The Philippines’ dynamic economy is rooted in the country’s labor market. The majority of the Philippine population comprises the young, attracting more foreign investors to venture into the country’s talent pool. Moreover, the Philippines’ archipelagic structure bears a lot of tourist spots for travelers and has contributed to the success of the country’s tourism industry.

Major Economic Hubs:

Manila, Cebu, Davao, Zamboanga, Cagayan De Oro, Baguio, And Vigan

Skills in Demand:

ICT Professionals, Marketing, Creative And Design Professionals, Customer Service Professionals, Sales And Retail Professionals, Logistics And Delivery Professionals

Resident Tax Information

Non-residents are taxed on their worldwide income, while residents of the Philippines must pay taxes only when whatever revenue comes into contact with them.

The income for residents in the Philippines is taxed progressively up to 35% and nonresidents are taxed at a flat rate of 25%.

The income tax for resident individuals in the Philippines is as below

Penalties : Late tax payments are subject to a surcharge as penalty that equals to

• 25% of the amount due

• An interest of 12% per annum.

The penalties are based on the unpaid amount of tax until fully paid.

Social Security

The Social Security System in the Philippines is a social insurance program and is staterun that covers

• Private
• Professional
• Informal employees

The Social Security System in the Philippines provides

1. Death benefits
2. Permanent disability benefits
3. Involuntary separation/unemployment benefits
4. Funeral benefits
5. Retirement and pension benefits
6. Maternity leave pay
7. Sickness benefits

The Employees' Compensation (EC) Program, started as a government initiative in 1975, provides double compensation to workers who have

• An illness
• Death benefits
• Accident during work-related activities

EC benefits are granted only to individuals/employees with employers other than themselves.

Employer and employee contributions to the social security funds in the Philippines are as below

Statutory Benefits

Statutory benefits are the mandatory benefits an employer has to provide to their employees. The labor laws in the Philippines set out these statutory benefits. The statutory benefits include

Social Security System (SSS)

The government of the Philippines created SSS to provide employees and their families in the private sector, protection against

• Disability

• Sickness

• Old age

• Death

Home Development Mutual Fund (HDMF)

The Home Development Mutual Fund (HDMF) was established in the Philippines to help Filipinos who are self-employed or employed by private companies get access into housing. The HDMF is like your traditional retirement savings account, but instead provides loans for purchasing homes which you can use as collateral if needed.

Philippine Health Insurance Corporation (PhilHealth)

The PhilHealth system is a practical means for employees to pay for adequate medical care in the Philippines.

The employer and the employee contribution to SSS, HDMF, and PhilHealth are as below

Coverage

• All employed individuals within the age of 60 and earn a monthly income of more than PHP. 1,000 are required to contribute to the three social insurance funds.

• However, membership is optional for self employed persons, Overseas Filipino employees (OFWs), and Non-Working Spouses (NWS).

• Foreign nationals working in the Philippines must also contribute to SSS, HDMF, and PhilHealth. Membership is mandatory unless exempt under some of the Philippines’ Totalization Agreements.
  

Employees who have been working for at least 1 month are entitled to a salary increase of 13th-month pay, no matter what kind or way in which they were paid.

Service incentive leaves

The Filipino labor laws mandate a service incentive leave as an employee's statutory benefit. According to Article 95, those who have rendered at least 1 year of services are entitled 5 days paid time off work for the purpose of doing volunteer activities or taking care personally other than what is prescribed by their job description.

Fringe Benefits

Fringe benefits are additional benefits that an employer provides to the employee above the employee's salary and statutory benefits. It serves as an excellent means to promote employee retention in an organisation. Fringe benefits effectively attract and retain talent and incentivize employees to meet goals and improve year-round performance.Most commonly provided fringe benefits provided to the employees in the Philippines include

• Product/service discounts
• Company-owned vehicles
• Flexible work schedules
• Meal vouchers
• Additional time off  
• Wellness programs
• Childcare benefits
• Supplementary life insurance, health insurance, and dental care

Exempt Benefits

Exempt fringe benefits in the Philippines include

• Expense for foreign travel

• Holiday and vacation expenses

• Educational assistance to the employee Life or health insurance benefits

Long-term Incentives

Long-term incentives are designed to improve long term employee performance and retention by rewarding key employees. The best way for companies provide these rewards, which can be in the form of stock based compensation or bonuses that encourage strategic goal achievement while ensuring they reward hard working individuals who put forth their absolute utmost efforts every day at work.

The most commonly offered stock options in the Philippines are

• Phantom stocks

• Roll-over stock options

• Cashless ESOPs

Although there are other types of stock options provided to employees, phantom stocks are the most common type of stock options provided to the employees.

Incentives provided by the government for businesses providing stock options to their employees

• A 30% income tax credit for a price reduction or discount towards the value of ownership of shares granted by employers

• Exemption from all kinds of taxation for ESOP transactions, including capital gains tax and taxes on dividend payback plans. However, the dividend payments must be kept for a minimum of 5 years

• Any retirement benefits, whether or not covered by an eligible tax plan, that are held in the ESOP for a minimum of 5 years, are exempt from corporate tax relating to ESOPs

• Under the Corporation Code for shares of stock, companies are exempt from the registration and transacting obligations of stock options. However, reporting of these stock options is mandatory

Termination Process

Letting go of an employee in the Philippines is by no means an easy task. Before you terminate one of your employees, you must follow The Labor Code of the Philippines. You can only dismiss an employee if:

They have behavioral issues such as:

• Incurred serious misconduct;
• Willful disobedience;
• Gross and habitual neglect of duty;
• Fraud or breach of trust;
• Commission of a crime or offense against the employer, his family, or representative;

Or the company is retrenching or expanding with the following reasons:

• Installation of labor-saving devices
• Redundancy
• Retrenchment to prevent losses
• Closure and cessation of business; and
• Disease / illness

Notice Period

The notice period before termination is up to 3 months.

Severance Pay

Terminated employees are entitled to a severance pay package adhering to The Labor Code of the Philippines. The computation of the severance pay depends on the cause of termination except relating to behavioral issues.

• One month pay or at least ½ month pay for every year of service whichever is higher (a fraction of 6 months is considered a whole year) including the available allowances with the position
• Separation pay is exempt from taxation