As the Human Resources Manager of a multinational corporation, you oversee a branch in the Philippines. Given its underperformance, headquarters has tasked you with completing a layoff plan for Filipino employees within a month. Feeling overwhelmed and unfamiliar with Philippine labor laws, you wonder how to accomplish this daunting task in such a short time.
Don’t fret. This article is tailor-made for you. We’ll guide you through Philippine labor laws and personnel systems, informing you how to conduct layoffs legally, reasonably, and efficiently to avoid unnecessary trouble and risks. Of course, we’ll infuse some humor and case studies to keep the learning process engaging.
Overview of Philippine Labor Laws
Philippine labor laws regulate the relationship between employers and employees, covering all employment-related matters in the country. These laws apply to all enterprises, joint ventures, and employment relationships between Filipino citizens and foreign companies.
Key aspects of Philippine labor laws include:
Employment Types: The Philippines recognizes five types of employment—regular/permanent, fixed-term, project-based, seasonal, and casual. Each type carries different rights and obligations, such as probationary periods, overtime pay, benefits, etc.
Working Hours: The Philippines mandates an 8-hour workday or a 48-hour workweek, with 24 consecutive hours of rest after every 6 days of work. Employees working beyond the prescribed hours are entitled to overtime pay at varying rates.
Minimum Wage: The Philippines sets different minimum wage standards based on region and industry. For non-agricultural industries in the Greater Manila Area, the minimum wage is 537 pesos. Wages must be paid every two weeks and cannot be disbursed in vouchers or tokens.
Holidays: The Philippines designates statutory holidays like New Year’s Day, Labor Day, and Independence Day. Additionally, employees with at least one year of service are entitled to five days of paid annual leave. Female employees can avail up to 105 days of full paid maternity leave per pregnancy.
Termination and Redundancy: Philippine law mandates termination only through proper procedures and for just or authorized causes. Just causes include serious misconduct, willful disobedience, fraud, etc. Authorized causes include installation of labor-saving devices, redundancy to prevent losses, cessation of operations, etc. Employees terminated for just causes are not entitled to separation pay, while those terminated for authorized causes are entitled to separation pay.
Calculating Personnel Costs in the Philippines
In addition to basic wages, employing workers in the Philippines incurs statutory and non-statutory personnel costs like income tax, social security, housing provident fund, health insurance, 13th-month pay, bonuses, etc.
According to data from Philippine and Fu Law Firm, employing a worker with a gross monthly salary of 18,000 pesos incurs approximately 28.6% in statutory benefits cost (including social security, housing provident fund, health insurance, etc.), plus around 7.7% in non-statutory benefits cost typically provided by local enterprises. Therefore, total personnel costs, calculated outside the basic wage, entail an additional 36.3% in personnel expenses.
A breakdown of personnel cost calculation is as follows:
Item | Percentage | Amount (Pesos)
Basic Wage | 100% | 18,000
Statutory Benefits Cost | 28.6% | 5,148
Non-Statutory Benefits Cost | 7.7% | 1,386
Total Personnel Cost | – | 24,534
Layoff Strategies in the Philippines
When conducting layoffs in the Philippines, compliance with local labor laws and attention to detail and strategies are crucial to avoid unnecessary disputes and losses. Here are some practical suggestions, along with real-life layoff cases, for learning from experiences and lessons.
Clearly Define Employment Contracts and Employee Handbooks Before Hiring
Employment contracts should clearly outline job standards and duties, while employee handbooks should specify rules regarding rewards and penalties. This prevents disputes arising from ambiguity or dissatisfaction later on.
For example, a foreign company in the Philippines hired a sales manager responsible for developing and managing the local market. During the probationary period, the sales manager failed to meet sales targets. The company decided to terminate the sales manager before the probationary period’s end, providing written notice explaining the termination reasons and granting a five-day rebuttal period. The sales manager made no rebuttal and demanded no compensation. The company smoothly completed the termination process and issued a termination certificate.
