Drafting Employment Contracts and Employee Handbooks for Small Businesses in the Philippines: A Comprehensive Guide

1. Why these documents matter

For Philippine micro-, small-, and medium-sized enterprises (MSMEs)—which employ roughly 63 % of the country’s workforce—two written instruments keep the workplace both legally compliant and culturally healthy:

The Employment Contract – individual, enforceable, and the first line of defense in any labor dispute.
The Employee Handbook – a company-wide code that translates labor statutes into day-to-day rules and benefits.

Because the Philippines rejects “employment at will,” an employer who lacks clear written terms assumes almost all legal risk. Below is everything a Filipino business owner needs to know to draft both documents responsibly.

2. Governing legal framework

Source	Key Provisions Relevant to Drafting
1987 Constitution, Art. XIII	Security of tenure; humane conditions of work
Labor Code (PD 442, as amended)	Employment classifications (Arts. 295–299), hours of work (Book III), leaves and benefits (Book III), termination (Book VI)
Department of Labor and Employment (DOLE) issuances	E.g., D.O. 174-17 (contracting), D.O. 53-03 (drug-free workplace), D.O. 198-18 (OSH Rules)
Special laws	13ᵗʰ-Month Pay (PD 851); SSS Act 2018 (RA 11199); PhilHealth UHC Act 2019 (RA 11223); Pag-IBIG Fund Law (RA 9679); Expanded Maternity Leave (RA 11210); Safe Spaces Act (RA 11313); Data Privacy Act (RA 10173); Telecommuting Act (RA 11165)

3. The Employment Contract

3.1 Who must have a written contract?

Legally, an employer is not required to reduce every employment relationship to writing, but doing so is indispensable because:

The employer bears the burden of proof on terms and status.
Ambiguities are construed in favor of labor.
A written contract is a primary exhibit in DOLE inspections and NLRC cases.

3.2 Identify the correct employment status

Status	Test / Maximum Period	Typical Use in MSMEs
Probationary	≤ 6 months; standards for regularization must be written and communicated on day 1	“Try-out” for new hires
Regular	After successful probation; or immediately if the work is usually necessary or desirable in the business	Core staff
Project	Ends upon completion of a specific project; duration must be defined and tied to the project	Construction, IT builds
Seasonal	Recurrent, seasonal work (e.g., sugar milling)	Agriculture, tourism peak
Casual	Work not necessary or desirable and for a limited period; becomes regular after 1 year of aggregate service	Extra‐clerical jobs
Fixed-term	Allowed only under Art. 1191 of the Civil Code and jurisprudence (Brent case): voluntary, specific, reasonable length	Consultants, expatriates

Tip: Never label an employee “contractual” or “freelance” without matching the factual test above; mis-classification is illegal dismissal.

3.3 Essential clauses checklist

Parties and job title – use complete legal names.
Job description – attach as Schedule “A”; it proves the link between work and status.
Place of work & mobility – indicate possibility of remote or field assignments.
Commencement date and status – state probationary period and regularization standards.
Compensation – wage (daily/monthly), COLA, overtime rate, night shift differential, holiday premium, 13ᵗʰ-month pay, allowances in cash or kind.
Hours of work – regular schedule, compressed week or flexi-time if adopted (D.O. 02-04).
Statutory benefits – SSS, PhilHealth, Pag-IBIG, ECC, Pag-IBIG MP2 if offered.
Leave benefits – at minimum: 5-day Service Incentive Leave; maternity/paternity; solo-parent; VAWC; Magna Carta of Women “special leave”; other leaves you voluntarily grant.
Confidentiality & Data Privacy – cite RA 10173; require secure handling of personal data.
Inventions & IP – ownership of work-related IP, moral rights acknowledgment.
Non-competition & non-solicitation (optional) – must be reasonable in time (≤ 2 years), subject, and territory to be valid.
Grounds and procedure for termination – recite just causes (Art. 297) and authorized causes (Art. 298), and the two-notice rule (Twin Samson test: notice-to-explain → hearing → notice of decision).
Grievance and ADR – internal appeal, voluntary arbitration, venue (NLRC/DOLE region).
Whole agreement, amendments, severability, governing law (Philippines).

3.4 Formalities

Language: English, Filipino, or any dialect the employee understands; attach a translation if needed.
Signing: Both parties sign on every page; provide two originals; ask the employee to sign a “received” copy.
Retention: Keep contracts for at least 3 years after separation (Art. 305).
Reporting: No need to file with DOLE, but produce on request during routine labor inspections.

4. The Employee Handbook

4.1 Purpose

Codifies the “company rules and regulations” contemplated by Art. 297(c) of the Labor Code.
Serves as evidence of lawful cause and due process when imposing discipline.
Promotes transparency in compensation and benefits, fostering employee engagement.

