IRR of Book III of the Labor Code

IMPLEMENTING RULES OF BOOK III

BOOK III
CONDITIONS OF EMPLOYMENT

Rule I
HOURS OF WORK

SECTION 1. General statement on coverage. – The provisions of this Rule shall apply to all employees in all establishments and undertakings, whether operated for profit or not, except to those specifically exempted under Section 2 hereof.

SEC. 2. Exemption. -The provisions of this Rule shall not apply to the following persons if they qualify for exemption under the condition set forth herein:

(a) Government employees whether employed by the National Government or any of its political subdivisions, including those employed in government-owned and/or controlled corporations.

(b) Managerial employees, if they meet all of the following conditions, namely:

Their primary duty consists of the management of the establishment in which they are employed or of a department or subdivision thereof;
They customarily and regularly direct the work of two or more employees therein;
They have the authority to hire or fire other employees of lower rank; or their suggestions and recommendations as to the hiring and firing and as to the promotion or any other change of status of other employees are given particular weight.

The primary duty consists of the performance of work directly related to management policies of their employer;
Customarily and regularly exercise discretion and independent judgment;
(i) Regularly and directly assist a proprietor or a managerial employee whose primary duty consists of the management of the establishment in which he is employed or subdivision thereof; or (ii) execute under general supervision work along specialized or technical lines requiring special training, experience, or knowledge; or (iii) execute under general supervision special assignments and tasks; and
who do not devote more than 20 percent of their hours worked in a workweek to activities which are not directly and closely related to the performance of the work described in paragraphs (1), (2), and (3) above.

(d) Domestic servants and persons in the personal service of another if they perform such services in the employer’s home which are usually necessary or desirable for the maintenance and enjoyment thereof, or minister to the personal comfort, convenience, or safety of the employer as well as the members of his employer’s household.

(e) Workers who are paid by results, including those who are paid on piece-work, takay, pakyaw, or task basis, if their output rates are in accordance with the standards prescribed under Section 8, Rule VII, Book III, of these regulations, or where such rates have been fixed by the Secretary of Labor in accordance with the aforesaid Section.

(f) Nonagricultural field personnel if they regularly perform their duties away from the principal or branch office or place of business of the employer and whose actual hours of work in the field cannot be determined with reasonable certainty.

SEC. 3. Hours worked. — The following shall be considered as compensable hours worked:

(a) All time during which an employee is required to be on duty or to be at the employer’s premises or to be at a prescribed workplace; and
(b) All time during which an employee is suffered or permitted to work.

SEC. 4. Principles in determining hours worked. -The following general principles shall govern in determining whether the time spent by an employee is considered hours worked for purposes of this Rule:

(a) All hours are hours worked which the employee is required to give to his employer, regardless of whether or not such hours are spent in productive labor or involve physical or mental exertion;

(b) An employee need not leave the premises of the workplace in order that his rest period shall not be counted, it being enough that he stops working, may rest completely and may leave his workplace, to go elsewhere, whether within or outside the premises of his workplace;

(c) If the work performed was necessary, or it benefited the employer, or the employee could not abandon his work at the end of his normal working hours because he had no replacement, all time spent for such work shall be considered as hours worked, if the work was with the knowledge of his employer or immediate supervisor;

(d) The time during which an employee is inactive by reason of interruptions in his work beyond his control shall be considered time either if the imminence of the resumption of work requires the employee’s presence at the place of work or if the interval is too brief to be utilized effectively and gainfully in the employee’s own interest.

SEC. 5. Waiting time. –

(a) Waiting time spent by an employee shall be considered as working time if waiting is an integral part of his work or the employee is required or engaged by the employer to wait
(b) An employee who is required to remain on call in the employer’s premises or so close thereto that he cannot use the time effectively and gainfully for his own purpose shall be considered as working while on call. An employee who is not required to leave word at his home or with company officials where he may be reached is not working while on call.

SEC. 6. Lectures, meetings, training programs. – Attendance at lectures, meetings, training programs, and other similar activities shall not be counted as working time if all of the following conditions are met:

(a) attendance is outside of the employee’s regular working hours,
(b) attendance is in fact voluntary, and
(c) the employee does not perform any productive work during such attendance.

SEC. 7. Meal and rest periods. -Every employer shall give his employees, regardless of sex, not less than one (1) hour time off for regular meals, except in the following cases when a meal period of not less than twenty (20) minutes may be given by the employer provided that such shorter meal period is credited as compensable hours worked of the employee:

(a) Where the work is nonmanual work in nature or does not involve strenuous physical exertion;
(b) Where the establishment regularly operates not less than sixteen hours a day;
(c) In cases of actual or impending emergencies or there is urgent work to be performed on machineries, equipment or installations to avoid serious loss which the employer would otherwise suffer; and
(d) Where the work is necessary to prevent serious loss of perishable goods.

Rest periods or coffee breaks running from five (5) to twenty (20) minutes shall be considered as compensable working time.

SEC. 8. Overtime pay. -An employee covered by this Rule who is permitted or required to work beyond eight (8) hours on ordinary working days shall be paid an additional compensation for the overtime work in an amount equivalent to his regular wage plus at least twenty-five (25) percent thereof.

SEC. 9. Premium and overtime pay for holiday and rest day work. – (a) Except employees referred to under Section 2 of this Rule, an employee who is permitted or suffered to work on special holidays or on his designated rest days not falling on regular holidays, shall be paid with an additional compensation as premium pay of not less than thirty percent (30%) of his regular wage. For work performed in excess of eight (8) hours on special holidays and rest days not falling on regular holidays, an employee shall be paid an additional compensation for the overtime work equivalent to his rate for the first eight (8) hours on a special holiday or rest day plus at least thirty percent (30%) thereof.

(b) Employees of public utility enterprises as well as those employed in nonprofit institutions and organizations shall be entitled to the premium and overtime pay provided herein, unless they are specifically excluded from the coverage of this Rule as provided in Section 2 hereof.

(c) The payment of additional compensation for work performed on regular holidays shall be governed by Rule IV, Book III, of these Rules.

SEC. 10. Compulsory overtime work. – In any of the following cases, an employer may require any of his employees to work beyond eight (8) hours a day, provided that the employee required to render overtime work is paid the additional compensation required by these regulations:

(a) When the country is at war or when any other national or local emergency has been declared by the National Assembly or the Chief Executive;

(b) When overtime work is necessary to prevent loss of life or property or in case of imminent danger to public safety due to actual or impending emergency in the locality caused by serious accident, fire, floods, typhoons, earthquake, epidemic or other disaster or calamities;

(c) When there is urgent work to be performed on machines, installations, or equipment, or in order to avoid serious loss or damage to the employer or some other causes of similar nature;

(d) When the work is necessary to prevent loss or damage to perishable goods;

(e) When the completion or continuation of work started before the 8th hour is necessary to prevent serious obstruction or prejudice to the business or operations of the employer;

(f) When overtime work is necessary to avail of favorable weather or environmental conditions where performance or quality of work is dependent thereon.

In cases not falling within any of these enumerated in this Section, no employee may be made to work beyond eight hours a day against his will.

SEC. 11. Computation of additional compensation. – For purposes of computing the additional compensation required by this Rule, the “regular wage” of an employee shall include the cash wage only, without deduction on account of facilities provided by the employer.

Rule I-A
HOURS OF WORK OF HOSPITAL AND CLINIC PERSONNEL

SECTION 1. General statement on coverage. This Rule shall apply to:

(a) all hospitals and clinics, including those with a bed capacity of less than one hundred (100) which are situated in cities or municipalities with a population of 1 million or more; and

(b) all hospitals and clinics with a bed capacity of at least one hundred (100), irrespective of the size of the population of the city or municipality where they may be situated.

SEC. 2. Hospitals or clinics within the meaning of this Rule. – The terms “hospitals” and “clinic” as used in this Rule shall mean a place devoted primarily to the maintenance and operation of facilities for the diagnosis, treatment and care of individuals suffering from illness, disease, injury, or deformity, or in need of obstetrical or other medical and nursing care. Either term shall also be construed as any institution, building, or place where there are installed beds, or cribs, or bassinets for twenty-four (24) hours use or longer by patients in the treatment of diseases, injuries, deformities, or abnormal physical and mental states, maternity cases or sanitorial care; or infirmaries, nurseries, dispensaries, and such other similar names by which they may be designated.

SEC. 3. Determination of bed capacity and population.

