Employment Contract & Employee Handbook Compliance for Small Businesses in the Philippines
A 2025 practitioner’s guide
1 | Why this matters
Even a micro-enterprise with only one worker is an “employer” under the Labor Code. Failure to memorialise terms in writing or issue clear workplace rules does not just invite payroll disputes—it exposes the proprietor (often personally) to money claims, statutory fines, and even criminal liability for certain labour-social security infractions. A concise written contract and a well-structured handbook are your first layers of protection.
2 | Principal legal sources
| Instrument | Key points for SMEs |
|---|---|
| Labor Code of the Philippines (PD 442, as amended) | Definitions of employee status, working-time, leaves, wages, termination due process. |
| DOLE Department Orders (DO) & Advisories: DO 174-17 (contracting), DO 183-17 (construction projects), DA 02-04 (compressed workweek) | Flesh out Labour Code principles and impose reporting templates. |
| Social legislation: SSS Law (RA 11199), PhilHealth Act (RA 11223), Pag-IBIG Fund Law (RA 9679) | Compulsory coverage beginning on Day 1 of employment even for micro-enterprises. |
| 13th-Month Pay Law (PD 851); Wage Orders of the Regional Tripartite Wages & Productivity Boards | Mandatory benefits—not discretionary bonuses. |
| Special leave & welfare laws: Expanded Maternity Leave (RA 11210), Paternity Leave (RA 8187), Solo Parent Leave (RA 11861, 2022 update), VAWC Leave (RA 9262), Magna Carta for Women Special Leave (RA 9710) | A handbook must integrate eligibility & procedures or expect DOLE findings of non-implementation. |
| Occupational Safety & Health Standards (RA 11058 + DO 198-18) | Designate a trained Safety Officer even if only 1–9 workers (SO1 certification). |
| Telecommuting Act (RA 11165) & DOLE DO 237-22 | Written policy is mandatory before placing staff on WFH/remote arrangements. |
| Data Privacy Act (RA 10173) | Employee data processing requires privacy notices & access protocols, to be annexed to the handbook. |
| Anti-Sexual Harassment Act (RA 7877) & Safe Spaces Act (RA 11313) | SMEs must still constitute a Committee on Decorum & Investigation (CDI); failure is penalised. |
3 | Employment contracts: minimum must-haves
Parties & start date – use the worker’s full legal name; nicknames cause SSS mismatches.
Nature & status of employment
- Probationary (max 6 months) — include reasonable standards for regularisation (Art. 296).
- Fixed-term — state “mutually agreed period” and attach objective project description; avoid rolling renewals.
- Project/Seasonal/Casual — identify the specific project/season and clarify no expectation of continued employment.
Place of work & mobility clause – indicate if assignment to client sites is inherent in the job.
Work schedule & hours – regular daily schedule, meal break, overtime conditions, and reference to flexible/compressed schedules if applicable.
Wage & wage-related benefits – basic daily/monthly wage, payment interval, overtime/night-shift/premium pay formulae, 13th-month reference.
Statutory deductions – SSS, PhilHealth, Pag-IBIG, withholding tax.
Leaves & rest days – at minimum: Service Incentive Leave (5 days after 1 year), plus special leaves incorporated by reference to the handbook.
Probation, evaluation & regularisation process.
Code of Conduct / grounds for discipline – incorporate the handbook by reference; this satisfies “known to the employee” notice requirement.
Termination clause – enumerates just causes (Art. 299) and authorized causes (Art. 301), and states observance of twin-notice rule and hearing.
Confidentiality & data privacy, IP ownership (for creative/tech roles).
Conformé section – employee’s signature, date, and a witness line.
Tip: Use Filipino or English consistently. If employees are more comfortable in the vernacular, provide a Filipino translation or bilingual version to avoid claims of vitiated consent.
