Comprehensive guide to payroll salary compensation, benefits, and allowances in the Philippines
Solo parents are also entitled to a 7-day leave, as long as they have been working for the company for at least a year.
Different kinds of leaves in the Philippines
Every employee who has stayed with the company for least 1 year is entitled to a service incentive leave (SIL) with 5 days of pay. This leave may be used for sick leaves and vacation leaves. At the end of the year, unused SIL may be converted to cash.
• Parental leaves
There are 3 kinds of parental leaves. These are:
- Maternity leave – A pregnant employee is entitled to a 60-day maternity leave for a normal delivery or miscarriage or to up to 78 days for a cesarean delivery. This leave is applicable to up to 4 pregnancies. During this type of leave, the employee receives a fraction of her regular monthly salary, which the SSS will reimburse to the employer. The leave may take effect at least 2 weeks before the employee’s due date.
- Paternity leave – Married male spouses are entitled to a paternity leave of up to 7 days for when their legitimate spouse, whom they are living with, delivers or miscarriages. Paternity leaves are shouldered by the company and applicable to up to 4 pregnancies.
- Solo-parent leave – Solo parents who have been with the company for at least a year are entitled to 7 leaves per year.
• Other leaves
- Gynecological leave – This leave, which follows a surgery that addresses gynecological disorders, is for employees who have rendered at least 6 months of service in the past 12 months. It entitles the employee to a special 2 month leave benefit with full pay.
- Leave for women and their children who are victims of violence – Victims of violence are entitled to a special paid leave of up to 10 days, but it can be extended as needed.
Work hours, jobs, and rates
The normal and allowable working hours in the Philippines is 8 hours per day. If employees are required to work beyond those hours, then it is the company’s responsibility to pay them additional fees for the hours rendered. 40 hours is the maximum per week, although the law allows companies to employ part-time employees, which usually work less than 8 hours (usually half the time, which is 4 hours). The usual overtime rate in the Philippines is 25% of the hourly pay rate during regular work days, and 30% of the hourly rate during rest days, regular, and special holidays.
Every employee in the Philippines is entitled to overtime pay, except for the following: managerial personnel, piece rate workers, government employees, house helpers, and non-agricultural field personnel.
In the Philippines, employees are subject to receiving a “night differential pay”. Since most BPO clients are from the USA or the UK, most of the employees come to the office at night. This is the reason why employees receive an additional 10% if they work between the hours of 10 PM – 6 AM. They receive the ND on top of their regular pay, and sometimes, it even comes with a “hazard pay” to cover the employee for coming in at night.
The minimum wage is based on a workweek of 40 hours or 8 hours per day. The 60-minute lunchbreak that employees have daily is not counted as a work hour and is not compensated. Overtime pay is given to employees if they need to work beyond the regular 8-hour work shift.
- On regular days, employees should get an extra 25% of their hourly pay rate for every overtime hour rendered.
- On rest days and regular or special holidays, they should get an extra 30% of their hourly rate on that specific rest day or holiday for every extra hour rendered.
Employees that report for work on rest days and special holidays receive premium wages. There are 3 special holidays in the Philippines: Ninoy Aquino Day, All Saints Day, and the Last Day of the Year.
- On rest days or special holidays, employees get an additional 30% of their daily basic rate.
- On rest days that also fall on special holidays, employees get an additional 50% of their daily basic rate.
- On regular holidays that also fall on rest days, employees get an additional 30% based on their regular holiday rate of 200%.
“No work no pay” is a principle that applies on special non-working holidays and other special days proclaimed by the President of the Philippines. This means that employees who take time off work on holidays that are declared “no work no pay” will not be getting paid for that date.
Philippine holidays and payments in outsourcing
The Philippines is a very festive country and therefore, we have a lot of holidays listed every year. There are two types of holidays in the Philippines: Special and Regular. It is the company’s discretion if they want their employees to come in during a regular or special holiday.
If they decide to have the employees come to work during a special holiday, then they must pay the employee an additional 30% on top of their regular daily pay. For regular holidays, the company must pay the employee double of their regular daily pay, if they ever decide to have the employee come in during that specific regular holiday.
For both regular and special holidays, the company must pay the employee even if they do not come to work during that day, as long as both parties have agreed to it. In the Philippines though, BPO employees are used to coming to work during holidays, as this is usually what BPO companies require. The Philippines, USA, Australia, and the UK have different sets of holidays and thus, it is the company’s discretion which set of holiday they want the company and its employees to follow.