(a) For purposes of determining the applicability of this Rule, the actual bed capacity of the hospital or clinic at the time of such determination shall be considered, regardless of the actual or bed occupancy. The bed capacity of hospital or clinic as determined by the Bureau of Medical Services pursuant to Republic Act No. 4226, otherwise known as the Hospital Licensure Act, shall prima facie be considered as the actual bed capacity of such hospital or clinic.

(b) The size of the population of the city or municipality shall be determined from the latest official census issued by the Bureau of the Census and Statistics.

SEC. 4. Personnel covered by this Rule. -This Rule applies to all persons employed by any private or public hospital or clinic mentioned in Section 1 hereof, and shall include, but not be limited to, resident physicians, nurses, nutritionists, dieticians, pharmacists, social workers, laboratory technicians, Paramedical technicians, psychologists, midwives, and attendants.

SEC. 5. Regular working hours. – The regular working hours of any person covered by this Rule shall not be more than eight (8) hours in any one day nor more than forty hours in any one week.

For purposes of this Rule, a “day” shall mean a workday of 24 consecutive hours beginning at the same time each calendar day. A week shall mean the workweek of 168 consecutive hours, or seven consecutive 24-hour workday beginning at the same hour and on the same calendar day each calendar week.

SEC. 6. Regular working days. – The regular working days of covered employees shall not be more than five days in a workweek. The workweek may begin at any hour and on any day, including Saturday or Sunday, designated by the employer.

Employers are not precluded from changing the time at which the workday or workweek begins, provided that the change is not intended to evade the requirements of this Rule.

SEC 7. Overtime work. – Where the exigencies of the service so require as determined by the employer, any employee covered by this Rule may be scheduled to work for more than five (5) days or forty (40) hours a week, provided that the employee is paid for the overtime work an additional compensation equivalent to his regular wage plus at least thirty percent (30%) thereof, subject to the provisions of this Book on the payment of additional compensation for work performed on special and regular holidays and on rest days.

SEC. 8. Hours worked. – In determining the compensable hours of work of hospital and clinic personnel covered by this Rule, the pertinent provisions of Rule I of this Book shall apply.

SEC 9. Additional compensation. – Hospital and clinic personnel covered by this Rule, with the exception of those employed by the Government, shall be entitled to an additional compensation for work performed on regular and special holidays and rest days as provided in this Book. Such employees shall also be entitled to overtime pay for services rendered in excess of forty hours a week, or in excess of eight hours a day, whichever will yield the higher additional compensation to the employee in the workweek.

SEC. 10. Relation to Rule I. – All provisions of Rule I of this Book which are not inconsistent with this Rule shall be deemed applicable to hospital and clinic personnel.

Rule II
NIGHT SHIFT DIFFERENTIAL

SECTION 1. Coverage. – This Rule shall apply to all employees, except:

(a) Those of the government and any of its political subdivisions including government-owned and/or controlled corporations;
(b) Those of retail and service establishments regularly employing not more than five (5) workers;
(c) Domestic helpers and persons in the personal service of another;
(d) Managerial employees as defined in Book Ill of this Code;
(e) Field personnel and other employees whose time and performance is unsupervised by the employer, including those who are engaged on task or contract basis, purely commission basis, or those who are paid a fixed amount for performing work irrespective of the time consumed in the performance thereof.

SEC. 2. Night shift differential. – An employee shall be paid night shift differential of no less than ten percent (10%) of his regular wage for each hour of work performed between ten o’clock in the evening and six o’clock in the morning.

SEC. 3. Additional compensation. – Where an employee is required or suffered to work on the period covered after his work schedule, he shall be entitled to his regular wage plus at least twenty-five percent (25%) and an additional amount of no less than ten percent (10%) of such overtime rate for each hour of work performed between 10 p.m. to 6 a.m.

SEC. 4. Additional compensation on scheduled rest day/special holiday. – An employee who is required or permitted to work on the period covered during rest days and/or special holidays not falling on regular holidays, shall be paid a compensation equivalent to his regular wage plus at least thirty percent (30%) and an additional amount of not less than ten percent (10%) of such premium pay rate for each hour of work performed.

SEC. 5. Additional compensation on regular holidays. – For work on the period covered during regular holidays, an employee shall be entitled to his regular wage during these days plus an additional compensation of no less than ten percent (10%) of such premium rate for each hour of work performed.

SEC. 6. Relation to agreements. – Nothing in this Rule shall justify an employer in withdrawing or reducing any benefits, supplements or payments as provided in existing individual or collective agreements or employer practice or policy.

Rule III
WEEKLY REST PERIODS

SECTION I. General statement on coverage. – This Rule shall apply to all employers whether operating for profit or not, including public utilities operated by private persons.

SEC. 2. Business on Sundays/holidays. – All establishments and enterprises may operate or open for business on Sundays and holidays provided that the employees are given the weekly rest day and the benefits as provided in this Rule.

SEC. 3. Weekly rest day. – Every employer shall give his employees a rest period of not less than twenty-four (24) consecutive hours after every six consecutive normal work days.

SEC. 4. Preference of employee. – The preference of the employee as to his weekly day of rest shall be respected by the employer if the same is based on religious grounds. The employee shall make known his preference to the employer in writing at least seven (7) days before the desired effectivity of the initial rest day so preferred.

Where, however, the choice of the employees as to their rest day based on religious grounds will inevitably result in serious prejudice or obstruction to the operations of the undertaking and the employer cannot normally be expected to resort to other remedial measures, the employer may so schedule the weekly rest day of their choice for at least two (2) days in a month.

SEC. 5. Schedule of rest day. – (a) Where the weekly rest is given to all employees simultaneously, the employer shall make known such rest period by means of a written notice posted conspicuously in the workplace at least one week before it becomes effective.

(b) Where the rest period is not granted to all employees simultaneously and collectively, the employer shall make known to the employees their respective schedules of weekly rest through written notices posted conspicuously in the workplace at least one week before they become effective.

SEC. 6. When work on rest day authorized. – An employer may require any of his employees to work on his scheduled rest day for the duration of the following emergency and exceptional conditions:

(a) In case of actual or impending emergencies caused by serious accident, fire, flood, typhoon, earthquake, epidemic or other disaster or calamity, to prevent loss of life or property, or in cases of force majeure or imminent danger to public safety;

(b) In case of urgent work to be performed on machineries, equipment or installations, to avoid serious loss which the employer would otherwise suffer;

(c) In the event of abnormal pressure of work due to special circumstances, where the employer cannot ordinarily be expected to resort to other measures;

(d) To prevent serious loss of perishable goods;

(e) Where the nature of the work is such that the employees have to work continuously for seven (7) days in a week or more, as in the case of the crew members of a vessel to complete a voyage and in other similar cases; and

(f) When the work is necessary to avail of favorable weather or environmental conditions where performance or quality of work is dependent thereon.

No employee shall be required against his will to work on his scheduled rest day except under circumstances provided in this section, Provided, however, That where an employee volunteers to work on his rest day under other circumstances, he shall express such desire in writing, subject to the provisions of Section 7 hereof regarding additional compensation.

SEC. 7. Compensation on rest day/Sunday/holiday. – (a) Except those employees referred to under Section 2, Rule I, Book III, an employee who is made or permitted to work on his scheduled rest day shall be paid with an additional compensation of at least 30% of his regular wage. An employee shall be entitled to such additional compensation for work performed on a Sunday only when it is his established rest day.

(b) Where the nature of the work of the employee is such that he has no regular workdays and no regular rest days can be scheduled, he shall be paid an additional compensation of at least 30% of his regular wage for work performed on Sundays and holidays.

(c) Work performed on any special holiday shall be paid with an additional compensation of at least 30% of the regular wage of the employee. Where such holiday work falls on the employee’s scheduled rest day, he shall be entitled to additional compensation of at least 50% of his regular wage.

(d) The payment of additional compensation for work performed on regular holiday shall be governed by the Rule IV, Book III. of these regulations.

(e) Where the collective bargaining agreement or other applicable employment contract stipulates the payment of a higher premium pay than that prescribed under this Section, the employer shall pay such higher rate.

SEC. 8. Paid off-days. — Nothing in this Rule shall justify an employer in reducing the compensation of his employees for the unworked Sundays, holidays, or other rest days which are considered paid off-days or holidays by agreement or practice subsisting upon the effectivity of the Code.

SEC. 9. Relation to agreement. – Nothing herein shall prevent the employer and his employees or their representatives from entering into any agreement with terms more favorable to the employees than those provided herein, or be used to diminish any benefit granted to the employees under existing laws, agreements, and voluntary employer practices.

