Labor Code of the Philippines: Statutory compliance for foreign employers

The Labor Code applies to private-sector employers operating in the Philippines, including foreign-owned companies and businesses hiring through an Employer of Record (EOR). Most rank-and-file employees fall within its scope. Separate laws apply to government employees, domestic workers (kasambahays) under Republic Act No. 10361, and overseas Filipino workers employed under POEA Standard Employment Contracts.

Not every employee is covered by the Code’s working-time rules. Book III (Articles 82 to 96) excludes managerial employees who have authority to formulate and implement management policies, field personnel whose working hours cannot be determined with reasonable certainty, family members who depend on the employer for support, and workers paid by results.

The exclusion is limited to working-time provisions such as overtime pay, night-shift differential, and rest-day premiums. It does not remove other statutory protections that may still apply, including security of tenure and other employment rights under Philippine labour law.

Normal working hours are limited to 8 hours per day, excluding meal breaks. Employees are entitled to a meal break of at least 60 minutes, and work beyond eight hours attracts overtime pay. The Labor Code does not prescribe a maximum number of overtime hours, but employers must still comply with statutory rest-day and health and safety requirements.

Employees who work between 10:00 PM and 6:00 AM are entitled to an additional 10% of their regular hourly wage. The differential is paid in addition to any overtime or holiday premium that applies.

Philippine law distinguishes between regular holidays and special non-working days, each with different pay rules. Regular holidays generally entitle employees to full pay even if they do not work, while special non-working days usually follow a “no work, no pay” rule unless a company policy or CBA provides otherwise.

DOLE publishes annual Labor Advisories confirming the applicable holiday pay rules each year. 

The Philippines has no national minimum wage. Minimum wages are set by the Regional Tripartite Wages and Productivity Boards (RTWPBs), and employers must apply the wage order for the region where the employee works.

As of mid-2025, the National Capital Region rates under Wage Order NCR-26 are:

Eligible rank-and-file employees are entitled to a 13th-month pay equal to one-twelfth of the basic salary earned during the calendar year.

Formula

13th-Month Pay = Total Basic Salary Earned During the Calendar Year ÷ 12

Key rules

• Applies to rank-and-file employees who have worked for at least one month during the calendar year.
• Calculated using basic salary only unless the employment contract or CBA provides otherwise.
• Managerial employees are excluded under PD 851 unless the employer grants the benefit voluntarily.
• Must be paid on or before 24 December each year.
• Exempt from income tax up to ₱90,000 under the TRAIN Law.

Before hiring the first employee, register with:

• BIR: Employer Tax Identification Number (TIN) and income-tax withholding
• SSS: Retirement, sickness, maternity, disability, and death benefits
• PhilHealth: National health insurance
• Pag-IBIG Fund (HDMF): Provident savings and housing benefits
• DOLE: Establishment registration within 30 days of starting operations

DOLE registration remains valid unless the business changes its name, ownership, or location, or reopens after closure. Each business location must be registered separately.

The Social Security System (SSS), established under the Social Security Act of 2018 (Republic Act No. 11199), provides retirement, disability, sickness, maternity, and death benefits. For 2026, the combined contribution rate is 15% of the Monthly Salary Credit (MSC), shared between the employer and employee.

• Total contribution rate: 15% of the Monthly Salary Credit (MSC)
• Employer share: 10% of the MSC
• Employee share: 5% of the MSC
• Minimum MSC: ₱5,000
• Maximum MSC: ₱35,000
• Maximum employee contribution: ₱1,750 per month
• Maximum employer contribution: ₱3,530 per month (including Employees’ Compensation)

Employers must remit contributions by the last day of the month following the applicable month, based on the last digit of their SSS employer number. Late payments accrue 2% simple interest per month, and Republic Act No. 11199 also provides for fines, imprisonment, and personal liability for responsible corporate officers in cases of non-remittance.

