to give his employees not less than sixty (60) minutes timeoff for their regular meals.
Rest days[edit]
All employees have the right to have a 24 consecutive hours of rest day after every 6 days
of work. Employers are responsible for determining and scheduling the rest day of
employees except only if the employee prefers a different day based on religious grounds.
However, the employer may require an employee to work during his/her rest day in cases of
emergencies, special circumstances at work in which employees are seriously needed, to
prevent losses or damage to any goods or to the employer, and other cases that have
reasonable grounds.[8]

Nightshift differential and overtime[edit]

Employees are also given additional wages for working in night shifts. The night shift starts
from 10 oclock in the evening until 6 oclock in the morning, and employees will receive
10% more of his/her regular wage rate. Overtime work for employees (beyond 8 hours) are
allowed and workers shall be paid with his/her regular wage plus an additional 25% of the
regular wage per hour worked or 30% during holidays or rest days.[8]
Post-employment[edit]
Termination by employer[edit]
The employer has the right to terminate an employee due to the following reasons: serious
misconduct or disobedience to the employer, neglect of duties or commission of a crime by
the employee, and such gives the employer a just case to terminate the services of the
employee.[8]
Retirement[edit]
The retirement age for an employee depends on the employment contract. Upon retirement,
the retired employee should be given his/her benefits according to the agreement or
contract between the employer and the employee. However, if there is no existing
retirement plan or agreement for the employee, he/she may retire at the age of 60, given
that he/she has served the employer for 5 years, and shall be given a retirement pay of at
least half a months salary for every year of service ( 6 months of work given is considered
as 1 whole year for the retirement pay).[8]
Labor market institutions[edit]
Government[edit]
The Philippine government greatly affects the labor market through its policies and
interventions. It plays a role in job creation through generating a formidable environment for
investment; in ensuring the workers welfare through policies like the Labor Code; in
improving the education of the labor; in informing regarding the jobs available to match the
skills of the people; in implementing expansionary fiscal and monetary policies to reduce
unemployment rate. Though, there must be care in using fiscal and monetary policies
because it may result in high inflation rate in the long-run. [6] Below are some government
agencies concerned with the labor market.
Department of Labor and Employment (DOLE)[edit]
Founded on December 8, 1933, DOLE is the government agency overseeing the labor
market of the Philippines. It is tasked to implement the Labor Code and other labor and
employment-related policies of the government. They have different programs for job
generation, skills training for workers, job fairs and placements, for overseas workers, and
others that helps enhance the labor market of the Philippines. [11]

Bureau of Labor and Employment Statistics (BLES)[edit]

Under the DOLE, BLES gathers data and research regarding the labor market. These
statistics are important in making sound policies (Aldaba, Canlas,Esguerra). One example of
data is that regarding job vacancies. One reason of vacancies in spite of unemployment is
that people do not know where to look for the right job. BLES gather information on
vacancies and applicants and submit this to DOLE for dissemination. [3]
Technical Education and Skills Development Authority (TESDA)[edit]
The Technical Education and Skills Development Authority (TESDA), under the supervision of
DOLE, is the government agency mandated to oversee the development of technical
education and skills development (TESD) of the labor force of the Philippines. TESDA aims to
train skilled workers especially on technical and vocational services in which our country is
lacking.[12]
Philippine Overseas Employment Agency (POEA)[edit]
The POEA is DOLE's arm that administers to the overseas employment of Filipino workers. It
aims to ensure and protect the migrant workers' rights and welfare. It is also tasked to
promote, develop and supervise the government's overseas employment program. [13]
Labor unions[edit]
Trade or Labor unions in the Philippines are organizations sanctioned by Labor Code of the
Philippines as an acknowledgment of Filipino workers' freedom to self-organize. Trade unions
aim to promote enlightenment among Filipino workers concerning their wages, hour of work,
and other legal rights.[8] They aim to raise awareness on their obligations as union members
and employees, as well. Moreover, they serve as legitimate entities that negotiate with
employers in policy-making with regard to terms and conditions of employment. These
negotiations formally take place in the process of Collective Bargaining Agreement.
Trade unions are granted with a right to go on a strike,[8] a temporary stoppage of work by
the employees when there is a labor dispute. Labor disputes are defined as situation when
there are controversies surrounding negotiations and arranging of the terms and condition of
employment. The union, however, must file a notice of strike or the employer must file a
notice of lockout with the Ministry. But when a strike or lockout is deemed to compromise
national interests or interests of the Filipino public (for instance, the case of health workers),
the Secretary of Labor and Employment has the authority to prohibit it and deliberately
enforce resumption of regular operations.
In the Philippines, TUCP (Trade Union Congress of the Philippines) is the largest union and
confederation of 30 labor federations in the country which come from a wide range of
sectors.[14] As of 2009, there are a total of 34,320 unions with consist of members summing
up to 2.6 million.[15]