This case illustrates that in the Philippines, employers can terminate employees during probationary periods for underperformance, provided proper procedures are followed and performance standards and termination conditions are clearly specified in the employment contract or employee handbook. This avoids being seen as illegal termination or discrimination and avoids paying any separation or compensation.
Conduct Regular Performance Assessments and Counseling
Employers should not abruptly dismiss employees but should issue warnings through regular assessments or counseling sessions, indicating poor performance and the need for changes or company support. Written performance evaluations should be obtained with employee signatures to provide evidence for future terminations.
For instance, a hotel in the Philippines employed a front desk officer responsible for guest registration. The officer made multiple mistakes like forgetting to register guests, confusing room numbers, and mischarging. Despite several verbal and written warnings, along with training and counseling sessions, no improvement was seen. The hotel ultimately terminated the front desk officer for gross negligence, following proper procedures and providing ample evidence. The officer appealed, citing job stress as a reason for errors, and requested a second chance, but the hotel denied the appeal, proceeding with the termination process and issuing a termination certificate. Additionally, the hotel provided some career guidance and referral services to the officer, along with a small severance.
This case shows that in the Philippines, employers can terminate employees for gross negligence, provided proper procedures are followed, and sufficient evidence and records are provided. This avoids being seen as illegal termination or abuse and avoids paying excessive severance or compensation.
Provide Written Notices and Rebuttal Opportunities Before Termination
According to Philippine labor law, employers must provide written notices stating termination reasons and allow employees at least five days to respond upon receiving the notice. This ensures due process and respects employees’ legal rights.
For example, a local company in the Philippines operated a garment factory, facing losses due to intense market competition and rising costs. The company decided to shut down the factory and lay off all workers. Written notices explaining the layoff reasons were issued to all workers, granting them a month’s notice. The company also reported the layoff plan to the labor department and sought its opinion. After the notice period, the company paid all workers severance pay calculated based on each year of service multiplied by one month’s basic wage. The company also provided layoff certificates to all workers.
This case demonstrates that in the Philippines, employers can terminate employees for the purpose of preventing losses, provided proper procedures are followed, and adequate evidence and explanations are provided. This avoids being seen as illegal termination or unfair labor practices and avoids paying excessive severance or compensation.
Pay Severance and Provide Relevant Certificates After Termination
According to Philippine labor law, employees terminated for authorized reasons are entitled to severance pay. Severance pay is calculated based on each year of service multiplied by one month’s basic wage or half a month’s basic wage plus a 15-day additional subsidy (depending on the termination reason). Additionally, employers must provide termination certificates to indicate the end of employment. This prevents future disputes and lawsuits.
For instance, a foreign company established a call center in the Philippines but decided to close it due to business adjustments, relocating operations to another country. Written notices were issued to all call center employees, explaining the closure and granting them a month’s notice. The company also reported the closure plan to the labor department and sought its opinion. After the notice period, the company paid all call center employees severance pay calculated based on each year of service multiplied by half a month’s basic wage plus a 15-day additional subsidy. The company also provided closure certificates to all employees.
This case illustrates that in the Philippines, employers can terminate employees due to closure and cessation of operations, provided proper procedures are followed, and sufficient evidence and explanations are provided. This avoids being seen as illegal termination or unfair labor practices and avoids paying excessive severance or compensation.
Consider Cultural Differences and Emotional Management During Layoffs
Filipinos are generally sensitive and emotional, potentially reacting with anger, sadness, or defiance to terminations. Therefore, employers should maintain politeness, sympathy, and respect during layoffs, avoiding overly direct or offensive language and refraining from conducting layoffs in public or in front of other employees. If possible, employers can provide additional assistance or support, such as career guidance, recommendation letters, referral services, etc. This minimizes disgruntlement and resistance from terminated employees and maintains the company’s image and reputation.
For example, a restaurant in the Philippines employed a chef responsible for food preparation and service. The chef frequently arrived late, left early, was absent, or slacked off at work. Despite multiple verbal and written warnings, along with training sessions and counseling meetings, no improvement was seen. The restaurant ultimately terminated the chef for willful disobedience, following proper procedures and providing a written notice with a five-day rebuttal period. The chef appealed, attributing the performance issues to family problems, and requested a second chance. The restaurant rejected the appeal, proceeding with the termination process and issuing a termination certificate. Additionally, the restaurant provided some career guidance and referral services to the chef, along with some consolation money.
