Benefits

Informed Choices

Service Contracting or Outsourcing refers to an arrangement whereby a principal agrees to put or farm out with a contractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such, work or service is to be performed or completed within or outside the premises of the principal.

In service contracting arrangement, the principal enters into a Trilateral Relationship refers to the relationship in a contracting or subcontracting arrangement where there is a contract for a specific job, work or service between the principal and the contractor, and a contract of employment between the contractor and its workers. There are three (3) parties involved in this arrangement:

1. the principal who decides to farm out a job, work or service to a contractor;
2. the contractor who has the capacity to independently undertake the performance of the job, work or service; and
3. the contractual workers engaged by the contractor to accomplish the job, work or service.

Philippine Labor Law prohibits labor-only contracting which are defined under DO-174 section 5:

a)

i. The contractor or subcontractor does not have substantial capital,

OR

ii. The contractor or subcontractor does not have investments in the form or tools, equipment, machineries, supervision, work premises, among others,

AND

iii. The contractor's or subcontractor's employees recruited and placed are performing activities which are directly related to the main business operation of the principal;

OR

b)

The contractor or subcontractor does not exercise the right to control over the performance of the work of the employee.

Purpose

Service contracting is to equip business owners with a strategic solution in managing unique business requirements. Some of the common applications and benefits are:

1. hiring temporary workers to sustain short-term influx or seasonality demand e.g. holiday seasons, opening teams, expansion, project based
2. outsourcing of non core business functions but essential in achieving overall business objectives e.g. facility maintenance, customer service, back office/HR administration, IT, production processing, others.
3. off loading payroll preparation, employee requirements administration, and reporting to meet 100% labor law compliance such as filing of SSS, Philhealth, Pag-Ibig, AlphaList, and local compliance permits monthly, quarterly, annually.
4. addressing productivity loss 6 months after hiring other known as regularization syndrome where worker slacks performance due to complacence and perceived security of tenure. This ensures continued peak performance year round and saves on training cost.
5. lowering turnover or attrition with a longer selection period to observe contractual workers performance and behavior prior offering permanent job status.
6. eliminating 5-5-5 contracting practice of hiring new talent every 5 months; promotes fair employment practice and ethical work standards.
7. connecting to wide skilled labor network saving on sourcing, recruitment, management, and deployment costs.
8. protecting principal from labor disputes and Right to Self-Organization.
9. enabling servicing companies to declare taxes on their labor projects.
10. cost saving measure on over and above statutory monetary benefits.