Manpower is the backbone of any business. After all, it’s your workers that serve customers or operate the equipment that allows you to turn a profit.
However, hiring a full-time employee can be costly as you have to provide benefits on top of compensation. This is why many employers hire contractors or subcontractors instead.
DOLE’s Department Order No. 174-17 (D.O. 174-17), however, seeks to limit who can hire so-called “labor-only workers” — a step towards minimizing exploitative contractualization in the workplace.
How do you know if you qualify to hire contractors for your enterprise? This guide provides the answer.
What the law says
If you will recall, DOLE ordered a popular fast-food company to regularize around 6,000 of its contractual workers in 2018. This is in line with D.O. 174-17’s goal to strengthen workers’ right to tenure, hence the prohibition of labor-only contracting. As per the law, companies practice labor-only contracting if:
- The contractor does not have ample capital. For corporations, partnerships, and cooperatives, the minimum capital requirement is ₱5 million. If a single proprietorship, the entrepreneur must have a net worth of at least ₱5 million.
- The contractor does not own the tools, equipment, and machines that contractors will use.
- The contractor hires people to do jobs that are directly related — and thus essential — to their business.
- The contractor does not exercise the right to control the performance of the persons hired.
Additionally, these illicit work arrangements can also be construed as labor-only contracting:
- Farming out work to an entity that operates under the guise of a labor organization or cooperative.
- Creating an in-house agency and contracting jobs to it.
- Forming an in-house cooperative whose only purpose is to supply workers.
- Requiring a contractor or subcontractor’s workers to perform the same job as a company’s regular or full-time employees.
Getting authorization to hire contractors and subcontractors
Of course, this isn’t to say that hiring contractors is illegal in all cases. As mentioned above, D.O. 174-17 is only meant to discourage exploitative labor conditions.
D.O. 174-17 provides the permissible contracting/subcontracting agreements:
- The contractor or subcontractor is engaged in a distinct and independent business and undertakes to perform the job or work on its own responsibility, according to its own manner and method;
- The contractor or subcontractor has substantial capital to carry out the job farmed out by the principal on his account, manner and method, investment in the form of tools, equipment, machinery and supervision;
- In performing the work farmed out, the contractor or subcontractor is free from the control and/or direction of the principal in all matters connected with the performance of the work except as to the result thereto; and
- The Service Agreement ensures compliance with all the rights and benefits for all the employees of the contractor or subcontractor under the labor laws.
To be clear, companies can hire contractual workers instead of full-time employees, but they must sufficiently justify doing so. Today, this means securing a job contractor/sub-contractor permit.
Below are the requirements when filing for it:
- Three copies of the accomplished application form
Must be filed with a tax identification number (TIN) and proof of compliance with substantial capital requirements. - Additional documentary proof:
- [IF A BUSINESS ENTITY] Certified true copy of the Certificate of Registration from SEC, along with the articles of incorporation, with paid-up capital of P5,000,000.
- [IF SOLE PROPRIETOR] Certified copy of DTI Registration Certificate and DTI Certification of net worth (at least P5,000,000)
- [IF COOPERATIVE] Certified true copy of the Certificate of Registration from the Cooperative Development Authority (CDA) with P5,000,000.00 paid-up capital stocks/shares
- Certified copy of registration from the DOLE if the applicant is a union.
- Certified true copy of license or business permit / mayor’s permit issued by the local government unit (LGU) where the contractors operate.
- Copy of duly audited financial statements for corporations, partnerships, cooperatives, or labor organizations; Or a copy of the latest income tax return (ITR) if a sole proprietorship.
- Sworn disclosure that the registrant has not operated as a contractor under a different business name and has no pending violations of D.O. 174-17 and/or other labor standards.
- Certified listing with proof of ownership or lease contract of facilities, tools, equipment, implements, machinery, and work premises that are actually used by the contractor in the performance of the work contracted out.
- Photo of the office building and premises where the contractor holds office
Should you need help with securing a job contractor/subcontractor permit, allow Duran & Duran-Schulze to be at your service. You may contact our office by calling (+632) 478 5826 or by sending an email to info@duranschulze.com.
