The business process outsourcing (BPO) industry in the Philippines has been essential in driving the country’s economy forward. The BPO sector’s contribution to the nation’s overall economy is overwhelming. From year 2000 up to the present, revenues from call centers, IT factories, and research facilities have amounted to over US$4 billion.
Projections are also looking bright for the IT–BPO industry for the years to come according to reputable forecasts. The National Economic and Development Authority (NEDA) predicts that the economy will enjoy a favorable growth in terms of gross domestic product (GDP). Last year, the Philippines’ GDP grew to 5-6 per cent. NEDA now looks at GDP figures ballooning to 6-7 per cent this year and 6.5-7.5 per cent in 2014.
The huge role the BPO industry plays to the economic growth in the Philippines is a major reason why the Philippine Government is very supportive of the said sector. In terms of ranking, the BPO and IT sectors are collectively the “most important generator of jobs” in the country. To date, employers in the BPO and IT sector have provided employment to more than 770,000 Filipino professionals, particularly in the call center and outsourcing businesses.
On top of giving employment opportunities to Filipinos, the BPO–IT sector is also branded as creator of high-paying jobs in the Philippines. The outsourcing business ranks as the top three foreign exchange earner, next to tourism and remittances. On the global stage, the Philippines is ranked number 1 in voice-related BPO services (customer service, technical support, and online tutorial services) and number 2 in non-voice BPO work (programming, website design, content creation and management, etc.).
According to NEDA, the BPO–IT industry in the country is slated to experience significant growth in 2016 and is projected to create 1.3 million jobs and rake in a total of US$25 billion in revenues.
With its important role in bolstering the Philippine economy, the BPO–IT industry in the Philippines remains to be one of the most protected commercial sectors in the country as far as Philippine labor laws are concerned. Policies and regulations are strictly implemented to protect the interests of both investors, employers, and the Philippine economy in general.
The basic foundations of all labor laws in the Philippines are declared in the Presidential Decree no. 442, otherwise known as the Labor Code of the Philippines. All the tenets that surround employer-employee relations, labor issues, and other work-related matters are addressed in the said law. The Labor Code applies to all employers and employees based or are working in the Philippines. The scope of the law includes also international companies that have set up their offices in the country and have employed Filipino professionals, as well as other nationalities, as integral part of their operations.
What BPO Investors and Employers Need To Know About Doing Business in the Philippines?
Discussing the intricate matters such as investing in the Philippines and the Philippine Labor Code in detail is a taxing task mostly reserved for those who are experts in investment and labor-related matters in the Philippines. That said, there are several things that need to be pointed out, especially to business organizations who plan to outsource the bulk of their work to the Philippine islands.
Heres what you should know about what employees expect in the Philippines
- Register and be legitimate. The Philippine laws have policies that protect and benefit the interests of employers, be they local and foreign. Therefore, it is best for foreign companies that wish to set up their operations in the Philippines to register with the Securities and Exchange Commission (SEC).
- Foreign-owned investments can qualify for tax cuts and other incentives. The Philippine Government gives tax cuts and other invectives to foreign-owned companies that operate in the service exports and business or knowledge processing and non-voice business processing industries. Contact centers, for instance, can avail of several advantages if the services they provide are directed to customers located abroad and the fees for their services are paid in foreign currency. There are certain requirements a foreign-owned employer must satisfy before it can qualify for incentives granted by the Philippine Government.
- Filipinos are required to work eight hours of work. The Philippine Labor Code explicitly states that no Filipino employee should render more than 8 hours of regular work and that a 60-minute break should be given to all employees for their meals. If an employer performs work in excess of 8 hours should be given overtime pay. The calculations of the overtime rate varies due to several factors, such as whether the overtime work was performed during a regular workday, a legal holiday, a rest day, or between 10PM to 6AM.
- Night shift workers are to be paid with a night shift differential. Almost all contact centers based in the Philippines operate in schedules that correspond to their US-based clients. As such, employers are required to pay their employees who work from 10PM to 6AM with a night differential rate.
- Minimum wage is in effect in the Philippines. Employers are mandated to never give less than the minimum wage required by law to their employees. Minimum wage rates vary from region to region. That said, majority of registered call centers in the country pay higher than the required minimum wage, which adds to the appeal of the BPO industry.
- Legal holidays are considered paid days, even if the employees prefer not to work on holidays. If they choose to work, employers are required to pay 200 per cent of their employees’ regular rate. That said, this mandate is subject to a few exceptions.
- Employees are entitled to five (5) paid leaves. That is provided they have worked for at least one (1) year for the same company.
- 13th Month pay is sacred in the Philippines. All employers are mandated to pay 13th Month pay to their employees. This pay is set to augment the employees’ income by adding a substantial amount to their pay at the end of the year. Many Filipinos look forward to their 13th month pay as most of them plan to use the additional funds to purchase dream appliance and gadgets or invest in business endeavors among others.
