3 Things Every Entrepreneur Must Do to Protect Himself from Lawsuits

An understanding of the basic labor laws will prevent the business from the effects of lawsuits. Lawsuits can be financially, operationally and emotionally draining, sometimes it may even lead to the demise of the company. So therefore, one of your roles as a small business entrepreneur is to learn and follow the law.

1. Understand the basic labor laws in hiring and firing employees

The Philippine law allows you put an employee for a probationary period of 6 months. These months are used to assess the performance of an employee. The services of the probationary employee maybe terminated with just cause. Note that a probationary employee who is allowed to work after probationary period is automatically considered a regular employee.

There are other ways for an employee to receive regular employment status. If the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion. Another way is if the employee who has rendered at least one year of service, whether such service is continuous or broken.

Once the employee receives a regular employement status, he or she is already entitled to certain benefits. Under ARTICLE 279 the regular employee must have security of tenure. Thus, his employment cannot be terminated without just cause. An employer may terminate an employment for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;

(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representatives; and

(e) Other causes analogous to the foregoing.

For more information on employment status see ARTICLE 280 of Philippine Labor Law.


2. Pay at least the minimum wage.  Below is the copy of the latest minimum wage in Metro Manila. Computing the salaries is based on whether an employee is daily paid or monthly paid.



How to compute for salaries?

For monthly-paid employees

The factor 365 days in a year is used in determining the equivalent annual salary of monthly-paid employees. To compute their EEMR, the procedure is as follows:

EEMR = Applicable Daily Rate x 365 days

        Where 365 days   = 298 days –  Ordinary working days
  52 days –  Sundays/Rest days
12 days –  Regular Holidays
    3 days –  Special days
 365 days – Total equivalent no. of days in a year

For daily-paid employees    

The following formula may be used in computing the EMR of different groups of daily-paid employees for purposes of entitlement to minimum wages and allied benefits under existing laws:

a) For those who are required to works everyday including Sundays or rest days, special days and regular holidays.

EEMR = Applicable Daily Rate x 393.50 days

        Where 393.50 days     =  298.00 days –  Ordinary working days
  24.00 days –  12 Regular holidays x 200%
  67.60 days –  52 rest days x 130%
    3.90 days –  3 special days x 130%
 393.50 days  Total equivalent no. of days in a year

b)  For those who do not work and are not considered paid on Sundays or rest days.

EEMR = ADR x 313 days

        Where 313 days     =  298 days –  Ordinary working days
  12 days –  Regular holidays
    3 days –  Special days
 313 days –  Total equivalent no. of days in a year

c) For those who do not work and are not considered paid on Saturdays and Sundays     or     rest days

EEMR = ADR x 261 days

        Where 261 days =  246 days –  Ordinary working days
  12 days –  Regular holidays
    3 days –  Special days
 261 days –  Total equivalent number of days



 3. Provide your regular employees with benefits required by law

  • Social Security System.

First, understand what ER & EE stand for. ER refers to employer and EE refers to employee. For the employer to know how much they need to contribute, check the range of compensation on the left side then intersect the value that corresponds to either ER or EE under the label “total contribution”. If the salary of your employee is 14,750 and above, the employer pays 1,090.00 to SSS, and an amount of 500.00 is deducted from the employee’s salary.


  • Philhealth

Below is the Contribution table from Philhealth. The contribution is shared by both employee and employer. The contribution is based on the salary bracket, just like the SSS.

  • 13th month pay.

13th month pay formula:

(Basic Monthly Pay) divided by 12 times (Number of Months worked within the Calendar Year)

Those not covered by the Labor Code’s 13th Month Pay Law are Businesses that losing and whose profits have declined by more than 40% of their income for the last 2 years.

 Pag ibig contribution.

Here is a very the table on how to compute for employers share for the Pag ibig contribution. This came directly from the HDMF form.

A good understanding of these laws will prevent future problems for the employees. So I suggest that you learn your basic business law before opening the your business. If you are in the business already, make sure you put in practice what is written in this article.


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