Small Business Labor Law Philippines: Employer Compliance Guide

Quick answers

What am I legally required to pay?

• Minimum wage for your region, set by wage order of the Regional Tripartite Wages and Productivity Board. Wage orders are sometimes challenged in court, so confirm the operative rate with your regional board before adjusting payroll rather than relying on a news headline.
• Overtime — regular wage plus at least 25 percent of the hourly rate beyond eight hours on an ordinary day; at least 30 percent of the applicable rate on a rest day or holiday (Article 87).
• Rest day and special day premium — at least 30 percent; 50 percent where a holiday falls on a rest day (Article 93).
• Regular holiday pay — the regular daily wage even when unworked, twice the rate when worked (Article 94).
• Night shift differential — at least 10 percent of the regular wage per hour between 10:00 p.m. and 6:00 a.m. (Article 86).
• Service incentive leave — five days with pay after one year of service (Article 95).
• 13th month pay — one twelfth of total basic salary earned in the year, to every rank-and-file employee who worked at least one month, payable not later than 24 December (Presidential Decree No. 851).
• SSS, PhilHealth and Pag-IBIG registration, deduction of the employee share and remittance of both shares.

Use our take-home pay calculator guide and prorated 13th month calculator to sanity-check your own computations.

What are the current contribution rates?

• SSS — total 15 percent, split 10 percent employer and 5 percent employee, applied to a monthly salary credit between P5,000 and P35,000. This is the schedule set by Republic Act No. 11199 for 2025 onward and it continues to govern; SSS has not issued a separate 2026 rate.
• PhilHealth — 5 percent of monthly basic salary, shared equally between employer and employee, with an income floor of P10,000 and a ceiling of P100,000. Five percent is the final scheduled rate under Republic Act No. 11223 and remains in force for 2026.
• Pag-IBIG — employee 1 percent where the monthly fund salary is P1,500 or below and 2 percent above that, employer 2 percent at all levels, with the maximum fund salary at P10,000 — so a maximum of P200 each per month under the schedule effective February 2024.

One rule catches employers repeatedly: the employer share can never be recovered from the employee’s wages. Article 113 permits only three categories of deduction, and shifting your own counterpart onto staff is not one of them.

Does being small exempt me from anything?

Less than owners usually hope, and the exemptions are narrower than the myths:

• Retail and service establishments regularly employing less than ten workers are outside the holiday pay rule in Article 94, and establishments regularly employing less than ten employees are outside the service incentive leave rule in Article 95.
• A registered Barangay Micro Business Enterprise is exempt from the Minimum Wage Law under Section 8 of Republic Act No. 9178 — and from nothing else. The same section states that employees remain entitled to the same benefits as any regular employee, including social security and healthcare. The asset ceiling is total assets not more than P3 million excluding land, and registration with a Certificate of Authority is required.
• Wage order exemptions for distressed establishments, new business enterprises, small retail and service establishments and calamity-affected businesses exist but must be applied for and granted by the wage board, within a deadline counted from publication of the wage order’s implementing rules. Exemption is never self-declared.

13th month pay, overtime, night differential, premium pay and the three government funds have no small-employer exemption at all.

How do I dismiss someone lawfully?

Every valid dismissal needs both a lawful cause and correct procedure. Missing either one costs you the case.

Just causes (Article 297) are attributable to the employee: serious misconduct or wilful disobedience of lawful orders connected with the work; gross and habitual neglect of duties; fraud or wilful breach of trust; commission of a crime against the employer, his family or his representative; and analogous causes. The procedure is the twin-notice rule — a written notice specifying the acts or omissions complained of and giving a reasonable period to explain, a real opportunity to be heard, then a separate written notice of decision stating the facts and grounds relied on.

Authorized causes (Articles 298 and 299) are business-driven: installation of labor-saving devices, redundancy, retrenchment to prevent losses, closure or cessation of operations, and disease. Here the procedure differs: a written notice to the employee and to the DOLE Regional Office at least 30 days before the effective date, plus separation pay:

• Installation of labor-saving devices or redundancy — at least one month pay, or one month pay for every year of service, whichever is higher.
• Retrenchment to prevent losses, or closure not due to serious business losses — at least one month pay, or one-half month pay for every year of service, whichever is higher, with a fraction of at least six months counted as one year.
• Disease under Article 299 — at least one month salary, or one-half month salary for every year of service, whichever is greater, on the required medical certification.