- Parents have benefits too. Male employees are entitled to seven (7) paid days of paternity leave which they can avail before, during, or after the pregnancy of their legal wives (live-in or common partners do not count). Women, on the other hand, can avail of their maternity leave, which is comprised of 60 days for normal deliveries and 78 days for caesarean section. However, the maternity leave is only applicable to the first four deliveries.
- Both employer and employee are required to contribute. Philippine laws mandate both employers and employees to register with the Social Security System (SSS), the Philippine Health Insurance Corporation (PhilHealth) and the Pag-IBIG Fund and give contributions to these institutions.
- Employees can’t be fired on the spot. In the Philippines, the Filipino employee has the right to challenge the validity of his or her termination. Once the complaint is lodged with the proper authorities, the employer will then shoulder the burden of proof and provide evidence to support the validity of an employee’s dismissal.
- Lockouts and strikes. Employees, particularly those in rank and file, have the right to perform strikes and form labor unions. Employers, on the other hand, have the right to impose lockouts as well.
There are also certain concerns that plague BPO employers in the Philippines to varying degrees and extent. Some BPO investors, down to their managers and supervisors, have little knowledge about the Philippine Labor Code and this led to a number of contested dismissals, lawsuits, and a string of other costly legal encounters.
Understanding how Philippine labor laws are implemented
Understanding how Philippine labor laws are implemented and enforced is one way of ensuring that both investors and employees attain satisfaction as far as work relations are concerned. In a bulletin issued by SyCip Salazar Hernandez & Gatmaitan, a leading labor law firm in the Philippines, the lack of understanding on the employers’ part of the legal framework that concerns their dealing with their Filipino employees (and to some scope, independent and home-based contractors) has caused critical setbacks to their operations, as well as caused adverse effects on their image and reputation.
The law firm suggested in its bulletin that BPO companies in the Philippines, particularly those owned and controlled by foreign corporations, initiate education campaigns directed not only at their human resources heads, but should also include managerial personnel who deal with rank and file workers on a daily basis.
“BPO companies should continually educate their managers—and not only those heading HR departments, but also those who deal with and supervise personnel—on the proper handling of employee discipline and benefits.”
Another common scenario pointed out by the law firm’s bulletin is that many BPO companies often announce attractive and weighty compensation packages and incentives yet fail to deliver on these promises. If an employer has granted a particular benefit, certain legal policies in the Philippines explicitly enforces them to implement and act on such promises.
Poaching is another problem commonly suffered by many BPO players in the country. Many employers see poaching as a serious threat to their operations, especially when they have invested so much in their employees in terms of training and time only to see them being herded by competing companies. SyCip Salazar Hernandez & Gatmaitan suggested that incorporating non-compete clauses in their employees’ contracts and placing provisions such as training bond and liquidated damages can be of great help to significantly reduce the cases of poaching in the Philippine BPO industry.
Satisfying the Night Workers
As mentioned earlier, call centers comprise the major portion of the entire BPO industry in the Philippines. And this fact also means that most Filipino professionals employed in the BPO sector are working during the night. But working during the night also has its problems, according to several business observers.
Although call centers are Philippine BPO’s biggest revenue generator and employ the most number of workers, the industry is also notorious for its turnover rates and attrition, brought by employees quitting because they cannot adjust to the standard call center schedule.
To counter these problems, many call centers have enacted several initiatives that provide a multitude of benefits to those who excel. Included in the mix is the government-mandated night time differential. On top of that, many employers grant allowances, hazard pay, and other monetary benefits to motivate their workers to perform well.
There are several suggestions brought up by various companies to reduce turnover rates and eliminate attrition in the call center sector. According to William Dieu, senior research analyst from CallCentres.net, adopting a strategy that fuses home-based work will exponentially drop turnover rates. Allowing employees to work remotely from home presents a myriad of advantages, says Dieu. This includes saving costs from meal allowances and transportation, particularly now that fuel prices are soaring high.
However, there are those who oppose such move. Most of them say that the Philippines’ infrastructure in terms of internet and telecommunications is not as advanced compared to its Asian neighbors Japan and South Korea. These technological gaps are what hamper a setup such as working remotely from home.
Benedict Hernandez, senior vice president and general manager for Philippines of E Telecare, and John Langford, executive vice president of ICT group, concur on the said notion. Hernandez says that Philippines is not as wired compared to the United States, while Langford implies that it will take considerable time and significant improvement of the existing communications and networking systems the Philippines before such setup can be considered and implemented.
But that being said, the number of home-based workers operating independently in the Philippines has increased in multiple folds over the past years. Many professionals who have extensive experience and qualifications even chose to quit their day jobs to work as virtual employees for small and medium size businesses based in other countries.
However, there is no definite system in place and most of the employers who provide outsource work are not registered with the proper Philippine agencies. This makes the home-based work industry in the Philippines, vulnerable to exploitation and currently does not enjoy the benefits that legitimately-registered businesses are reaping.
But that does not mean that such an industry won’t become a reality in the coming years.
To learn more about the Philippine Labor laws, visit the official website of the Philippine Department of Labor and Employment.