PHILIPPINES Law and Practice Contributed by: Kerwin K. Tan, Veronica S. Balbin and Jose Maria B. Buenagua, Tan Hassani and Counsels
tions and limitations and the choice would ultimately depend on the type of activity the foreign company would be carrying out in the Philippines. Each type would also have different tax implications and, with the right preparation, even tax exemptions. Therefore, it is important to properly structure the entity of the foreign company and prepare all requirements for a seamless transfer of employees (including setting up a payroll system and managing social contributions). It is not unusual for a foreign company to start off with either the first or second method. However, as their operations grow and the need for greater control over staff increases, many companies gradually transition to establishing their own Philippine entity. This third method often becomes more cost-effective in the long run, especially with a larger workforce. The transition to the third method usually involves the migration and transfer of employees from the EOR or as independent contractors to the foreign company’s own Philippine company. Under Philippine laws, corporations enjoy separate and distinct juridical personalities, and employees have the right to security of tenure. Thus, the transfer of employees from the EOR may require the termina - tion of employees from the EOR and the payment of separation pay, which could be added to the costs charged to the foreign company. However, it is also possible to maintain the employees’ tenure by trans - ferring them to the foreign company’s Philippine entity by recognising their tenure from their EOR employ - ment to the new Philippine entity. Careful legal and procedural handling of these transfers is essential. When using the EOR model, the arrangement should be structured so that the EOR is clearly acting as the legal employer in the Philippines and not as a con - tractor of services. This helps avoid any finding of labour-only contracting, which can arise if the foreign company exercises direct control over the employ - ees and the EOR lacks sufficient capital, equipment, or independence. Contracts should clearly define the EOR’s role, reporting lines, and responsibility for payroll, taxes, and social contributions. Where opera - tions transition to a local entity, employee transfers should be carefully documented through termination
and rehire or novation, with recognition of tenure if intended, along with the continued granting of ben - efits and timely release of final pay. It is also prudent to address compliance matters such as permanent establishment risk, restrictions under the Anti-Dummy Law, immigration requirements for foreign managers, and data privacy obligations. 5.2 Role of Trade Unions or Workers’ Councils Under current Philippine laws, trade union or work - ers’ council consultation is not required for outsourc - ing. Whether negotiations are required or not would depend on the collective bargaining agreement in force between the company and its employees (if any). At present there is only one network of BPO employees called the BPO Industry Employees Network (BIEN) which currently lobbies for the support of legislation concerning the Union Interference Bill, which seeks to strengthen organising unions in the BPO industry. There is currently no specific law governing consulta - tion or worker councils for outsourcing in the BPO sector, but proposals continue to emerge in Congress aimed at enhancing employee participation and pro - tecting union rights. Monitoring such developments is important, as future legislation could introduce man - datory consultation or notification requirements for outsourcing arrangements. 5.3 Offshore, Nearshore and Onshore Hailed as the “call centre capital of the world”, the Philippines continues to be a preferred service pro - vider for offshore outsourcing. In November 2023, the Information Technology-Business Process Man - agement Association of the Philippines (IBPAP) pro - jected a 7% revenue growth rate in the BPO industry for 2024. 5.4 Remote Working There are three important factors to consider with regard to remote working in a BPO company. First, the Implementing Rules and Regulations of Republic Act No 11165 (“Telecommuting Act”) man - date employers to notify the Department of Labor and Employment of the implementation of telecom - muting work through the Establishment Report Sys -
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