Simplifying the DO 174 Registration in the Philippines

In today’s dynamic labor landscape, ensuring fair employment practices is important. The Department of Labor and Employment (DOLE) issued Department Order No. 174, Series of 2017 (DO 174) to establish clear guidelines for employers, contractors, and subcontractors, and to protect the  employees’ rights and prevent abusive labor-only contracting practices.

What is DO 174?

Department Order No. 174 or DO 174 provides guidelines governing contracting and subcontracting arrangements in the Philippines. Its primary goal is to protect the rights and promote the welfare of workers involved in these work setups.

Furthermore, DOLE has clarified that the registration for DO 174 as a legitimate contractor does not generally apply to companies in the Business Process Outsourcing (BPO), Legal Process Outsourcing (LPO), or IT-enabled service sectors, given that they are not engaged in labor-only contracting. 

However, if they provide services for clients within the Philippines, they may be required to register as legitimate contractors under DO 174.

Key Provisions of DO 174

The key provisions of DO 174 outline the responsibilities of principals, contractors, and subcontractors to ensure compliance with contracting obligations, including:

• Substantial Capital Requirement. Contractors that are corporations, partnerships, or cooperatives must have a minimum paid-up capital of PHP 5,000,000. For sole proprietorships, a net worth of PHP 5,000,000 is required.

• Prohibition of Labor-Only Contracting. Labor-only contracting is strictly prohibited when a contractor has insufficient capital or equipment, lacks control over employees, or when employees are assigned to roles that are essential to the principal’s core business. 

• Service Agreement Requirements. Contractors must include the scope of work, workplace conditions, and compliance with labor standards.

• Employee Rights and Benefits. Contractors must provide employees with all mandated benefits, and ensure a safe and compliant work environment.

• Bond Requirements. A renewable bond must be posted annually by contractors to guarantee compliance with labor laws and protect employees in case of violations.

• Termination Guidelines. Termination of employees must align with the Labor Code, ensuring due process and just cause are observed before ending their employment. 

DO 174 Requirements

Below are the required documents when registering for DO 174:

• Three (3) copies of a duly accomplished application form, available on the Department of Labor and Employment (DOLE) official website or at any regional office nearest to you

• 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 Department of Labor and Employment (DOLE) if the applicant is a labor organization

• Certified true copy of the license or business permit issued by the local government unit or units where the contractor operates

• 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 specific job or work contracted out

• Photo of the office building and premises where it is located

• Copy of audited financial statements, if a corporation, partnership, cooperative or a labor organization

• Copy of the latest Income Tax Return (ITR), if a sole proprietorship

• 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 should be attached)

• Additional documents, if required

DO 174 Registration Process

To process a DO 174 registration, follow this step-by-step guide:

• Preparation of Requirements. Gather all required documents, and ensure its accuracy and completeness. 

• File for an Application. You may file your application through online or in person at the appropriate regional office with jurisdiction over your business address. Please note that your application will not be processed and accepted if the required documents are incomplete. 

• Verification Inspection. Once the application has been submitted along with the supporting documents, the authorized representative of the Regional Director will conduct a verification inspection on the facilities, tools, equipment, and work premises of the applicant. 

• Approval or Denial of the Application. The Regional Office may approve or deny your application after the verification inspection. Applications that fail to meet the requirements would be automatically denied.

• Payment of Registration Fee. Upon approval of your application, you will be required to pay the registration fee worth Php 100,000.00. Additionally, upon registration, the Regional Office should return a copy of the duly-stamped application documents to you and retain a copy for its file, and transmit the remaining copies to the Bureau of Working Conditions (BWC).

• Issuance of Certificate. Once the required fees have been settled, the Department of Labor and Employment (DOLE) will issue a Certificate of Registration. 

Please note that all registered contractors are required to submit semi-annual reports and comply with ongoing inspections to maintain their registration status. 

How Long is the Validity of the DO 174 Certificate of Registration?

The Certificate of Registration is valid for two (2) years and in the region where it is registered,  unless cancelled after due process. Please note that it must be renewed every two (2) years. 

What Will Happen If the Contractor’s Certificate of Registration is Registered Outside the Region?

If the contractor has Service Agreements or operates outside the jurisdiction of the Regional Office where it is registered, it must 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. 

Grounds for Cancellation of DO 174 Registration

The DOLE Regional Director may cancel the registration of a contractor after due process, based on any of the following grounds:

• Misrepresentation of facts in the application

• Submission of falsified or tampered application or supporting documents to the application for registration

• Non-submission of Service Agreement between the principal and the contractor when required to do so

• Non-submission of the required semi-annual report 

• Final findings that the contractor has engaged in labor-only contracting and/or other illicit forms of employment arrangements 

• Non-compliance with labor standards and working conditions

• Findings of violation in the rights of contractor’s employees and required contracts

• Non-compliance with Social Security System (SSS), the Home Development Mutual Fund or Pag-IBIG, PhilHealth, and Employees’ Compensation Commission (ECC) Laws

• Collecting any fees not authorized by law and other applicable rules and regulations

• Violations of any provisions of the Labor Code

Effects of DO 174 on Employers

The DO 174 has a significant impact on businesses in the Philippines engaging with contractors and managing labor arrangements, such as:

• Operational Costs. The capitalization requirement worth Php 5,000,000 and the registration fee worth Php 100,000 increase the cost of hiring contractors.

• Stricter Obligations. Employers must ensure contractors are registered with the Department of Labor and Employment (DOLE).

• Reduced Labor Flexibility. The prohibition of labor-only contracting limits the ability to outsource core business functions.

• Improved Work Safety. Employers benefit from a more stable workforce, as contractors must provide mandated benefits, reducing the risk of labor disputes.

• Risk of Regularization. If a contractor engages in labor-only contracting, the principal may need to regularize those workers, which raises a long-term cost. 

• Due Diligence. Employers should verify the registration of contractors and compliance to avoid legal liabilities. 

Rights and Privileges of Contractor’s/Subcontractor’s Employees

The following are the rights and privileges of contractor’s or subcontractor’s employees:

• Safe and healthful working conditions

• Labor standards, such as, but not limited to service incentive leave, rest days, overtime pay, holiday pay, 13th month pay, and separation pay

• Retirement benefits under the Social Security Service (SSS) or retirement plans of the contractor/subcontractor

• Social security and welfare benefits

• Self-organization, collective bargaining, and peaceful concerted activities, including the right to strike