The 12 regular holiday days listed about are really just the tip of the iceberg. In practice, there can be as many as 25-30 holiday days in a year. Once you add an employees annual holiday, and sick-leave allowance (it’s worth noting here also that sick leave rates are generally higher in Philippines than a lot of other countries) – it can start to have a dramatic impact on productivity.
The holiday ‘system’, can also be slightly confusing, as some special holidays can be announced only days or weeks before the day, other holidays can be isolated or localised to different areas, or communities (ie just a part of Manila), and some holidays are celebrated holidays, but aren’t non-working days.
When outsourcing to the Philippines, the holiday policies really need to be discussed and understood in advance. Mastering Philippines holidays is one thing, but it gets even more complex when you are coordinating the Philippines holidays with another countries holidays.
Unless a conscious, pragmatic approach to holidays is taken, you can really lose a lot of productivity. Not only that, it is not uncommon for workplace frustrations and jealousy to occur as a result of one team (in one country) getting more holiday than another team (in another country).
On the upside, the outsourcing industry is very familiar with working shift work, and commonly covering all holidays (even Christmas if necessary). The employer has to pay higher rates for people working on holidays, but this can often be a win-win, as the employees appreciate the extra pay, and the bump in pay, really isn’t that significant for most Western employers.
The key is to be aware of the holidays (in both countries), and be clear about a holiday policy. So that you can be clear, the employer needs to know what their needs are for their business, and clients. Many people come to Philippines because of a 24/7 customer support need. So in that case, it is obvious that a full cover is needed regardless of holidays. Others might just want Monday to Friday – and available for all working days in their ‘home country’.
Holidays are not a major hurdle, if you are aware in advance, and make good policies to manage them.
Employees that don’t go to work on a regular holiday are entitled to their basic daily wage. Should they report for work on that day and render a complete 8-hour shift, they are entitled to 200% of their daily wage. If the holiday falls on a rest day, employees get an additional 30% based on their holiday rate, which totals to 260% of their regular daily rate.
There are 12 regular holidays in the Philippines. These are:
- New Year’s day
- Maundy Thursday
- Good Friday
- Araw ng Kagitingan
- Labor Day
- Independence Day
- National Heroes’ Day
- Eidl Fitr
- Eidl Adha
- Bonifacio Day
- Christmas Day
- Rizal Day
Night shift differential
Employees who are scheduled to work between 10pm to 6am are entitled to an additional 10% premium for every regular work hour.
13th month pay
The 13th month pay is a taxable and mandatory benefit that employers must provide their employees. This is usually given to managerial and rank and file employees during the 11th or 12th month of every year (but no later than December 24th of every year).
The employee must be working for at least one month for the company for them to be able to receive their thirteenth-month pay
According to DOLE, the thirteenth-month pay must not be less than 1/12 of the employee’s basic salary for the whole calendar year. Separated and resigned employees are entitled to a pro-rated 13th-month pay, which will usually be included in their back pay
The 13th month pay is different from a Christmas bonus, while the 13th month bonus is mandated by law, the Christmas bonus is a separate payout and entirely up to the employer if they wish to do so or not. The Christmas bonus can come in other non-monetary forms such as Gift Certs, Christmas Baskets, team building activities, etc
Gross benefits and de minimis benefits
Gross benefits include 13th month pay, Christmas bonuses, incentive and productivity bonuses, and other benefits, in cash or in kind, of the same nature. These are exempt from tax as long as the total amount falls below PHP 90,000 or around USD 1,738.
• De minimis
De Minimis benefits are usually what companies that have outsourced in the Philippines choose to reward their employees. It is much easier to give, and seem more thoughtful since the gifts seem to be more personal. The employees often get motivated with de minimis benefits as well, because aside from their salaries, they get extra pampering from their employers.