4 | Employee handbook: essential chapters
| Chapter | What to include | Compliance hook |
|---|---|---|
| Intro & coverage | Statement that handbook forms part of employment contract; amendment procedure. | Contract law (Art. 1159 Civil Code) |
| Recruitment & equal opportunity | Anti-age (RA 10911), anti-gender discrimination, no pregnancy tests unless job-related. | HR best practice + Anti-Age Discrimination Law |
| Hours of work & attendance | Daily schedule, OT approval flow, flexible schedule policy, timekeeping device rules. | Arts. 82-90 Labor Code |
| Compensation | Payroll cycle, payout channel, step-increases, deductions list, 13th-month formula. | PD 851 + DO 20-05 wage deduction rules |
| Benefits & leave administration | Matrix of paid/unpaid leaves, filing forms, documentary proof (e.g., SSS MAT-2). | RAs 11210, 8187, 11861, etc. |
| Code of Conduct & discipline | Enumerate offenses (minor, major, grave), progressive penalties, CDI composition. | Procedural due process (Art. 299) |
| Health, Safety & Emergency | OSH policy, PPE issuance, first-aider list, fire-exit map, mental-health referral. | RA 11036 Mental Health Act interplay |
| Anti-Harassment & Anti-Bullying | Definition of acts, complaint channels, protection measures, investigation timetable. | RA 7877, RA 11313 |
| Data privacy & electronic monitoring | CCTV notice, BYOD rules, data subject rights, retention schedule. | NPC Advisory 2021-01 |
| Remote work/field work | Eligibility, equipment stipend, log-in rules, right-to-disconnect window. | RA 11165 |
| Separation & final pay | Clearance process, turnover, final pay timeline (DO 173-17: 30 days), COE issuance. | DO 173-17 |
| Grievance & dispute resolution | Open-door policy, mediation steps, option for voluntary arbitration. | Art. 262, Labor Code |
5 | Records & filings checklist for SMEs
| Item | Retention / Deadline | Where to file / keep |
|---|---|---|
| DOLE Form 9 (employment data) | Within 30 days from first employee, update yearly | DOLE Field Office |
| Establishment Report under OSH (RA 11058) | Upon start & after every accident | Bureau of Working Conditions |
| SSS R-1 & R-3; PhilHealth ER1; Pag-IBIG ER1 | 30 days from first hire | Respective agencies |
| Payroll, payslips, time records | 3 years minimum | On-site (Art. 115 Labor Code) |
| 13th-month Pay Report | 15 Jan of the following year | DOLE |
| Contracts & personnel files | For as long as employment exists + 3 years | HR / secure cloud |
| Handbook acknowledgment receipts | Duration of employment | HR |
6 | Common compliance pain points
- “Verbal-only” probation – DOLE views the worker as regular from Day 1 if no standards were shown in writing.
- Using “consultant” labels for rank-and-file roles – Revenue and labor regulators pierce this easily; penalties include solidary liability of directors.
- Handbook copied from a foreign template – may violate Philippine rules on maximum hours (no “employment-at-will”), or fail to reflect local leaves and 13th-month pay.
- No reporting of compressed workweek – A 4x10 schedule is valid only with employee consent + DOLE notice; otherwise resulting overtime claims prosper.
- Failure to pay final wages within 30 days – DO 173-17 imposes ₱10 k – ₱100 k fines + restitution.
- Unremitted SSS/PhilHealth – criminal liability attaches personally to the managing officers; compromise is allowed but does not erase criminal aspect once information is filed.
- No Anti-Sexual Harassment policy/CDI – Safe Spaces Act now penalises the employer ⁓₱50 k-₱100 k even for first offense.
7 | Step-by-step startup kit for a new small business
Draft a one-page Employment Offer (salary, start date, probation standards).
Generate the full Employment Contract (see §3).
Compose the Employee Handbook sections (§4). Have each employee sign an Acknowledgment Receipt.
Register with SSS, PhilHealth, Pag-IBIG, and BIR (loose-leaf payroll books) within 30 days.
File DOLE Establishment Report & OSH Program.
Schedule mandatory training:
- SO1 (8-hr OSH orientation) for owner or supervisor;
- Anti-Sexual Harassment orientation for all staff.
Set-up payroll system: daily time records → payroll register → payslip → eGov contributions.
Calendar compliance dates (monthly contribution deadlines, Jan 15 13th-month report, annual Alpha List to BIR, etc.).
Review annually: wage orders, handbook amendments (issue memos & secure employee conformé).
8 | Best-practice drafting tips
- Use simple, reader-friendly language; DOLE inspectors favour clarity over legalese.
- Insert tables for leave entitlements in the handbook; employees grasp visuals quickly.
- Cross-reference handbook provisions in the contract instead of re-writing them; ensures a single source of truth.
- Adopt electronic signatures (E-Commerce Act & Supreme Court A.M. No. 01-7-01-SC) for remote onboarding—but keep the audit trail.
- Engage employees in policy formulation (OSH Law §12); meeting minutes showing consultation are useful evidence.
- Version control the handbook—stamp each page with revision date and maintain archived copies.
9 | Enforcement and dispute landscape
Small businesses rarely face class-action scale payroll suits, but single-claim NLRC cases (e.g., illegal dismissal) cost significant time and back wages. Written contracts and a well-applied handbook are your first line of defense to prove:
- the employee’s status (probationary, project-based, etc.);
- that performance standards were communicated;
- that disciplinary procedures satisfied twin-notice & hearing;
- the legality of wage deductions or offsetting; and
- that termination was for a just or authorized cause.
Failing any one of these, the employer risks an order for full back wages + reinstatement or separation pay in lieu—often dwarfing whatever savings were made by skipping documentation.
10 | Quick reference annexes
- Table A – Statutory monetary benefits (minimums, as of June 2025).
- Table B – Leaves & eligibility snapshot.
- Table C – Administrative fines under RA 11058, Safe Spaces Act, Data Privacy Act.
(Keep these tables updated each year; attach as appendices to the handbook rather than embedding in the main text so revisions do not invalidate the entire document.)
Conclusion
For Philippine SMEs, compliance is design, not paperwork. A clear employment contract and a living employee handbook integrate statutory duties, set employee expectations, and create a defensible HR system that scales as the business grows. Build them once—then review annually—and you transform labour-law risk from a perpetual fire-fighting exercise into a manageable routine task.