This case demonstrates that in the Philippines, employers should consider cultural differences and emotional management during layoffs, conducting communication and handling in a gentle and polite manner, and providing additional help or support when possible. This prevents being seen as illegal termination or abuse and minimizes larger conflicts or resentment.
Comparison with Domestic Layoffs in the Philippines
The layoff system in the Philippines shares some similarities with domestic practices but also exhibits differences. Here are some key points of comparison, along with real-life layoff cases, offering insights and lessons.
Reasons for Termination
Both the Philippines and domestic regulations stipulate just and authorized causes as grounds for layoffs. However, just causes in the Philippines focus more on individual behavior, while domestic just causes emphasize employees’ abilities and qualities. For example, in the Philippines, being unable to perform duties due to illness or disability for over six months is an authorized cause, whereas domestically, being unable to perform duties due to non-work-related illness or disability for the stipulated period is a just cause.
For example, a manufacturing company in the Philippines employed a mechanic responsible for machine maintenance. The mechanic accidentally injured his finger while working, rendering him unable to work properly. The company issued a written notice, citing termination due to inability to perform duties because of disability for over six months, and provided a five-day rebuttal period. The mechanic made no rebuttal, nor demanded compensation. The company smoothly completed the termination process and paid severance, issuing a termination certificate.
This case illustrates that in the Philippines, employers can terminate employees for inability to perform duties due to illness or disability for over six months, provided proper procedures are followed, and severance is paid. This avoids being seen as illegal termination or discrimination and prevents excessive compensation.
Termination Procedures
Both the Philippines and domestic regulations require employers to provide written notices and offer rebuttal opportunities before termination. However, notice periods in the Philippines are shorter, requiring only five days, while domestic notice periods are longer, at least thirty days. Additionally, in the Philippines, employers need not report layoffs to or apply for approval from the labor department, while domestically, employers must report layoffs to or apply for approval from the labor department and seek its opinion.
For example, an electronics company established a research center domestically, but decided to adjust research direction due to market demand changes and technological updates, resulting in layoffs of some researchers. Written notices were issued to all affected researchers, providing reasons for the adjustment and layoffs and granting them thirty days’ notice. The company reported the adjustment and layoffs plan to the labor department and sought its opinion. After the notice period, the company paid severance to all affected researchers and issued layoff certificates.
This case demonstrates that domestically, employers must provide at least thirty days’ written notice and offer rebuttal opportunities, as well as report layoffs to or apply for approval from the labor department. This ensures due process, respects employees’ legal rights, and prevents illegal termination or unfair labor practices.
Severance Costs
Both the Philippines and domestic regulations stipulate severance pay as compensation for layoffs. However, severance pay standards in the Philippines are lower, requiring one month’s basic wage or half a month’s basic wage plus a 15-day additional subsidy (depending on the termination reason) multiplied by each year of service, while domestic severance pay standards are higher, requiring one month’s average wage multiplied by each year of service (up to a maximum of twelve months). Additionally, in the Philippines, employees terminated for just causes are not entitled to severance pay, while domestically, employees terminated for just causes are still entitled to severance pay.
For example, a consulting company established branches in both the Philippines and domestically, but decided to close both branches due to strategic adjustments, resulting in layoffs of all consultants. Written notices were issued to all consultants, explaining the closure and layoffs and granting them a month’s notice. The company also reported the closure and layoffs plan to the local labor departments and sought their opinions. After the notice period, the company paid severance to each consultant, calculated as one month’s basic wage multiplied by each year of service. In the Philippines, each consultant received severance calculated based on each year of service multiplied by half a month’s basic wage plus a 15-day additional subsidy.
This case illustrates that in both the Philippines and domestically, employers must pay severance as compensation for layoffs. However, severance pay standards in the Philippines are lower than domestically, reflecting different orientations and balance points in labor protection and market flexibility between the two countries.