Rule IV
HOLIDAYS WITH PAY

SECTION 1. Coverage. – This Rule shall apply to all employees except:

(a) Those of the government and any of the political subdivisions, including government-owned and controlled corporation;
(b) Those of retail and service establishments regularly employing less than ten (10) workers;
(c) Domestic helpers and persons in the personal service of another (d) Managerial employees as defined in Book III of the Code;
(d) Managerial employees as defined in Book III of the Code;
(e) Field personnel and other employees whose time and performance is unsupervised by the employer including those who are engaged on task or contract basis, purely commission basis, or those who are paid a fixed amount for performing work irrespective of the time consumed in the performance thereof.

SEC. 2. Status of employees paid by the month. – Employees who are uniformly paid by the month, irrespective of the number of working days therein, with a salary of not less than the statutory or established minimum wage shall be presumed to be paid for all days in the month whether worked or not.

For this purpose, the monthly minimum wage shall not be less than the statutory minimum wage multiplied by 365 days divided by twelve.

SEC. 3. Holiday pay. – Every employer shall pay his employees their regular daily wage for any unworked regular holiday.

As used in the Rule, the term “holiday” shall exclusively refer to: New Year’s Day, Maundy Thursday, Good Friday, the ninth of April, the first of May, the twelfth of June, the fourth of July, the thirtieth of November, the twenty-fifth and thirtieth of December and the day designated by law for a general election or national referendum or plebiscite.

SEC. 4. Compensation for holiday work. — Any employee who is permitted or suffered to work on any regular holiday, not exceeding eight (8) hours, shall be paid at least two hundred percent (200%) of his regular daily wage. If the holiday work falls on the scheduled rest day of the employee, he shall be entitled to an additional premium pay of at least 30% of his regular holiday rate of 200% based on his regular wage rate.

SEC. 5. Overtime pay for holiday work. -For work performed in excess of eight hours on a regular holiday, an employee shall be paid an additional compensation for the overtime work equivalent to his rate for the first eight hours on such holiday work plus at least 30% thereof.

Where the regular holiday work exceeding eight hours falls on the scheduled rest day of the employee, he shall be paid an additional compensation for the overtime work equivalent to his regular holiday rest day for the first 8 hours plus 30% thereof. The regular holiday rest day rate of an employee shall consist of 200% of his regular wage rate plus 30% thereof.

SEC. 6. Absences. – (a) All covered employees shall be entitled to the benefit provided herein when they are on leave of absence with pay. Employees who are on leave of absence without pay on the day immediately preceding a regular holiday may not be paid the required holiday pay if he has not worked on such regular holiday.

(b) Employees shall grant the same percentage of the holiday pay as the benefit granted by competent authority in the form of employee’s compensation or social security payment, whichever is higher, if they are not reporting for work while on such benefits.

(c) Where the day immediately preceding the holiday is a nonworking day in the establishment or the scheduled rest day of the employee, he shall not be deemed to be on leave of absence on that day, in which case he shall be entitled to the holiday pay if he worked on the day immediately preceding the nonworking day or rest day.

SEC. 7. Temporary or periodic shutdown and temporary cessation of work. –

(a) In cases of temporary or periodic shutdown and temporary cessation – of work of an establishment, as when a yearly inventory or when the repair or cleaning of machineries and equipment is undertaken the regular holidays falling within the period shall be compensated in accordance with this Rule.

(b) The regular holiday during the cessation of operation of an enterprise due to business reverses as authorized by the Secretary of Labor may not be paid by the employer.

SEC. 8. Holiday pay of certain employees. — (a) Private school teachers, including faculty members of colleges and universities, may not be paid for the regular holidays during semestral vacations. They shall, however, be paid for the regular holidays during Christmas vacation.

(b) Where a covered employee is paid by results or output, such as payment on piece-work, his holiday pay shall not be less than his average daily earnings for the last seven (7) actual working days preceding the regular holiday: Provided, however, That in no case shall the holiday pay be less than the applicable statutory minimum wage rate.

(d) Workers who have no regular working days shall be entitled to the benefits provided in this Rule.

SEC. 9. Regular holiday falling on rest days or Sundays. — (a) A regular holiday falling on the employee’s rest day shall be compensated accordingly.

(b) Where a regular holiday falls on a Sunday, the following day shall be considered a special holiday for purposes of the Labor Code, unless said day is also a regular holiday.

(Note: This rule is rendered obsolete by Letter of Instruction No. 1087, issued on November 26, 1980, which in part states: “When a legal holiday falls on a Sunday, the following Monday shall not be a holiday, unless a proclamation is issued declaring it a special holiday.”

SEC. 10. Successive regular holidays. – Where there are two (2) successive regular holidays, like Holy Thursday and Good Friday, an employee may not be paid for both holidays if he absents himself from work on the day immediately preceding the first holiday, unless he works on the first holiday, in which case he is entitled to his holiday pay on the second holiday.

SEC. 11. Relation to agreements. – Nothing in this Rule shall justify an employer in withdrawing or reducing any benefits, supplements or payments for unworked holidays as provided in existing individual or collective agreement or employer practice or policy.

Rule V
SERVICE INCENTIVE LEAVE

SECTION 1. Coverage. – This Rule shall apply to all employees except:

(a) Those of the government and any of its political subdivisions, including government-owned and -controlled corporations;
(b) Domestic helpers and persons in the personal service of another;
(c) Managerial employees as defined in Book III of this Code;
(d) Field personnel and other employees whose performance is unsupervised by the employer including those who are engaged on task or contract basis, purely commission basis, or those who are paid in a fixed amount for performing work irrespective of the time consumed in the performance thereof;
(e) Those who are already enjoying the benefit herein provided;
(f) Those enjoying vacation leave with pay of at least five days; and
(g) Those employed in establishments regularly employing less than ten employees.

SEC. 2. Right to service incentive leave. – Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay.

SEC. 3. Definition of certain terms. – The term “at least one year service” shall mean service within 12 months, whether continuous or broken reckoned from the date the employee started working, including authorized absences and paid regular holidays unless the working days in the establishment as a matter of practice or policy, or that provided in the employment contract is less than 12 months, in which case said period shall be considered as one year.

SEC. 4. Accrual of benefit. – Entitlement to the benefit provided in this Rule shall start December 16, 1975, the date the amendatory provision of the Code took effect.

SEC. 5. Treatment of benefit. – The service incentive leave shall be commutable to its money equivalent if not used or exhausted at the end of the year.

SEC. 6. Relation to agreements. – Nothing in the Rule shall justify an employer from withdrawing or reducing any benefits, supplements or payments provided in existing individual or collective agreements or employers practices or policies.

Rule VI
SERVICE CHARGES

Department Order No. 206
Series of 2019

IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT NO. 11360 ENTITLED “AN ACT PROVIDING THAT SERVICE CHARGES COLLECTED BY HOTELS, RESTAURANTS AND OTHER SIMILAR ESTABLISHMENTS BE DISTRIBUTED IN FULL TO ALL COVERED EMPLOYEES AMENDING FOR THE PURPOSE PRESIDENTIAL DECREE NO. 442, AS AMENDED, OTHERWISE KNOWN AS THE “LABOR CODE OF THE PHILIPPINES”

Pursuant to Section 3 of Republic Act No. 11660, the following implementing rules and regulations are hereby issued:

SECTION 1. Coverage. – This Rule shall apply to all establishments collecting service charges such as hotels, restaurants, and other similar establishments including those entities operating primarily as private subsidiaries of the Government.

SEC. 2. Definition of terms. – As used in this Rule, the following terms are defined as follows:

a. Covered employees refer to all employees, except managerial employees as defined herein, under the direct employ of the covered establishment, regardless of their positions, designations or employment status, and irrespective of the method by which their wages are paid.

b. Covered establishments refer to those that collect service charge for work or service they offer.

c. Managerial employees refer to any person vested with powers or prerogatives to lay down and execute management policies or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees or to effectively recommend such managerial actions.

d. Other similar establishments refer to those entities that collect service charge for work or service rendered, such as, but not limited to, lodging houses, night clubs. cocktail lounges, massage clinics, bars, casinos and gambling houses, and sports clubs

e. Service charge refers to the amount that is added to the bill for work or service rendered.

SEC. 3. Distribution of service charges. – All service charges actually collected by covered establishments shall be distributed completely and equally, based on actual hours or days of work or service rendered, among the covered employees, including those already receiving the benefit of sharing in the service charges.

SEC. 4. Frequency of distribution. – The shares referred to herein shall be distributed and paid to the covered employees not less than once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days.

SEC. 5. Increase in minimum wage. – In the event that the minimum is increased by law or wage order, service charges paid to the covered employees shall not be considered in determining the covered establishment’s compliance with the increased minimum wage.