- Medical cash allowance for dependents, or a discounted or completely free of charge medical health card
- More or less 10 days vacation and sick leave
- Parental leaves including maternity, paternity, and solo parent leaves
- Emergency Leaves (company’s discretion)
- If the vacation leaves are unused, some or all of it can be converted to cash
- A total of 1,500 PHP for rice subsidy, or one sack of rice every month
- Clothing allowance (not exceeding 5,000 PHP per year)
- Medical benefits including a health card (the annual limit will always depend on the company and the plan)
- Laundry Allowance
- Additional employee achievement awards (these are very common in the BPO industry, as companies usually form teams made up of call centre agents and whoever hits the target or goes beyond it usually gets bonuses and incentives). It can be in a form of a tangible personal property, cash, or gift certificates
- Daily meal allowance in case the need for overtime work arises
Companies in the Philippines usually offer help to their employees regarding loans. The employee must be staying with the company for more than 6 months though, and they have to be regularized. Employees can apply for automobile, housing, and even business loans with the help of their company. A certain amount shall be deducted from the employee’s salary every month to cover the fees for the loan.
Employees must be careful when applying for loans though, as they have to make sure that they can pay the monthly contribution. Failure to pay can lead to huge interest rates and penalties, which can be much harder to pay off.
• Separation and retirement
Every single employee in the Philippines must be given their separation and retirement pay once they decide to cease their employment with the company that they are working for.
According to articles 283 and 284 of the labor code of the Philippines, an employee is entitled to claim their separation pay if their contract ended or has been seized under authorized causes. Employees who are terminated due to negligence, crime, fraud, or broke a rule from the contract and the law are not entitled to a separation pay.
Separation pay for ½ month pay can be claimed due to the following circumstances:
- The employee contracted an incurable and infectious disease which can be hazardous to other employees, thus leading to cessation of contract
- The business and/or company recently experienced serious losses or financial difficulties, thus leading to cessation of operations
- Loss prevention or retrenchment of person
Separation pay for 1-month pay can be claimed due to the following authorized causes:
- Employee and/or task redundancy
- Labor-saving devices
- When the company cannot reinstate the employee for reasons beyond the employer’s control
Both the employer and the employee has the right to terminate the written contract anytime through a written notice. Both the employer and employee shall give a 30-day notice before the contract cessation date
Employees who have reached the age of 60 have the option to retire. When they reach the age of 65 though, retirement is compulsory
Retirees must have served the company for 5 years and above for them to be qualified to receive a retirement pay. The pay must be equivalent to ½ of a month’s salary for every year of service. Each ½ month salary must include 15 days of salary based on the last pay, ½ of the 13th-month pay and five days of incentive leaves
Both separation and retirement fees are only made possible if you have your own business set up in the Philippines. Otherwise, the third-party BPO company will be the one to take care of such
A lot of companies in the United States, the United Kingdom, Australia, and other countries have tried outsourcing in the Philippines, and the success rate is amazing. According to Credit Donkey, over 90% of the companies look into outsourcing to cut costs. They have tried it, and the never looked back
A closer look at mandatory deductions and benefits
Every month, taxes and mandatory benefits are deducted from an employee’s basic salary. These are:
The enactment of the TRAIN Law in early 2018 resulted in the lowering of the personal income tax. Employees who are earning up to PHP 250,000 or USD 4,829 are exempted from paying tax. The Department of Finance (DoF) has a convenient calculator that can help employees find out their deductibles, including how much they have to contribute to the SSS, PhilHealth, and HDMF.
• Social Security System
The Social Security System or SSS is a mandatory social insurance program run by the state and provides various benefits to all professional, private, and informal employees in the country. SSS members can use the following benefits:
- Sickness – Members will receive a daily cash allowance if they are not able to work due to illness or injury.
- Maternity – Female members who are unable to work due to pregnancy or miscarriage are granted a daily cash allowance.
- Disability – Members who have become partially or totally and permanently disabled will receive cash benefit in the form of a monthly pension or a lump sum amount.
- Retirement – Members who can no longer work due to old age are granted a cash benefit in the form of a monthly pension or a lump sum amount.
- Death – This cash benefit, which can come in the form of a monthly pension or a lump sum amount, is granted to the beneficiaries of a deceased member.
- Funeral – This cash benefit is given to whoever paid the burial expenses of a deceased member.
- Salary loan – This cash loan is granted to currently paying voluntary, self-employed, and employed members.
Government employees have their own version of the SSS, which is the GSIS or Government Service Insurance System.
PhilHealth covers the employee’s additional medical expenses. This is mandatory and automatically deducted from your monthly pay. Just like SSS contributions, both the employer and employee are tasked to pay PhilHealth contributions each month.
- A closer look at BPO industry wages
- Country-based salary comparisons
- Wages in the Philippines
- Work hours, jobs, and rates
- How employment via outsourcing can benefit your business