Employers' confederation[edit]
In the Philippines, there is also an employers' confederation in order to lobby the protection
of firm owners; this confederation represents the business sector and employers in the
country. The most known of which is the Employers' Confederation of the Philippines. ECOP
is leading in being the voice of the employers' in labor management and socioeconomic
development.[16] Last September 27, 2011, ECOP had a dialogue with Labor
secretary, Rosalinda Baldoz regarding different issues on labor like the Pregnant Women
Workers Act, impact of too many holidays on business, wages, ongoing review of DOLE
Department Order No. 18-02, and employment and competitiveness. ECOP stressed that
DOLE should consider the business community when issuing policies. [17]

Computation of Wages
The salaries and wages of your employees depend on whether you pay them on a monthly
or daily basis.
Monthly-paid employees are those whom you pay every day of the month, including
unworked rest days, special days and regular holidays.
Daily-paid employees are those whom you pay for days actually worked and on unworked
regular holidays.
The EMR (equivalent monthly rate) of your employees is computed as follows:
Monthly Paid Employees
The formula for the EMR of monthly paid employees is:
EMR = (Applicable Daily Rate x 365)/12
The factor of 365 days consists of: 302 ordinary working days, 51 rest days, 10 regular
holidays, and 2 special days.
Daily-paid employees:
The EMR of daily-paid employees depends on whether they are required to work on rest days
and holidays.
The EMR of employees who are required to work every day including Sundays or rest
days, special days and regular holidays is:
EMR = (Applicable Daily Rate x 391.50)/12
The factor of 391.5 days consists of: 302 ordinary working days, 20.60 (9 regular holidays x
200% plus one regular holiday/Sunday*260%), 66.3 (51 rest days x 130%), 2.6 (2 special
days x 130%).
The EMR of employees who do not work and are not considered paid on Sundays or
rest daysis:

EMR = (Applicable Daily Rate x 314)/12

The factor of 314 days consists of: 302 ordinary working days, 10 regular holidays, 2 special
days (if actually worked, equivalent to 2.6 days).
The EMR of employees who do not work and are not considered paid on Saturdays
and Sundays or rest days
EMR = (Applicable Daily Rate x 262)/12
The factor of 262 days consists of: 250 ordinary working days, 10 regular holidays, 2 special
days (if actually worked, equivalent to 2.6 days). Factor of 260 maybe used if the 2 special
days are not worked and are not considered paid.
Workers Paid by Results
Your workers who are paid by results, including homeworkers and those who are paid on
piecework, takay, pakyaw, or task basis, shall receive not less than the applicable statutory
minimum wage rates prescribed under the Regional Wage Orders for normal working hours,
or a portion thereof.
Adjustments in the AMW (applicable minimum wage rate) are computed as follows:
is:
1. Amount of increase in AMW Previous AMW x 100 = % increase
2. Existing rate/piece x % increase = Increase in rate/piece;
3. Existing rate/piece + increase in rate/piece = Adjusted rate/piece;
Apprentices, Learners and Handicapped Workers
If you have apprentices, learners or handicapped workers, you need to pay them no less
than seventy five percent (75%) of the applicable statutory wage rates. Apprentices and
learners are those who are covered by apprenticeship/learnership agreements duly
approved by the DOLE.
Additional Compensation
Holiday Pay
You need to pay your employees holiday pay when you require them to work on legal,
declared holidays or special days.
Regular holidays include:
Date