SEC. 6. Dispute resolution. – Any dispute or difference on the distribution of service charges shall be settled through the grievance machinery as provided in the Collective Bargaining Agreement (CBA),

In unorganized establishments, where no grievance mechanism is established or the grievance mechanism is inadequate, the grievance shall be referred to the DOLE Regional Office which has jurisdiction over the workplace for conciliation.

Unresolved grievances shall be resolved in accordance with existing rules and regulations on the visitorial and enforcement power of the Secretary of Labor and Employment and his her duly authorized representatives

SEC. 7. Repealing clause. – All rules and regulations, policy issuances or orders contrary to or inconsistent with this Rule are hereby repealed, amended, or modified accordingly.

SEC. 8. Effectivity. – This Rule shall take effect fifteen (15) days after its publication in at least one (1) newspaper of general circulation.

Rule VII
WAGES

SECTION 1. Minimum wages. –

(a) The minimum wage rates for agricultural and nonagricultural employees shall be as follows, unless otherwise revised by a duly issued wage order or other authoritative issuance by a competent authority:
(1) Eight pesos a day for nonagricultural workers;
(2) Four pesos and seventy-five centavos for agricultural employees;
(3) Six pesos a day for employees of retail or service enterprises that do not regularly employ more than five employees;
(4) Eight pesos a day for employees of the National government and all government-owned and/or controlled corporations;
(5) Five pesos a day for employees of provinces, municipalities and cities or the minimum wages being paid to them at the time of the approval of R.A. No. 6129 on 17 June 1970.

The minimum wage rates in industries prescribed by duly issued wage orders shall remain effective unless otherwise revised by competent authority.

(b) The basis of the minimum wage rates prescribed herein is understood to be not more than eight hours of work in a day. [Note: Minimum wage rates are prescribed in wage orders issued periodically by regional wage boards; see R.A. No. 6727, June 9, 1989.]

SEC. 2. Minimum wages in depressed areas. – To the extent necessary to relieve serious unemployment situation in welfare areas, such as squatter relocation centers, the Secretary of Labor may, on his own initiative or upon petition of any interested party, authorize the payment of subminimum wages by enterprises and institutions that may be established in such areas to provide employment opportunities to the residents therein. The authorization of the Secretary of Labor shall be subject to such terms and conditions as he may prescribe to insure the protection and welfare of the workers as well as the industries that may be affected thereby.

SEC. 3. Coverage. – This Rule shall not apply to the following persons:

(a) Household or domestic helpers, including family drivers and persons in the personal service of another;
(b) Homeworkers engaged in needlework;
(c) Workers employed in any establishment duly registered with the National Cottage Industries and Development Authority in accordance with R.A. No. 3470, provided that such workers perform the work in their respective homes;
(d) Workers in any duly registered cooperative when so recommended by the Bureau of Cooperative Development and upon approval of the Secretary of Labor, Provided, however, That such recommendation shall be given only for the purpose of making the cooperative viable and upon finding and certification of said Bureau, supported by adequate proof, that the cooperative cannot resort to other remedial measures without serious loss or prejudice to its operation except through its exemption from the requirements of this Rule. The exemption shall be subject to such terms and conditions and for such period of time as the Secretary of Labor may prescribe.

Rule VII-A
WAGES

(Memorandum Circular No. 2, November 4, 1992)

SECTION 1. Cash wage. — The minimum wage rates prescribed in Section 1 hereof shall be basic, cash wages without deducting therefrom whatever benefits, supplements or allowances which the employees enjoy free of charge aside from the basic pay. An employer may provide subsidized meals and snacks to his employees provided that the subsidy shall not be less than 30% of the fair and reasonable value of such facilities. In such case, the employer may deduct from the wages of the employees not more than 70% of the value of the meals and snacks enjoyed by the employees, provided that such deduction is with the written authorization of the employees concerned.

SEC. 2. Facilities. – The term “facilities” as used in this Rule shall include articles or services for the benefit of the employee or his family but shall not include tools of the trade or articles or services primarily for the benefit of the employer or necessary to the conduct of the employer’s business.

SEC. 3. Value of facilities.- The Secretary of Labor may from time to time fix in appropriate issuances the fair and reasonable value of board, lodging, and other facilities customarily furnished by an employer to his employees both in agricultural and non-agricultural enterprises.

The fair and reasonable value of facilities is hereby determined to be the cost of operation and maintenance, including adequate depreciation plus reasonable allowance (but not more than 5 1/2 % interest on the depreciated amount of capital invested by the employer): provided that if the total so computed is more than the fair rental value (or the fair price of the commodities or facilities offered for sale) the fair rental value shall be the reasonable cost of the operation and maintenance. The rate of depreciation and depreciated amount computed by the employer shall be those arrived at under good accounting practices.

The term “good accounting practices” shall not include accounting practices which have been rejected by the Bureau of Internal Revenue for income tax purposes. The term “depreciations” shall include obsolescence.

SEC. 4. Acceptance of facilities. – In order that the cost of facilities furnished by the employer may be charged against an employee, his acceptance of such facilities must be voluntary.

SEC. 5. Payment by results. – On petition of any interested party, or upon its initiative, the Department of Labor shall use all available devises, including the use of time and motion studies and consultation with representatives of employers’ and workers’ organizations, to determine whether the employees in any industry or enterprise are being compensated in accordance with the minimum wage requirements of this Rule.

(b) The basis for the establishment of rates for piece, output or contract work shall be the performance of an ordinary worker of minimum skill or ability.

(c) An ordinary worker of minimum skill or ability is the average worker of the lowest producing group representing 50% of the total number of employees engaged in similar employment in a particular establishment excluding learners, apprentices and handicapped workers employed therein.

(d) Where the output rates established by the employer do not conform with the standards prescribed herein, or with the rates prescribed by the Department of Labor in an appropriate order, the employees shall be entitled to the difference between the amount to which they are entitled to receive under such prescribed standards or rates and that actually paid them by the employer.

SEC. 6. Payment by results in government projects. – In government projects, payment of wages by results, such as payment on pakiaw, task, or piece work basis, may be used by employers: Provided, however, That the output rates shall be in accordance with the standards prescribed in the immediately preceding Section, whenever applicable, or with such rates as may be established by the Department of Labor.

Rule VIII
PAYMENT OF WAGES

SECTION 1. Manner of wage payment. – As a general rule, wages shall be paid in legal tender and the use of tokens, promissory notes, vouchers, coupons or any other form alleged to represent legal tender is absolutely prohibited even when expressly requested by the employee.

SEC. 2. Payment by check. – Payment of wages by bank checks, postal checks or money orders is allowed where such manner of wage payment is customary on the date of the effectivity of the Code, where it is stipulated in a collective agreement, or where all of the following conditions are met:

(1) There is a bank or other facility for encashment within a radius of one (1) kilometer from the workplace;
(2) The employer, or any of his agents or representatives, does not receive any pecuniary benefit directly or indirectly from the arrangement;
(3) The employees are given reasonable time during banking hours to withdraw their wages from the bank which time shall be considered as compensable hours worked if done during working hours; and
(4) The payment by check is with the written consent of the employees concerned if there is no collective agreement authorizing the payment of wages by bank checks.

SEC. 3. Time of payment. – (a) Wages shall be paid not less often than once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days, unless payment cannot be made with such regularity due to force majeure or circumstances beyond the employer’s control, in which case the employer shall pay the wages immediately after such force majeure or circumstances have ceased.

(b) In case of payment of wages by results involving work which cannot be finished in two (2) weeks, payment shall be made at intervals not exceeding sixteen (16) days in proportion to the amount of work completed. Final settlement shall be made immediately upon completion of the work.

SEC. 4. Place of payment. – (a) As a general Rule, the place of payment shall be at or near the place of undertaking. Payment in a place other than the workplace shall be permissible only under the following circumstances:

(1) When payment cannot be effected at or near the place of work by reason of the deterioration of peace and order conditions, or by reason of actual or impending emergencies caused by fire, flood epidemic or other calamity rendering payment thereat impossible;
(2) When the employer provides free transportation to the employees back and forth; and
(3) Under any other analogous circumstances, provided that the time spent by the employees in collecting their wages shall be considered as compensable hours worked.

(b) No employer shall pay his employees in any bar, night or day club, drinking establishment, massage clinic, dance hall or other similar places or in places where games are played with stakes of money or things representing money except in the case of persons employed in said places.