PhilHealth operates under Republic Act No. 11223 (Universal Health Care Act). The premium rate for 2025-2026 is 5.0% of the monthly basic salary, held flat from 2025 with no hike for 2026. PhilHealth’s official advisory confirms the rate; Senate Bill 2620 (third reading August 2024) proposed revisions but has not been enacted as of June 2026. The PhilHealth Advisory PA2025-0002 sets the operational parameters.

Payment is due between the 11th and 15th day of the month following the applicable month. Late or non-remittance triggers 3% per month compounded interest, plus a ₱200 per affected employee per quarter surcharge for delayed RF-1 reports. Failure to register or to cover eligible employees attracts fines plus imprisonment of 6 months to 1 year.

The Pag-IBIG Fund, established under Republic Act No. 9679, provides members with provident savings and access to housing loans. Contribution rates are set out in HDMF Circular No. 460 and vary according to an employee’s monthly compensation. Key figures:

• Monthly compensation of ₱1,500 or below: Employee 1%, Employer 2% (3% total)
• Monthly compensation above ₱1,500: Employee 2%, Employer 2% (4% total)
• Maximum Fund Salary (MFS): ₱10,000
• Maximum monthly contribution: ₱200 each from the employer and employee (₱400 total)

Employers with fewer than 10 employees must remit contributions by the 10th of the following month. Employers with 10 or more employees have until the 15th of the following month.

Late or unpaid contributions accrue a 0.1% penalty per day (approximately 3% per month). The HDMF may also pursue collection through Warrants of Levy and Garnishment, and Republic Act No. 9679 provides for criminal penalties in cases of non-compliance.

The combined employer-side contribution burden across all three agencies is approximately 14.5% of gross pay for an employee earning above the SSS maximum MSC of ₱35,000 per month. The combined employee-side deduction is approximately 9.5% before income-tax withholding. Foreign employers modelling total employment cost in the Philippines should layer in the BIR withholding tax burden separately, since income tax flows to a different agency on a different deadline from the social-insurance stack.

Employers withhold income tax monthly via BIR Form 1601-C, remitted within 10 days after the end of each calendar month (15 January for December). The TRAIN Law (RA 10963), brackets effective from 2023 set personal income tax as follows:

Mandatory contributions to SSS, PhilHealth, and Pag-IBIG are deducted from gross pay before computing taxable income. The annual reconciliation is BIR Form 2316, due by 28 February of the following year.

Employees who have rendered at least one year of service are entitled to five days of paid leave per year under Article 95. Coverage excludes government employees, kasambahays (covered separately under RA 10361), managerial employees, field personnel, and those already enjoying at least five days of paid vacation. Unused SIL must be converted to cash at the end of the year at the employee’s current daily rate. SIL counts toward the computation of retirement pay under RA 7641.

The maternity leave mechanic creates a specific liability exposure: although SSS reimburses the 105 days, the employer must advance the full pay to the employee and then claim reimbursement from SSS. If the employer has missed SSS contribution remittances and the employee fails to qualify for SSS maternity benefits as a result, the employer remains liable for the full statutory pay without recourse to SSS. Late contributions and maternity claims compound into one of the most expensive misclassification or non-remittance scenarios.

Where an employer does not provide a retirement plan or retirement benefits under a collective bargaining agreement (CBA), Republic Act No. 7641 provides the statutory minimum.

Key rules

• Optional retirement: Age 60, with at least 5 years of service
• Mandatory retirement: Age 65
• Minimum benefit: One-half month’s salary for every year of service, with at least six months counted as one full year

For statutory purposes, one-half month’s salary equals 22.5 days’ pay (15 days’ salary, one-twelfth of the 13th-month pay, and the cash equivalent of 5 days’ Service Incentive Leave).

Formula: Minimum Retirement Pay = Daily Rate × 22.5 × Years of Service

Employers must communicate the standards for regularisation at the time of hiring. If they fail to do so, the employee becomes regular from day one. An employee who remains employed beyond six months without lawful termination also becomes a regular employee.

Employees performing work that is necessary or desirable to the employer’s usual business are generally treated as regular employees, regardless of the contract label. Courts look at the nature of the work rather than the title of the agreement.