Holiday

January 1
Movable Date
Movable Date
April 9
May 1
June 12

New Years Day

Maundy Thursday
Good Friday
Araw ng Kagitingan
Labor Day
Independence Day

Last Sunday of August

November 30
December 25
December 30

National Heroes Day

Bonifacio Day
Christmas Day
Rizal Day

Your employees who work on a regular holiday (for work within 8 hours) are entitled to twice
(200%) their basic wage.
Where the holiday falls on their scheduled rest day, they are entitled to an additional 30% of
the employees regular holiday rate of 200% or a total of at least 260%.
All covered employees are entitled to holiday pay when they are on leave of absence with
pay. Those who are on leave of absence without pay on the day immediately preceding a
regular holiday may not be paid the required holiday pay if they do not work during the
regular holiday.
National Special Days
There are two national special days: All Saints Day on November 1 and Last Day of the Year,
December 31. During these days, the principle of no work, no pay applies. Workers who
were not required or permitted to work on those days are not entitled to any compensation.
This is without prejudice to any voluntary practice or provision in the Collective Bargaining
Agreement (CBA) providing for payment of wages and other benefits for days declared as
special days.
Employees who work on special days are entitled to additional compensation of not less than
30% on top of the basic pay or a total of 130%. If the special day is also the persons rest
day, he is entitled to at least 50% over and above the basic pay or a total of 150%.
Muslim Holidays
There are five (5) recognized Muslim holidays, namely:
a. Amun Jadid (New Year), which falls on the first day of the lunar month of Muharram
b. Maulid-un-Nabi (Birthday of the Prophet Muhammad), which falls on the twelfth day
of the third lunar month of Rabiul- Awwal
c. Lailatul Isra Wal Mi Raj (Nocturnal Journey and Ascension of the Prophet Muhammad),
which falls on the twenty-seventh day of the seventh lunar month of Rajab
d. Id-ul-Fitr (Hari Raya Pausa), which falls on the first day of the tenth lunar month of
Shawwal commemorating the end of the fasting season
e. Id-ul-Adha ( Hari Raha Haji), which falls on the tenth day of the twelfth lunar month of
Dhul-Hijja.
If your business is located in the provinces of Basilan, Lanao del Norte, Lanao del Sur,
Maguindanao, North Cotabato, Sultan Kudarat, Sulu, Tawi-Tawi, Zambaonga del Norte and
Zamboanga del Sur and in the cities of Cotabato, Iligan, Marawi, Pagadian and Zamboanga,
you need to pay your employees holiday pay.
Premium Pay

You need to pay your employees premium pay or additional compensation if you require
them to perform work on nonworking days, such as rest days and special days.
The current premium pay rates are as follows:
Work

Premium
Rate
(of daily
rate)

Total
Rate

Work on rest days or special days

30%

130%

Work on rest day which is also a

special day

50%

130%

Work on regular holiday which also

a rest day

30% of
200%

260%

You may opt not to pay your managerial employees, workers paid by results or field
personnel the above premium pay.
Overtime Pay
If you require your employees to perform work beyond eight (8) hours a day, you need to
pay them additional compensation as follows:
Work

Overtime
Rate

Work > 8 hours on ordinary working 25%

days
Work > 8 hours on rest day or
special or regular holiday

30%

Night Shift differential

If your employees work at night between 10:00 pm and 6:00 am, you are required to pay
them Night Shift Differential (NSD), as follows:
Work

Rate (of hourly rate)

Pay

Ordinary day

10%

110%

Rest day, special day or

regular holiday

10% of rest day, special

day or holiday rate

110% of rest day, special

day or holiday rate

Night shift (10pm to 6 am)