SEC. 5. Direct payment of wages. – Payment of wages shall be made direct to the employee entitled thereto except in the following cases:

(a) Where the employer is authorized in writing by the employee to pay his wages to a member of his family;

(b) Where payment to another person of any part of the employee’s wages is authorized by existing law, including payments for the insurance premiums of the employee and union dues where the right to check-off has been recognized by the employer in accordance with a collective agreement or authorized in writing by the individual employees concerned; or

SEC. 6. Wages of deceased employee. – The payment of the wages of a deceased employee shall be made to his heirs without the necessity of intestate proceedings. When the heirs are of age, they shall execute an affidavit attesting to their relationship to the deceased and the fact that they are his heirs to the exclusion of all other persons. In case any of the heirs is a minor, such affidavit shall be executed in his behalf by his natural guardian or next of kin. Upon presentation of the affidavit to the employer, he shall make payment to the heirs as representative of the Secretary of Labor.

SEC. 7. Payment of and other monetary claims in case of bankruptcy. – In case of bankruptcy or liquidation of the employer’s business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid. (As amended by Section 1 of the Rules and Regulations Implementing RA No. 6715, approved by Secretary of Labor and Employment Franklin M. Drilon on May 24, 1989.)

SEC. 8. Attorney’s fees. – Attorney’s fees in any judicial or administrative proceedings for the recovery of wages shall not exceed 10% of the amount awarded. The fees may be deducted from the total amount due the winning party.

SEC. 9. Noninterference in disposal of wages. — No employer shall limit or otherwise interfere with the freedom of any employee to dispose of his wages and no employer shall in any manner oblige any of his employees to patronize any store or avail of the services offered by any person.

SEC. 10. Wage deduction. – Deductions from the wages of the employees may be made by the employer in any of the following cases:

(a) When the deductions are authorized by law, including deductions for the insurance premiums advanced by the employer in behalf of the employee as well as union dues where the right to check-off has been recognized by the employer or authorized in writing by the individual employee himself;

(b) When the deductions are with the written authorization of the employees for payment to a third person and the employer agrees to do so. provided that the latter does not receive any pecuniary benefit, directly or indirectly from the transaction.

SEC. 11. Deductions for loss or damages. – Where the employer is engaged in a trade, occupation or business where the practice of making deductions or requiring deposits is recognized, to answer for the reimbursement of loss or damage to tools, materials, or equipment supplied by the employer to the employee, the employer may make wage deductions or require the employees to make deposits from which deductions shall be made, subject to the following conditions:

(a) That the employee concerned is clearly shown to be responsible for the loss of damage;
(b) That the employee is given reasonable opportunity to show cause why deduction should not be made;
(c) That the amount of such deductions is fair and reasonable and shall not exceed the actual loss or damage; and
(d) That the deduction from the wages of the employee does not exceed 20% of the employee’s wages in a week.

[The following Department Order No. 18-A, Series of 2011 supersedes D.O. No. 18-02 of November 2002.)

DEPARTMENT ORDER NO. 18-A
Series of 2011

RULES IMPLEMENTING ARTICLES 106 TO 109 OF THE LABOR CODE, AS AMENDED

Section 1. Guiding principles. Contracting and subcontracting arrangements are expressly allowed by law and are subject to regulations for the promotion of employment and the observance of the rights of workers to just and humane conditions of work, security of tenure, self-organization and collective bargaining. Labor-only contracting as defined herein shall be prohibited.

Section 2. Coverage. These Rules shall apply to all parties of contracting and subcontracting arrangements where employer-employee relationships exist. It shall also apply to cooperatives engaging in contracting or subcontracting arrangements.

Contractors and subcontractors referred to in these Rules are prohibited from engaging in recruitment and placement activities as defined in Article 13(b) of the Labor Code, whether for local or overseas employment.

Section 3. Definition of terms. The following terms as used in these Rules, shall mean:

(a) “Bond/s” refers to the bond under Article 108 of the Labor Code that the principal may require from the contractor to be posted equal to the cost of labor under contract. The same may also refer to the security or guarantee posted by the principal for the payment of the services of the contractors under the Service Agreement.

(b) “Cabo” refers to a person or group of persons or to a labor group which, in the guise of a labor organization, cooperative or any entity, supplies workers to an employer, with or without any monetary or other consideration, whether in the capacity of an agent of the employer or as an ostensible independent contractor.

(c) “Contracting” or “Subcontracting” refers to an arrangement whereby a principal agrees to put out or farm out with a contractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal.

(d) “Contractor” refers to any person or entity, including a cooperative, engaged in a legitimate contracting or subcontracting arrangement providing either services, skilled workers, temporary workers, or a combination of services to a principal under a Service Agreement.

(e) “Contractor’s employee” includes one employed by a contractor to perform
or complete a job, work, or service pursuant to a Service Agreement with a principal.

It shall also refer to regular employees of the contractor whose functions are not dependent on the performance or completion of a specific job, work or service within a definite period of time, i.e., administrative staff.

(f) “In-house agency” refers to a contractor which is owned, managed, or controlled directly or indirectly by the principal or one where the principal owns/represents any share of stock, and which operates solely or mainly for the principal.

(g) “Net Financial Contracting Capacity (NFCC)” refers to the formula to determine the financial capacity of the contractor to carry out the job, work or services sought to be undertaken under a Service Agreement. NFCC is current assets minus current liabilities multiplied by K, which stands for contract duration equivalent to: 10 for one year or less; 15 for more than one (1) year up to two (2) years; and 20 for more than two (2) years, minus the value of all outstanding or ongoing projects including contracts to be started.

(NFCC refers to the formula set out in the implementing rules and regulations of Republic Act No. 9184, or An Act Providing for the Modernization, Standardization and Regulation of the Procurement Activities of the Government and for Other Purposes.)

(h) “Principal” refers to any employer, whether a person or entity, including government agencies and government-owned and controlled-corporations, who/which puts out or farms out a job, service or work to a contractor.

(i) “Right to control” refers to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end.

(j) “Service Agreement” refers to the contract between the principal and contractor containing the terms and conditions governing the performance or completion of a specific job, work or service being farmed out for a definite or predetermined period.

(k) “Solidary liability” refers to the liability of the principal, pursuant to the provision of Article 109 of the Labor Code, as direct employer together with the contractor for any violation of any provision of the Labor Code.

It also refers to the liability of the principal, in the same manner and extent that he/she is liable to his/her direct employees, to the extent of the work performed under the contract when the contractor fails to pay the wages of his/her employees, as provided in Article 106 of the Labor Code, as amended.

(l) “Substantial capital” refers to paid-up capital stocks/shares of at least Three Million Pesos (P3,000,000.00) in the case of corporations, partnerships and cooperatives; in the case of single proprietorship, a net worth of at least Three Million Pesos (P3,000,000.00).

(m) “Trilateral Relationship” refers to the relationship in a contracting or subcontracting arrangement where there is a contract for a specific job, work or service between the principal and the contractor, and a contract of employment between the contractor and its workers. There are three (3) parties involved in these arrangements: the principal who decides to farm out a job, work or service to a contractor; the contractor who has the capacity to independently undertake the performance of the job, work or service; and the contractual workers engaged by the contractor to accomplish the job, work or service.

Section 4. Legitimate contracting or subcontracting. Contracting or subcontracting shall be legitimate if all the following circumstances concur:

(a) The contractor must be registered in accordance with these Rules and carries a distinct and independent business and undertakes to perform the job, work or service on its own responsibility, according to its own manner and method, and free from control and direction of the principal in all matters connected with the performance of the work except as to the results thereof;

(b) The contractor has substantial capital and/or investment; and

Section 5. Trilateral relationship in contracting arrangements; Solidary liability. In legitimate contracting or subcontracting arrangement there exists:

(a) An employer-employee relationship between the contractor and the employees it engaged to perform the specific job, work or service being contracted; and

(b) A contractual relationship between the principal and the contractor as governed by the provisions of the Civil Code.

In the event of any violation of any provision of the Labor Code, including the failure to pay wages, there exists a solidary liability on the part of the principal and the contractor for purposes of enforcing the provisions of the Labor Code and other social legislation, to the extent of the work performed under the employment contract.

However, the principal shall be deemed the direct employer of the contractor’s employee in cases where there is a finding by a competent authority of labor-only contracting, or commission of prohibited activities as provided in Section 7, or a violation of either Sections 8 or 9 hereof.

Section 6. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor only contracting shall refer to an arrangement where:

(a) The contractor does not have substantial capital or investments in the form of tools, equipment, machineries, work premises, among others, and the employees recruited and placed are performing activities which are usually necessary or desirable to the operation of the company, or directly related to the main business of the principal within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal; or

(b) The contractor does not exercise the right to control over the performance of the work of the employee.

