In the Philippine labor landscape, the "Agency-Hired" arrangement—legally referred to as Contracting or Subcontracting—is governed primarily by the Labor Code of the Philippines and Department Order No. 174, Series of 2017. A common misconception is that because an employee works at a "client’s" premises, their social protections are optional or different.
Under the law, the Contractor (the Agency) is the employer. Consequently, they bear the primary legal obligation to provide mandatory statutory benefits: SSS, PhilHealth, and Pag-IBIG.
1. The Social Security System (SSS)
Legal Basis: Republic Act No. 11199 (Social Security Act of 2018)
The SSS provides a replacement of income lost on account of contingencies such as sickness, maternity, disability, retirement, and death.
Compulsory Coverage: All employees not over 60 years of age are subject to compulsory coverage from the first day of their employment.
The Shared Contribution: The monthly contribution is based on the employee's Monthly Salary Credit (MSC). As of the current schedule, the total contribution rate is 14%.
Employer Share (Agency): 9.5%
Employee Share: 4.5%
Agency Obligation: The agency must deduct the employee’s share from their wages and remit it, along with the employer’s share, to the SSS. Failure to remit constitutes a criminal offense (Estafa) and subjects the agency to a 2% monthly penalty on unpaid dues.
2. PhilHealth (NHIP)
Legal Basis: Republic Act No. 11223 (Universal Health Care Act)
PhilHealth ensures that all Filipino citizens have access to health services without suffering undue financial hardship.
- Mandatory Enrollment: All formal sector employees, including those hired through agencies, must be enrolled.
- Premium Rates: Under the UHC Law, the premium rate has been gradually increasing. For 2024-2025, the rate is set at 5% of the basic monthly salary.
- Split Contribution: The premium is divided equally (50/50) between the Agency and the Employee.
- Salary Floor and Ceiling: There are established monthly salary caps (e.g., ₱10,000 floor to ₱100,000 ceiling) which dictate the minimum and maximum premiums payable.
3. Pag-IBIG Fund (HDMF)
Legal Basis: Republic Act No. 9679 (Home Development Mutual Fund Law of 2009)
Commonly known as the Pag-IBIG Fund, this is a mandatory savings system that provides housing loans and short-term cash loans.
Membership: Mandatory for all employees covered by the SSS.
Contribution Rates:
Employee Share: 1% (if earning ₱1,500/month or less) or 2% (if earning over ₱1,500/month).
Employer Share (Agency): Fixed at 2%.
Contribution Cap: The maximum monthly compensation used to compute the 2% contribution is currently capped at ₱10,000, meaning the standard maximum contribution is ₱200 from the employee and ₱200 from the agency, though recent adjustments aim to increase this ceiling.
4. Legal Liabilities: The Concept of "Solidary Liability"
One of the most critical aspects of agency hiring in the Philippines is the relationship between the Agency (Contractor) and the Client (Principal) regarding these contributions.
The Agency's Role
The Agency is the "direct employer." They are responsible for the actual payroll, deduction, and remittance of SSS, PhilHealth, and Pag-IBIG. They must provide the employee with proof of these remittances (e.g., contribution slips).
The Principal’s Role (Solidary Liability)
Under Article 106 to 109 of the Labor Code, if the Agency fails to pay the wages or the statutory benefits of the employees, the Principal (the client) becomes solidarily liable.
"For purposes of determining the extent of their civil liability... the employer or indirect employer shall be considered as direct employer."
This means if an agency vanishes or fails to remit SSS/PhilHealth/Pag-IBIG, the employee can legally demand the payment from the client company where they are stationed. The client is treated as the "indirect employer" to ensure the worker is not deprived of their rights.
5. Prohibited Practices
- Labor-Only Contracting: If an agency has no substantial capital or investment, and the workers perform activities directly related to the main business of the principal, it is "Labor-Only Contracting," which is prohibited. In this case, the workers are legally deemed regular employees of the Client, not the Agency.
- Non-Remittance: It is illegal for an agency to deduct the employee's share but fail to remit it to the respective government agencies. This is a violation of the "Trust Fund" doctrine.
- Independent Contractor Misclassification: Labeling a worker as an "independent contractor" or "consultant" to avoid paying SSS, PhilHealth, and Pag-IBIG is a common form of labor malpractice that courts often penalize.
Summary Table of Responsibilities
| Benefit | Governing Law | Primary Responsible | Liability of Client |
|---|---|---|---|
| SSS | R.A. 11199 | Agency (Employer) | Solidary (Indirect Employer) |
| PhilHealth | R.A. 11223 | Agency (Employer) | Solidary (Indirect Employer) |
| Pag-IBIG | R.A. 9679 | Agency (Employer) | Solidary (Indirect Employer) |
Agency-hired employees possess the same fundamental right to social security as direct-hired employees. Any contract or waiver signed by the worker waiving these rights is considered null and void for being contrary to public policy.