In every dismissal case the employer carries the burden of proving that the dismissal was for a valid cause, by substantial evidence. See legal termination versus illegal dismissal, authorized cause termination and the mistakes that create illegal dismissal claims.

Can I deduct damages, shortages or a cash bond?

Almost never, and this is a common source of liability. Article 113 sets a closed list of lawful deductions. Article 114 prohibits requiring deposits for loss or damage except where the practice is recognised in your trade or the Secretary of Labor has determined it necessary — an exception DOLE has in practice extended to private security agencies, not to shops, restaurants or offices. Article 115 bars any deduction unless the employee has been heard and responsibility clearly shown, and the Omnibus Rules cap the deduction at 20 percent of the employee’s wages in a week.

DOLE’s guidance on allowable deductions treats company uniforms, cash deposits for loss or damage, and personal protective equipment as unauthorized deductions, to be refunded. Getting an employee to sign a policy in advance does not fix it — the Supreme Court rejected exactly that argument in Niña Jewelry Manufacturing of Metal Arts, Inc. v. Montecillo (G.R. No. 188169, 28 November 2011). Your remedy for a real loss is discipline or a civil claim.

Do I need a safety programme with only eight employees?

Yes. Republic Act No. 11058 and DOLE Department Order No. 198-18 apply to all establishments regardless of size. Even a low-risk workplace with fewer than ten workers must have a safety officer (an SO1, meaning an eight-hour OSH orientation plus a two-hour trainers’ training), an OSH committee, personal protective equipment provided free of charge, and the mandatory eight-hour workers’ OSH seminar, which must be at no cost to the worker and treated as compensable working time. Establishments must also register with DOLE.

The penalties are not nominal: wilful failure to comply draws an administrative fine of up to P100,000 per day until the violation is corrected, with P100,000 imposable where the violation exposes a worker to death, serious injury or serious illness, and a further 50 percent for repeat violations. See RA 11058 and occupational safety and health.

What will a DOLE inspection ask for?

Payroll and daily time records, employment contracts and company rules, proof of SSS, PhilHealth and Pag-IBIG registration and remittance, 13th month pay records, your OSH programme and safety officer’s credentials, and evidence that statutory benefits were actually paid. A useful discipline: assume every claim you would make in a hearing must be provable from a document you already hold. Our DOLE inspection document checklist sets out the full list.

One deadline often missed: employers must report 13th month pay compliance to the nearest DOLE Regional Office not later than 15 January of the following year.

What does getting it wrong actually cost?

For an illegal dismissal, Article 294 entitles the employee to reinstatement without loss of seniority rights and full backwages computed from the time compensation was withheld up to actual reinstatement — a figure that keeps growing while the case is pending, which is why early settlement through conciliation is usually cheaper than being right slowly. Unpaid statutory benefits are recoverable for three years back (Article 306). Separation pay in lieu of reinstatement is awarded where reinstatement is no longer viable.

Is a signed quitclaim the end of it?

Not automatically. Quitclaims are viewed with disfavour and are upheld only where the employee executed the waiver voluntarily, with a full understanding of what was given up, and for credible and reasonable consideration. A quitclaim signed under pressure, or for an amount far below what was legally due, will not bar a later claim. Compute the correct final pay first, document the computation, and let the employee see it. See release, waiver and quitclaim and the final pay calculator guide.

All employer compliance guides

Related: for discipline documentation and dispute handling in depth, see HR professionals. For worker classification and mandatory benefits when you are just starting out, see startup founders. Or return to all roles.

This page explains general rules under the Labor Code of the Philippines and DOLE issuances. It is legal information, not legal advice. Contribution schedules and wage orders change — verify current figures with SSS, PhilHealth, Pag-IBIG and your regional wage board before running payroll. See our Legal Disclaimer and Source and Citation Policy.