Section 7. Other Prohibitions. Notwithstanding Section 6 of these Rules, the following are hereby declared prohibited for being contrary to law or public policy:

A. Contracting out of jobs, works or services when not done in good faith and not justified by the exigencies of the business such as the following:

(1) Contracting out of jobs, works or services when the same results in the termination or reduction of regular employees and reduction of work hours or reduction or splitting of the bargaining unit.

(2) Contracting out of work with a “Cabo”.

(3) Taking undue advantage of the economic situation or lack of bargaining strength of the contractor’s employees, or undermining their security of tenure or basic rights, or circumventing the provisions of regular employment, in any of the following instances:

(i) Requiring them to perform functions which are currently being performed by the regular employees of the principal; and

(ii) Requiring them to sign, as a precondition to employment or continued employment, an antedated resignation letter; a blank payroll; a waiver of labor standards including minimum wages and social or welfare benefits; or a quitclaim releasing the principal, contractor or from any liability as to payment of future claims.

(4) Contracting out of a job, work or service through an in-house agency.

(5) Contracting out of a job, work or service that is necessary or desirable or directly related to the business or operation of the principal by reason of a strike or lockout whether actual or imminent.

(6) Contracting out of a job, work or service being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their rights to self-organization as provided in Art. 248 (c) of the Labor Code, as amended.

(7) Repeated hiring of employees under an employment contract of short duration or under a Service Agreement of short duration with the same or different contractors, which circumvents the Labor Code provisions on Security of Tenure.

(8) Requiring employees under a subcontracting arrangement to sign a contract fixing the period of employment to a term shorter than the term of the Service Agreement, unless the contract is divisible into phases for which substantially different skills are required and this is made known to the employee at the time of engagement.

(9) Refusal to provide a copy of the Service Agreement and the employment contracts between the contractor and the employees deployed to work in the bargaining unit of the principal’s certified bargaining agent to the sole and exclusive bargaining agent (SEBA).

(10) Engaging or maintaining by the principal of subcontracted employees in
excess of those provided for in the applicable Collective Bargaining
Agreement (CBA) or as set by the Industry Tripartite Council (ITC).

B. Contracting out of jobs, works or services analogous to the above when not done in good faith and not justified by the exigencies of the business.

Section 8. Rights of contractor’s employees. All contractor’s employees, whether deployed or assigned as reliever, seasonal, week-ender, temporary, or promo jobbers, shall be entitled to all the rights and privileges as provided for in the Labor Code, as amended, to include the following:

(a) Safe and healthful working conditions;
(b) Labor standards such as but not limited to service incentive leave, rest days, overtime pay, holiday pay, 13^th month pay, and separation pay as may be provided in the Service Agreement or under the Labor Code;
(c) Retirement benefits under the SSS or retirement plans of the contractor, if there is any;
(d) Social security and welfare benefits;
(e) Self-organization, collective bargaining and peaceful concerted activities; and
(f) Security of tenure.

Section 9. Required contracts under these Rules.

(a) Employment contract between the contractor and its employee. Notwithstanding any oral or written stipulations to the contrary, the contract between the contractor and its employee shall be governed by the provisions of Articles 279 and 280 of the Labor Code, as amended. It shall include the following terms and conditions:

i. The specific description of the job, work or service to be performed by the employee;

ii. The place of work and terms and conditions of employment, including a statement of the wage rate applicable to the individual employee; and

iii. The term or duration of employment that must be co-extensive with the Service Agreement or with the specific phase of work for which the employee is engaged.

The contractor shall inform the employee of the foregoing terms and conditions of employment in writing on or before the first day of his/her employment.

(b) Service Agreement between the principal and the contractor. The Service Agreement shall include the following:

i. The specific description of the job, work or service being subcontracted.

ii. The place of work and terms and conditions governing the contracting arrangement, to include the agreed amount of the services to be rendered, the standard administrative fee of not less than ten percent (10%) of the total contract cost.

iii. Provisions ensuring compliance with all the rights and benefits of the employees under the Labor Code and these Rules on: provision for safe and healthful working conditions; labor standards such as, service incentive leave, rest days, overtime pay, 13^th month pay and separation pay; retirement benefits; contributions and remittance of SSS, Philhealth, PagIbig Fund, and other welfare benefits; the right to self-organization, collective bargaining and peaceful concerted action; and the right to security of tenure.

iv. A provision on the Net Financial Contracting Capacity of the contractor, which must be equal to the total contract cost.

v. A provision on the issuance of the bond/s as defined in Section 3(m) renewable every year.

vi. The contractor or subcontractor shall directly remit monthly the employers’ share and employees’ contribution to the SSS, ECC, Philhealth and Pag-ibig.

vii. The term or duration of engagement.

The Service Agreement must conform to the DOLE Standard Computation and Standard Service Agreement, which form part of these Rules as Annexes “A” and “B”.

Section 10. Duties of the principal. Pursuant to the authority of the Secretary of Labor and Employment to restrict or prohibit the contracting of labor to protect the rights of the workers and to ensure compliance with the provisions of the Labor Code, as amended, the principal, as the indirect employer or the user of the services of the contractor, is hereby required to observe the provisions of these Rules.

Section 11. Security of tenure of contractor’s employees. It is understood that all contractor’s employees enjoy security of tenure regardless of whether the contract of employment is co-terminus with the service agreement, or for a specific job, work or service, or phase thereof.

Section 12. Observance of required standards of due process; requirements of notice. In all cases of termination of employment, the standards of due process laid down in Article 277(b) of the Labor Code, as amended, and settled jurisprudence on the matter (KING OF KINGS TRANSPORT, INC., CLAIRE DELA FUENTE, AND MELISSA URN, VS. SANTIAGO 0. MAMAC, G.R. NO. 166208, (29 JUNE 2007); AND FELIX B. PEREZ AND AMANTE G. DORIA V. PHILIPPINE TELEGRAPH AND TELEPHONE COMPANY AND JOSE LUIS SANTIAGO, G.R. NO. 152048, (7 APRIL 2009), (EN BANC DECISION)), must be observed. Thus, the following is hereby set out to clarify the standards of due process that must be observed:

I. For termination of employment based on just causes as defined in Article 282 of the Code, the requirement of two written notices served on the employee shall observe the following:

(A) The first written notice should contain:
(1) The specific causes or grounds for termination;
(2) Detailed narration of the facts and circumstances that will serve as basis for the charge against the employee. A general description of the charge will not suffice;
(3) The company rule, if any, that is violated and/or the ground under Art. 282 that is being charged against the employee; and
(4) A directive that the employee is given opportunity to submit a written explanation within a reasonable period.

“Reasonable period” should be construed as a period of at least five (5) calendar days from receipt of the notice to give the employee an opportunity to study the accusation, consult a union official or lawyer, gather data and evidence, and decide on the defenses against the complaint.

(B) After serving the first notice, the employer should afford the employee ample opportunity to be heard and to defend himself/herself with the assistance of his/her representative if he/she so desires, as provided in Article 277(b) of the Labor Code, as amended.

“Ample opportunity to be heard” means any meaningful opportunity (verbal or written) given to the employee to answer the charges against him/her and submit evidence in support of his/her defense, whether in a hearing, conference or some other fair, just and reasonable way. A formal hearing or conference becomes mandatory only when requested by the employee in writing or substantial evidentiary disputes exist or a company rule or practice requires it, or when similar circumstances justify it.

(C) After determining that termination of employment is justified, the employer contractor shall serve the employee a written notice of termination indicating that: (1) all circumstances involving the charge against the employees have been considered; and (2) the grounds have been established to justify the severance of their employment.

The foregoing notices shall be served on the employee’s last known address.

II. For termination of employment based on authorized causes defined in Article 283 of the Labor Code, the requirement of due process shall be deemed complied with upon service of a written notice to the employee and the appropriate regional office of the Department of Labor and Employment at least thirty days before the effectivity of the termination, specifying the ground or grounds for termination.

III. If the termination is brought about by the completion of the contract or phase thereof, no prior notice is required. If the termination is brought about by the failure of a probationary employee to meet the reasonable standards of the employer, which was made known to the employee at the time of his/her employment, it shall be sufficient that a written notice is served upon the employee within a reasonable time prior to the expiration of the probationary period.

Section 13. Effect of termination of employment. The termination of employment of the contractor employee prior to the expiration of the Service Agreement shall be governed by Articles 282, 283 and 284 of the Labor Code.

In case the termination of employment is caused by the pre-termination of the Service Agreement not due to authorized causes under Article 283, the right of the contractor employee to unpaid wages and other unpaid benefits including unremitted legal mandatory contributions, e.g., SSS, Philhealth, Pag-ibig, ECC, shall be borne by the party at fault, without prejudice to the solidary liability of the parties to the Service Agreement.

