PHILIPPINES Trends and Developments Contributed by: Clarence Darrow C Valdecantos and Gilyen Ezra Marie L Li-Nulud, ACCRALAW
ACCRALAW 22nd Floor, ACCRALAW TOWER 2nd Avenue corner 30th Street Crescent Park West Bonifacio Global City, 1635 Taguig Metro Manila Philippines Tel: +632 8830 8000 Fax: +632 8403 7007/+632 8403 7009 Email: accra@accralaw.com Web: www.accralaw.com
Engagement of Employers of Record With the prevalence of cross-border services, for - eign companies have resorted to the engagement of Employers of Record (“EOR”) as a means to hire Philippine-based workers without having to establish a separate local entity. Although it is a recent practice in Philippine labor and employment, the engagement of EORs, in and of itself, may be considered a job contracting arrangement governed by Articles 106 to 109 the Labor Code of the Philippines (“Labor Code”), as implemented by Department of Labor and Employ - ment (“DOLE”) Department Order No 174, series of 2017 (“DO 174”). Among the salient provisions of DO 174 is the prohibi - tion against labour-only contracting, which refers to an arrangement where the contractor merely recruits, supplies or places workers to perform a job or work for a principal, and where the following elements are present: • the contractor does not have substantial capital or investments in the form of tools, and the employ - ees recruited are performing activities which are directly related to the main business operations of the principal; or • the contractor does not exercise the right to control over the performance of the work of the employees. DO 174 likewise requires the registration of a job contractor with DOLE and prescribes mandatory stipulations in the Service Agreement between the
contractor and the principal and the Employment Contract between the contractor and the employees. A labour-only contracting arrangement, which is pre - sumed to exist in the absence of a DOLE certificate of registration, or the failure to enforce contracts that are in accord with the formalities required by DO 174, renders the principal liable as a direct employer of the contracted personnel. While an EOR may have operating capital and work tools sufficient to maintain a physical office and/or host its workers, how it conducts business tends to signify the existence of the second element of labour- only contracting, in that control over performance of the work is expressly ceded to the foreign client. By contract, the EOR is only obligated to perform clerical or administrative support tasks for its client, including the payment of mandatory contributions to the Social Security System, Philippine Health Insurance Corpo - ration, and Home Development Mutual Fund, and the withholding and remittance of employee income taxes to the Bureau of Internal Revenue, all of which are only feasible if the employer has a local presence. The engagement of an EOR may also be tested against the four-fold test, which is used to determine the existence of an employer-employee relationship. The elements of the four-fold test are: • selection and engagement of the employee; • payment of wages; • power of dismissal; and
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