Contractor’s employees

As Christmas draws near, the question that is in the mind of most fixed income or wage earners is whether they will receive a 13th month pay or Christmas bonus.

According to reports, government employees will receive a P10,000 productivity enhancement incentive starting December 8.

It will be given to civilian employees who hold regular, casual or contractual positions with at least four months service in national government agencies under the executive branch, including those in government-owned and -controlled corporations.

Also entitled to the extra pay are uniformed personnel of, among others, the Armed Forces of the Philippines, Department of National Defense, Philippine National Police and Philippine Coast Guard.

For employees of private companies, the law requires the 13th month pay to be not less than one-twelfth of the total salaries received during the year, which must be paid not later than December 24 of the year.

Until the Department of Labor and Employment issued Department Order No. 18-A, dated Nov. 14, 2011, a “sub-class” in the local employment environment that goes by the names “contractual employees,” “project workers” and “temporary jobbers” was unsure on whether they are entitled to the same benefit and, if so, who should give it.

Registration

The DOLE order lays down the rules and regulations on the operation of legitimate contracting and subcontracting companies, and the protection of rights of the people whose services they employ.

Contracting or subcontracting is defined as “an arrangement whereby a principal (or employer) agrees to put out or farm out to 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.”

To be considered a legitimate contractor or subcontractor, the person or entity should meet the following criteria: it is registered with DOLE in accordance with the instant order, has substantial capital or investment, and its service agreement with its employees complies with existing labor laws.

For corporations, partnerships and cooperatives, substantial capital is at least P3 million in paid-up capital; in the case of a single proprietorship, its net worth should not be less than P3 million.

If the contractor does not meet the capital requirements and its employees are made to perform activities that are necessary or desirable to the operation of the company, or are directly related to its main business, it shall be considered engaged in labor-only contracting, which is prohibited by the Labor Code.

In street language, a labor-only contractor is called a “cabo” or a person or group that presents itself as a labor organization whose main activity is to recruit and supply workers, for a fee, to companies that need extra hands during certain business periods.

Benefits

For years, there is this mistaken notion that, in spite of the existence of a valid service contract with a legitimate contractor, it is the employer that should be looked at in ensuring that the latter’s employees are not exploited.

The DOLE order clears the air on the status of contractor’s employees and who should give the benefits due them under our laws.

This time, there is no mistaking about the contractors’ (or subcontractors’) responsibility for their employees’ wages and other benefits.

Regardless of how these employees are deployed, assigned or described—reliever, seasonal, week-ender, temporary or promo jobbers—they are entitled to all the rights and privileges that the Labor Code gives to ordinary employees.

Among others, the contractor’s employees should enjoy overtime pay, rest days, service incentive leave and, in keeping with the season, 13th month pay.

All these benefits have to be provided by the contractor in accordance with the applicable rules and regulations of DOLE.

If, after proper hearing, the contractor is shown to have violated the rights of its employees or failed to give them the benefits due them, its registration shall be cancelled, without prejudice to prosecution for violation of our labor laws.

Provisioning

In the past, whenever contractors are questioned about their compliance with the 13th month pay, they claim insufficiency of funds or point to their principal’s failure to provide for that amount in their service contracts.

Not anymore. The DOLE order bars them from washing their hands off their financial responsibilities to their employees or making their principals the scapegoat for their own inadequacies.

In the first place, when a legitimate contractor enters into a service agreement with its principal, reasonable business sense demands that it include in its proposal all the costs it will incur in providing the service (both labor and materials), administrative overhead, taxes and a percentage that represents its profit for entering into the service contract.

It’s the contractor’s lookout if, in its desire to bag the contract, it “dives” by reducing the labor costs through, say, paying less than the minimum wage, or not making provisions for the 13th month pay, or withholding premium contributions to social security and other mandatory welfare programs.

No ifs and buts about it, on or before December 24, the contractor has to come up with the money to pay its employees’ 13th month pay. If need be, it has to borrow from outside sources or request an advance from its principal for this purpose.

Failure to put the extra cash in its employees’ pay envelope could put the contractor at risk at being categorized as a labor-only contractor whose operation is prohibited.

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