Where the termination results from the expiration of the service agreement, or from the completion of the phase of the job, work or service for which the employee is engaged, the latter may opt for payment of separation benefits as may be provided by law or the Service Agreement, without prejudice to his/her entitlement to the completion bonuses or other emoluments, including retirement benefits whenever applicable.

Section 14. Mandatory Registration and Registry of Legitimate Contractors. Consistent with the authority of the Secretary of Labor and Employment to restrict or prohibit the contracting out of labor to protect the rights of workers, it shall be mandatory for all persons or entities, including cooperatives, acting as contractors to register with the Regional Office of the Department of Labor and Employment (DOLE) where it principally operates.

Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting.

Accordingly, the registration system governing contracting arrangements and implemented by the Regional Offices of the DOLE is hereby established, with the Bureau of Working Conditions (BWC) as the central registry.

Section 15. Requirements for registration. The application for registration as a contractor shall be filed at the DOLE Regional Office in the region where it seeks to principally operate. The applicant shall provide in the application form the following information:

(a) The name and business address of the applicant and the areas where it seeks to operate;
(b) The names and addresses of officers, if the applicant is a corporation, partnership, cooperative or a labor organization;
(c) The nature of the applicant’s business and the industry or industries where the applicant seeks to operate;
(d) The number of regular workers and the total workforce;
(e) The list of clients, if any, the number of personnel assigned to each client, if any, and the services provided to the client;
(f) The description of the phases of the contract, including the number of employees covered in each phase, where appropriate; and
(g) Proof of compliance with substantial capital requirement as defined in Section 3(l) of these Rules.

The application shall be supported by:

(a) A certified true copy of a certificate of registration of firm or business name from the Securities and Exchange Commission (SEC), Department of Trade and Industry (DTI), Cooperative Development Authority (CDA), or from the DOLE if the applicant is a labor organization;

(b) A certified true copy of the license or business permit issued by the local government unit or units where the contractor operates;

(c) A certified listing, with proof of ownership or lease contract, of facilities, tools, equipment, premises implements, machineries and work premises, that are actually and directly used by the contractor in the performance or completion of the job, work or service contracted out. In addition, the applicant shall submit a photo of the office building and premises where it holds office;

(d) A copy of audited financial statements if the applicant is a corporation, partnership, cooperative or a labor organization, or copy of the latest ITR if the applicant is a sole proprietorship; and

(e) A sworn disclosure that the registrant, its officers and owners or principal stockholders or any one of them, has not been operating or previously operating as a contractor under a different business name or entity or with pending cases of violations of these Rules and/or labor standards, or with a cancelled registration. In case any of the foregoing has a pending case, a copy of the complaint and the latest status of the case shall be attached.

The application shall be verified. It shall include a DOLE certification of attendance to orientation seminar on these Rules and an undertaking that the contractor shall abide by all applicable labor laws and regulations.

Section 16. Filing and processing of application. The application with all supporting documents shall be filed in triplicate in the Regional Office where the applicant principally operates. No application for registration shall be accepted unless all the requirements in the preceding Section are complied with.

Section 17. Verification inspection. Within two (2) working days upon receipt of the application with complete supporting documents, the authorized representative of the Regional Director shall conduct a verification inspection of the facilities, tools, equipment, and work premises of the applicant.

Section 18. Approval or denial of the application. The Regional Office shall deny or approve the application within one (1) working day after the verification inspection.

Applications that fail to meet the requirements set forth in Section 15 of these Rules shall be denied.

Section 19. Registration fee. Payment of registration fee of Twenty-Five Thousand Pesos (P25,000.00) shall be required upon approval of the application.

Upon registration, the Regional Office shall return one set of the duly-stamped application documents to the applicant, retain one set for its file, and transmit the remaining set to the Bureau of Working Conditions (BWC) within five (5) days from registration.

Section 20. Validity of certificate of registration of contractors. The contractor shall be deemed registered only on the date of issuance of its Certificate of Registration.

The Certificate of Registration shall be effective for three (3) years, unless cancelled after due process. The same shall be valid in the region where it is registered.

In case the contractor has Service Agreements or operates outside the region where it is registered, it shall request a duly authenticated copy of its Certificate of Registration from the registering Regional Office and submit the same to the DOLE Regional Office where it seeks to operate, together with a copy of its Service Agreement/s in the area, for purposes of monitoring compliance with these Rules.

Section 21. Renewal of registration. All registered contractors shall apply for renewal of their Certificates of Registration thirty (30) days before the expiration of their registration to remain in the roster of legitimate service contractors. The applicant shall pay a registration renewal fee of Twenty-Five Thousand Pesos (P25,000.00) to the DOLE Regional Office.

Copies of all the updated supporting documents in letters (a) to (e) of Section 15 hereof shall be attached to the duly accomplished application form, including the following:

(a) Certificate of membership and proof of payment of SSS, Philhealth, BIR, ECC and Pag-Ibig contributions for the last three (3) years, as well as loan amortizations; and

(b) Certificate of pending or no pending labor standards violation case/s with the National Labor Relations Commission (NLRC) and Department of Labor and Employment (DOLE). The pendency of a case will not prejudice the renewal of the registration, unless there is a finding of violation of labor standards by the DOLE Regional Director.

Section 22. Semi-annual reporting. The contractor shall submit in triplicate its subscribed semi-annual report using a prescribed form to the appropriate Regional Office. The report shall include:

(a) A list of contracts entered with the principal during the subject reporting period;
(b) The number of workers covered by each contract with the principal;
(c) Proof of payment of remittances to the Social Security System (SSS), the Pag-lbig Fund, Philhealth, Employees Compensation Commission (ECC), and Bureau of Internal Revenue (BIR) due its employees during the subject reporting period and of amortization of declared loans due from its employees; and
(d) A certified listing of all cases filed against the contractor before the NLRC and DOLE.

The Regional Office shall return one set of the duly-stamped report to the contractor, retain one set for its file, and transmit the remaining set to the Bureau of Working Conditions (BWC) within five (5) days from receipt thereof.

Section 23. Grounds for cancellation of registration. The Regional Director shall, upon a verified complaint, cancel or revoke the registration of a contractor after due process, based on any of the following grounds:

(a) Misrepresentation of facts in the application;

(b) Submission of a falsified or tampered application or supporting documents to the application for registration;

(d) Non-submission of the required semi-annual report as provided in Section 22 (Semi-annual reporting) hereof;

(e) Findings through arbitration that the contractor has engaged in labor-only contracting and/or the prohibited activities as provided in Section 7 (Other Prohibitions) hereof;

(f) Non-compliance with labor standards and working conditions;

(g) Findings of violation of Section 8 (Rights of contractor’s employees) or Section 9 (Required contracts) of these Rules;

(h) Non-compliance with SSS, the HDMF, Pag-Ibig, Philhealth, and ECC laws; and

(i) Collecting any fees not authorized by law and other applicable rules and regulations.

Section 24. Due process in cancellation of registration. Complaint/s based on any of the grounds enumerated in the preceding Section against the contractor shall be filed in writing and under oath with the Regional Office which issued the Certificate of Registration.

The complaint/s shall state the following:

(a) The name/s and address/es of the complainant/s;
(b) Name and address of the contractor;
(c) The ground/s for cancellation;
(d) When and where the action complained of happened;
(e) The amount of money claim, if any; and
(f) The relief/s sought.

Upon receipt of the complaint, the Regional Director shall direct the contractor, with notice to the complainant, to file a verified answer/counter affidavit within ten (10) calendar days without extension, incorporating therein all pertinent documents in support of his/her defenses, with proof of service of a copy to the complainant. Failure to file an answer/counter affidavit shall constitute a waiver on the part of the respondent. No motion to dismiss shall be entertained.

The Regional Director or his duly authorized representative may conduct a clarificatory hearing within the prescribed ten (10) calendar days within which to file a verified answer/counter affidavit.

Within the said ten (10) calendar days period, the contractor shall make the necessary corrections/rectifications on the violations that are immediately rectifiable upon its own initiative in order to be fully compliant.

The Regional Director may avail himself of all reasonable means to ascertain the facts of the case, including conduct of inspection, where appropriate, and examination of informed persons.

The proceedings before the Regional Office shall be summary in nature.

The conduct of hearings shall be terminated within fifteen (15) calendar days from the first scheduled clarificatory hearing. The Regional Director shall resolve the case within ten (10) working days from the date of the last hearing. If there is no necessity to conduct a hearing, the case shall be resolved within ten (10) working days from receipt of the verified answer/counter affidavit.