considered regular work

Night shift considered

overtime work

Ordinary day

10% of 125%

110% of 125% of basic rate

Rest day, special day or

regular holiday

10% of rest day, special

day or holiday rate

110% of rest day, special

day or holiday rate

If you employ not more than five workers and you are a retail or a service establishment,
you need not pay night shift differential. You also do not need to pay your managerial
employees and field personnel the NSD.
Service Incentive Leave (SIL)
If your employees have been with you already for at least one (1) year, whether service is
continuous or broken, you need to pay them Service Incentive Leave (SIL) equivalent to five
days. The SIL may be used for sick and vacation leave purposes. If the SIL is not used up
within the year, you may commute or pay its money equivalent at the end of the year. In
computing the SIL, the basis shall be the salary rate at the date of commutation. The
availment and commutation of this benefit may be on a pro rata basis.
You need not grant SIL if your employees are already enjoying this benefit such as when
they are already given a vacation leave of at least five days.
You also need not accord SIL to your managerial employees and field personnel. If you are
employing less than ten employees, you need not also pay them SIL.
Service Charges
If you are a service establishment, such as hotels, restaurants and night clubs, you may
charge an additional 10% to your customers bill for distribution to employees.
If you collect service charges, your employees are entitled to an equal share in the 85% of
the total of such charges, except managerial employees. You may retain the remaining 15%
to answer for losses and breakages and for distribution to managerial employees, at your
discretion.
You must distribute the shares of the employee in the service charges no less than once
every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days.
If you stop collecting service charges, you are required to provide and integrate into the
basic wage of your employees, the average share previously enjoyed by them for the past
twelve (12) months immediately preceding such stoppage.
Tips
If you do not collect service charges but practice the pooling of tips given voluntarily by your
customers to your employees, you should ensure that the pooled tips are monitored,
accounted and distributed in the same manner as the service charges.
13th Month Pay
You also need to pay your rank and file employees 13th month pay no later than December
24 of every year. One half (1/2) of the required 13th month pay may be made before the
opening of the regular school year and the other half on or before the 24th of December of
every year. The minimum 13th month pay is not less than 1/12 of the total basic salary

earned by an employee within a calendar year.

The "basic salary" includes all remunerations or earnings paid for services rendered. It does
not include allowances and monetary benefits which are not considered part of the regular
or basic salary, such as the cash equivalent of unused vacation and sick leave credits,
overtime, premium, night differential and holiday pay, and cost-of-living allowances.
Retirement Pay
If you have employees who have reached the age of 60 years or more but not beyond 65
years old, you need to pay them retirement. However, if you are a retail, service and
agricultural establishment with no more than ten (10) employees, you are exempted from
paying retirement pay. The minimum retirement pay is one-half (1/2) month salary for every
year of service. A fraction of at least six (6) months is considered as one whole year. "Onehalf month salary" includes:
1. 15 days salary based on the latest salary rate;
2. cash equivalent of 5 days of service incentive leave;
3. one-twelfth (1/12) of the 13th month pay
These benefits are over and above those granted by the Social Security System.
SSS Registration
You are also required to enroll your employees under the Social Security System (SSS)
program, which provides insurance and protection for private-sector employees, including
resident foreign employees. SSS benefits include disability pension, retirement,funeral
benefit, sickness allowance, maternity and paternity leave and loans.
If you are the owner of a single proprietorship business, you should accomplish and submit
SSS Forms R-1 (Employer's Data Record) and R-1A (Initial or Subsequent List of Employees).
If your business is a partnership or a corporation, you also need to submit your articles of
partnership or incorporation.
You should also require your employees to secure an SS number and that that they are
reported for coverage under the SSS;
You must report all employees for SS coverage within thirty (30) days from the date of
employment by submitting an accomplished SSS Form R-1A (Employment Report) at the
nearest SSS office. You are also required to deduct from your employees salaries the
monthly SS contributions based on the schedule of contributions and remit these
contributions to any SSS-accredited bank/SSS Head Office/ SSS selected branches on or
before the 10th day following the month when said contributions are due and applicable.
Maternity Benefits
You must advance maternity benefits to your female employees whether married or
unmarried equivalent 60 days for normal delivery, abortion or miscarriage or 78 days for
caesarian section delivery. The rate is equivalent to one hundred percent (100%) of the
average daily salary credit. Your female employees should be SSS members at the time of
delivery, miscarriage or abortion, must have given the required notification to the SSS thru
you; and you must have paid at least three months of maternity contributions within the
twelve-month period immediately before the date of contingency.

Maternity benefits, like other benefits granted by the SSS, are granted to employees in lieu
of wages and is not included in computing the employees 13th month pay.
Paternity Leave under Republic Act No. 8187
You are also required to grant paternity leave or time off from work to all your married male
employees, regardless of employment status, (e.g. probationary, regular, contractual,
project basis) to allow them to lend support to their wives during the period of recovery
and/or in the nursing of their newborn child.
The paternity leave consists of seven (7) days with full pay for the first four deliveries of the
employees lawful wife. Availment of the paternity leave may be after the delivery, without
prejudice to an employers policy of allowing the employee to avail of the benefit before or
during the delivery, provided that the total number of days shall not be more than seven (7)
days for each covered delivery.
For more information on SSS registration and benefits, you may visit www.sss.gov.ph.
Tax Compliance
You must also ensure that you are withholding the proper taxes due on the compensation,
benefits and other taxable emoluments paid to all your employees.
For more information on tax requirements and compliance standards