Startup Labor Law Philippines: Hiring, Contractors and Employee Benefits

Quick answers

Can I just hire everyone as an independent contractor?

Not if you intend to direct how the work is done. Philippine tribunals apply the four-fold test — selection and engagement, payment of wages, power of dismissal, and the power of control over the means and methods of the work, the last being most determinative — supported where necessary by an economic dependence analysis. The Supreme Court has stated squarely that the protection of the law afforded to labor precedes over the nomenclature and stipulations of the contract (Ditiangkin v. Lazada E-Services Philippines, Inc., G.R. No. 246892, 21 September 2022).

If your “contractor” keeps your hours, uses your tools and systems, follows your process, reports to your standup and cannot work for a competitor, the label will not survive scrutiny. Misclassification is not a paperwork error — it means unpaid statutory benefits recoverable for three years (Article 306), potential backwages and reinstatement on any termination, and exposure under Republic Act No. 11199, which imposes a 2 percent per month penalty on delinquent SSS contributions and criminal penalties for non-remittance. See employee versus independent contractor and the four-fold test.

How does probationary employment actually work?

Probation is capped at six months from the date the employee started working, unless a longer period is covered by an apprenticeship agreement (Article 296). The condition founders miss is this: the employer must communicate the reasonable standards for regularization to the employee at the time of engagement. Where those standards were not made known at hiring, the employee is deemed a regular employee from day one — and can then only be dismissed for a just or authorized cause.

A probationary employee may be terminated for a just cause, or for failure to qualify against the standards made known at engagement, with notice. Letting a probationer work past the sixth month makes them regular by operation of law. Write the standards into the offer, make them measurable, and evaluate in writing before month six — not on the last day. See the six-month probationary period.

When does someone become a regular employee?

Under Article 295, an employee is regular where engaged to perform activities usually necessary or desirable in the usual business or trade of the employer, regardless of any written agreement to the contrary. The exceptions are genuine project employment, where the specific undertaking and its completion were determined at engagement, and seasonal work. A casual employee who has rendered at least one year of service, continuous or broken, becomes regular with respect to the activity performed. For a startup this means your core engineers, designers and operations staff are almost certainly regular employees regardless of the contract template you used. See Article 295 on regular employment.

Do fixed-term or project contracts solve this?

Only where they are genuine. A fixed-term contract is valid where the term was knowingly and voluntarily agreed by parties dealing on more or less equal footing, without the employer exercising moral dominance over the employee. Where the fixed term is simply a condition of getting the job, and the work is necessary or desirable to your usual business, Article 295 makes the worker regular whatever the end date says. Project employment requires that the specific project and its duration be identified and made clear at the time of hiring. See when fixed-term employment is valid and project employment.

Which government registrations and contributions are mandatory?

• SSS — total 15 percent, split 10 percent employer and 5 percent employee, on a monthly salary credit between P5,000 and P35,000 under the schedule set by Republic Act No. 11199 for 2025 onward, which continues to govern.
• PhilHealth — 5 percent of monthly basic salary shared equally, with an income floor of P10,000 and a ceiling of P100,000, the final scheduled rate under Republic Act No. 11223.
• Pag-IBIG — employer 2 percent and employee 1 or 2 percent depending on fund salary, with the maximum fund salary at P10,000, so up to P200 each per month under the schedule effective February 2024.
• 13th month pay — one twelfth of total basic salary earned, to every rank-and-file employee with at least one month of service, payable not later than 24 December, with the compliance report due to DOLE by 15 January.
• DOLE establishment registration and an OSH programme under Republic Act No. 11058 and Department Order No. 198-18 — yes, even for a ten-person office.

Useful for budgeting: 13th month pay and other benefits are exempt from income tax only up to a combined ceiling of P90,000 under Republic Act No. 10963; the excess is taxable compensation. See the take-home pay calculator guide.

Can I pay in equity instead of cash while we are pre-revenue?

Not as a substitute for wages. Article 102 requires wages to be paid in legal tender, and expressly prohibits payment by promissory notes, vouchers, coupons, tokens, tickets, chits or any object other than legal tender even when the employee expressly requests it. Wages must also be paid at least once every two weeks or twice a month at intervals not exceeding sixteen days (Article 103). Equity, options and profit shares are lawful on top of a compliant cash wage that meets the applicable regional minimum — never instead of one. A deferred-salary arrangement with employees is a wage claim waiting to be filed, and it prescribes only three years after it accrues.

We are fully remote. What does that require?

Republic Act No. 11165, the Telecommuting Act, and its revised implementing rules, DOLE Department Order No. 237-22, govern remote work in the private sector. Telecommuting must be voluntary and reduced to a written programme or agreement, and the fair treatment rule requires that a telecommuting employee receive pay including overtime and night shift differential not lower than that provided by law, the same rest days, holidays and leaves, the same or equivalent workload and performance standards as comparable on-site staff, the same training access and the same collective rights.

DO 237-22 requires the written programme to cover eligibility, acceptable alternative workplaces, minimum hardware and software standards, occupational safety and health including mental health programmes, performance standards, a code of conduct, data protection, emergency protocols, duration and dispute resolution — and it requires notice to DOLE through the Establishment Report System. Remote work cannot diminish existing terms of employment. See work-from-home laws.

Can we withdraw a job offer before the start date?

Less freely than most founders assume. Once an offer has been accepted, a contract of employment can be perfected even though work has not yet begun, and a unilateral withdrawal can be treated as a dismissal rather than a mere change of plans — with the usual consequences. If your headcount plan is uncertain, make the offer expressly conditional on identified contingencies before it is accepted, rather than retracting afterwards. See cancelling a job offer after acceptance.

What are our data privacy obligations from day one?

Republic Act No. 10173 applies to applicant and employee data as much as to customer data: every processing activity needs a lawful basis, must be proportionate to a legitimate purpose, and must be transparent to the data subject. Organisations meeting the criteria must appoint a Data Protection Officer and register with the National Privacy Commission. For a startup the practical minimum is a privacy notice for applicants and staff, a retention schedule, access controls on HR files, and a written basis for any monitoring you deploy. See when a DPO is mandatory and the Data Privacy Act at work.

All guides for founders and early-stage employers

Related: for the full payroll and termination compliance floor, see small business owners. For due process documentation once you have a real HR function, see HR professionals. Or return to all roles.

This page explains general rules under the Labor Code of the Philippines and related statutes. 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. See our Legal Disclaimer and Source and Citation Policy.