Any motion for reconsideration from the Order of the Regional Director shall be treated as an appeal.

Section 25. Appeal. The Order of the Regional Director is appealable to the Secretary within ten (10) working days from receipt of the copy of the Order. The appeal shall be filed with the Regional Office which issued the cancellation Order. The Office of the Secretary shall have thirty (30) working days from receipt of the records of the case to resolve the appeal. The Decision of the Secretary shall become final and executory after ten (10) days from receipt thereof by the parties. No motion for reconsideration of the Decision shall be entertained.

Section 26. Effects of cancellation of registration. A final Order of cancellation shall divest the contractor of its legitimate status to engage in contracting/subcontracting.

Such Order of cancellation shall be a ground to deny an application for renewal of registration to a contractor under the Rules.

The cancellation of the registration of the contractor for engaging in labor-only contracting or for violation of any of the provisions of these Rules involving a particular Service Agreement will not, however, impair the validity of existing legitimate job-contracting arrangements the contractor may have entered into with other principals prior to the cancellation of its registration. Any valid and subsisting Service Agreement shall be respected until its expiration; thereafter, contracting with a delisted contractor shall make the principal direct employer of all employees under the Service Agreement pursuant to Articles 106 and 109 of the Labor Code.

Section 27. Effects of finding of labor-only contracting and/or violation of Sections 7. 8 or 9 of the Rules. A finding by competent authority of labor-only contracting shall render the principal jointly and severally liable with the contractor to the latter’s employees, in the same manner and extent that the principal is liable to employees directly hired by him/her, as provided in Article 106 of the Labor Code, as amended.

A finding of commission of any of the prohibited activities in Section 7, or violation of either Sections 8 or 9 hereof, shall render the principal the direct employer of the employees of the contractor or subcontractor, pursuant to Article 109 of the Labor Code, as amended.

Section 28. Retaliatory measures. Pursuant to Article 118 of the Labor Code, as amended, it shall be unlawful for the principal, contractor, or any party privy to the contract or services provided to refuse to pay or reduce the wages and benefits, and discharge or in any manner discriminate against any worker who has filed any complaint or instituted any proceeding on wages (under Title II, Book III of the Labor Code), labor standards violation, or has testified or is about to testify in such proceedings.

Section 29. Enforcement of labor standards and working conditions.

Consistent with Article 128 (Visitorial and Enforcement Power) of the Labor Code, as amended, the Regional Director through his/her duly authorized representatives, shall conduct routine inspection of establishments engaged in contracting arrangement regardless of the number of employees engaged by the principal or by the contractor. They shall have access to employer’s records and premises at any time of the day or night whenever work is being undertaken therein, and the right to copy therefrom, to question any employee and investigate any fact, condition or matter which may be necessary to determine violations or which may aid in the enforcement of the Labor Code and of any labor law, wage order, or rules and regulations issued pursuant thereto.

The findings of the duly authorized representative shall be referred to the Regional Director for appropriate action as provided for in Article 128, and shall be furnished the collective bargaining agent, if any.

Based on the visitorial and enforcement power of the Secretary of Labor and Employment in Article 128 (a), (b), (c), and (d), the Regional Director shall issue compliance orders to give effect to the labor standards provisions of the Labor Code other labor legislation, and these Rules.

Section 30. Duty to produce copy of contract between the principal and the contractor. The principal or the contractor shall be under an obligation to produce a copy of the Service Agreement in the ordinary course of inspection. The contractor shall likewise be under an obligation to produce a copy of any contract of employment when directed to do so by the Regional Office Director or his/her authorized representative.

Section 31. Tripartite implementation and monitoring of compliance; Use of registration fees. A region-based tripartite monitoring team on the observance of labor standards in contracting and subcontracting arrangements shall be constituted as a subcommittee of the Regional Tripartite Industrial Peace Council (RTIPC) within fifteen (15) days from the effectivity of these Rules. It shall submit a quarterly regional monitoring report to the DOLE Secretary and to the National Tripartite Industrial Peace Council (NTIPC). The Bureau of Working Conditions (BWC) shall ensure the implementation of this provision, and shall conduct capacity building to the members of the regional tripartite monitoring team.

For this purpose, a portion of the collected registration fees shall be used in the operation of the region-based tripartite monitoring team, including in the development of an internet-based monitoring system and database. It shall likewise be used for transmittal of the monthly report of all registered contractors to the Bureau of Local Employment (BLE), and in generating labor market information.

Section 32. Oversight function of the National TIPC. The National Tripartite Industrial Peace Council (NTIPC) as created under Executive Order No. 49, Series of 1998, as amended, shall serve as the oversight committee to verify and monitor the following:

(a) Engagement in allowable contracting activities; and

(b) Compliance with administrative reporting requirements.

Section 33. Collective bargaining and/or Industry Tripartite Council (ITC). Nothing herein shall preclude the parties in collective bargaining agreements (CBAs) to determine the functions that can or cannot be farmed out or contracted out to a legitimate contractor, including the terms and conditions of the workers’ engagement under the arrangement, provided the provisions of these Rules are observed.

In industries with established Industry Tripartite Councils (ITCs), the tripartite partners may agree, through a voluntary code of good practices, on the functions or processes that can or cannot be contracted out to a legitimate contractor.

Section 34. Financial Relief Program; Tripartite Co-Regulation Engagement. A Financial Relief Program or Unemployment Assistance Fund shall be established for employees under a Service Agreement or employees in transition from one Service Agreement to the next. For this purpose, the National Tripartite Industrial Peace Council (NTIPC), upon the effectivity of this issuance, shall constitute a Local Service Provider Tripartite Working Group (LSP-TWG) composed of representatives of the stakeholders in the industry. The LSP-TWG shall:

(a) Recommend the mechanics and details in setting up the Financial Relief Program or Unemployment Assistance Fund with proposed funding sources before end of June 2012; and

(b) Draw-up the terms of a Tripartite Co-Regulation Engagement in ensuring full compliance with labor laws for approval/endorsement by the NTIPC, including a proposed Table of Progressive Rate of Increases in the minimum capitalization requirement at reasonable intervals to ensure that only legitimate contractors can engage in subcontracting arrangement.

Section 35. Enrollment in DOLE programs on improving compliance with labor standards. For purposes of ensuring compliance with labor standards, the principal and subcontractors covered by these Rules are encourage to enroll and participate in the DOLE Kapatiran Work Improvement for Small Enterprise (WISE)-TAV Program (Department Advisory No. 06, dated 07 March 2011) and/or in the Incentivizing Compliance Program (Department Order No. 115-11).

Section 36. Contracting or subcontracting arrangements in the Construction and Other Industries. Contracting or subcontracting arrangements in the Construction Industry, under the licensing coverage of the Philippine Construction Accreditation Board (PCAB), shall be covered by the applicable provisions of these Rules and shall continue to be governed by Department Order No. 19, Series of 1993 (Guidelines Governing the Employment of Workers in the Construction Industry); Department Order No. 13, Series of 1998 (Guidelines Governing the Occupational Safety and Health in the Construction Industry); and DOLE-DPWH-DILG-DTI and PCAB Memorandum of Agreement-Joint Administrative Order No. 1, Series of 2011 (on coordination and harmonization of policies and programs on occupational safety and health in the construction industry).

In industries covered by a separate regulation of the DOLE or other government agency, contracting or subcontracting therein shall be governed by these Rules unless expressly provided otherwise.

Section 37. Prohibition on DOLE officials or employees. Any official or employee of the DOLE or its attached agencies is prohibited from engaging or having any interest in any contracting or subcontracting business.

Section 38. Non-impairment of existing contracts; Non-diminution of benefits. Subject to the provisions of Articles 106 to 109 of the Labor Code, as amended, the applicable provisions of the Civil Code and existing jurisprudence nothing herein shall impair the rights or diminish the benefits being enjoyed by the parties to existing contracting or subcontracting arrangements.

The effectivity of Certificates of Registration acquired under Department Order No. 18, Series of 2002, issued on 21 February 2002, shall be respected until expiration.

Section 39. Supersession. All rules and regulations issued by the Secretary of Labor and Employment inconsistent with the provisions of these Rules are hereby superseded.

Section 40. Separability Clause. If any provision or portion of these Rules are declared void or unconstitutional, the remaining portions or provisions hereof shall continue to be valid and effective.

Section 41. Effectivity. This Department Order shall be effective fifteen (15) days after completion of its publication in a newspaper of general circulation.

Manila, Philippines, 14 November 2011.

Myline Cordial