4.2 Minimum content blueprint

Welcome statement & scope – clarify that the handbook forms part of every employment contract.
Employment classifications – mirror the statuses above.
Recruitment / selection – equal opportunity policy, background checks, data privacy notice.
Compensation & timekeeping – pay days, cut-offs, payslips, overtime approval flow.
Leaves & working-time arrangements – detailed matrix; include forms and filing deadlines.
Code of conduct – standards of behavior, dress code, attendance, conflict of interest.
Disciplinary matrix – list offenses (minor, serious, grave) and corresponding penalties with progressive steps.
Grievance procedure – timelines, hearing officers, voluntary arbitration clause.
Health, safety & security – OSH committee makeup, emergency plans, PPE policy, mental-health support.
Anti-Harassment & Safe Spaces – zero-tolerance statement; investigation protocol; confidentiality.
Drug-free workplace – random testing policy following D.O. 53-03.
Data Privacy & IT use – BYOD rules, monitoring of company email, CCTV notice.
Telecommuting / hybrid work – eligibility, productivity measures, expense reimbursements, right-to-disconnect.
Training & performance appraisal – schedule, KPI framework, coaching feedback loops.
Separation & clearance – resignation notice periods, turnover, exit interviews, release-and-quitclaim.
Amendment clause – management may revise with prior employee consultation and posted notice.

4.3 Mandatory stand-alone policies for all employers

Anti-Sexual Harassment Policy (RA 7877 & RA 11313) – must be posted on bulletin boards.
OSH Policy Statement & Annual Report (RA 11058, D.O. 198-18).
HIV Workplace Policy (RA 11166).
Breast-feeding Corner Policy if you employ > 100 women.

4.4 Drafting and approval workflow

Legal audit – list laws and DOLE orders that apply to your industry and headcount.
Policy drafting – start from a Philippine template; adapt to culture and resources.
Consultation – solicit comments from employees or the union (Art. 290).
Management approval – Board or sole-proprietor sign-off.
Orientation & receipt – conduct a handbook briefing; require signed acknowledgment.
Annual review – sync with new wage orders or statutes; issue Supplementary Circulars for urgent updates.

5. Best drafting practices for MSME owners

Practice	Why it matters
Use plain language and examples	Reduces later claims of misunderstanding
Align contract terms with handbook policies	Inconsistencies weaken your position in NLRC cases
Document regularization standards clearly	Required by Art. 296; otherwise, the employee becomes regular by default
Build a disciplinary matrix that is proportionate	SC decisions strike down unreasonably harsh penalties
Keep electronic and hard copies	RA 8792 (E-Commerce Act) recognizes electronic signatures if properly authenticated
Schedule manager training on due-process steps	The most common MSME violation is skipping the notice-to-explain stage
Update immediately when DOLE issues new wage orders	Handbook pay rates cannot go below the regional minimum wage

6. Frequent pitfalls (and how to avoid them)

Borrowing foreign templates that ignore Philippine benefits (e.g., “at-will termination,” 401(k)) → Always localize.
Vague probationary standards (“to be determined by management”) → Enumerate KPIs.
Fixed-term contracts used to avoid regularization → SC deems them in bad faith unless truly project-based.
Retroactive policy changes (“effective last month”) → Changes may only be prospective and with notice.
Failure to remit SSS/PhilHealth/Pag-IBIG → Corporate officers face criminal liability (RA 11199).
No DATA-PRIVACY consents for CCTV or biometrics → Risk of penalties up to ₱5 M per violation.

7. Implementation roadmap for a start-up café (illustrative)

Week 1: Gather statutory checklists; download DOLE sample forms.
Week 2: Draft 2-page probationary contract; define regularization KPIs (customer service score ≥ 90 %, zero unexcused absences).
Week 3: Draft 25-page handbook; include cash-tip pooling policy; circulate for comment.
Week 4: Finalize; owners sign; conduct orientation; employees sign contracts + handbook receipt.
Quarterly: Audit SSS/Pag-IBIG remittances; refresh wage table when NCR Wage Order updates.
Annually: Re-issue handbook with amendment sheet; retrain supervisors on disciplinary due process.

8. Conclusion

Employment contracts and handbooks are not bureaucratic burdens but strategic shields that:

Secure compliance with a fast-evolving Philippine labor landscape.
Anchor workplace culture by articulating rights and duties.
Minimize disputes through transparent rules and fair processes.

MSMEs that invest early in well-drafted documents can focus on growth rather than litigation. When in doubt, engage a Philippine labor-law specialist—court decisions and DOLE circulars shift frequently, and “template fatigue” is costlier than a proper legal review.

This article reflects Philippine law up to 8 June 2025 and is written for general informational purposes. It is not a substitute for individualized legal advice.