e Labor Code, As Amended. DOLE Secretary Rosalinda Baldoz signed the department order o!ember last year to pro!

ide clear"c#t policies on the contracting and s#bcontracting pro!isions #nder the labor code. Q AND A on DOLE DEPARTMENT ORDER NO. 18-A, s. 2011 What is a legitimate s !"ont#a"to#$ A legitimate contractor is an independent employer $ho meets the %ollo$ing& '( )inim#m capitalization o% at least *+ )illion , %#lly paid #p capital %or corporation, partnership and cooperati!e, net $orth %or single proprietorship .( *roo% o% o$nership or lease agreement on tools, e/#ipment, machineries and $or0 premises +( *ayment o% *.1,222.22 registration %ee 3( *roo% o% %inancial capacity to pay the $ages and bene%its o% its $or0ers #sing the et 4inancial Contracting Capacity 5 4CC( %orm#la in go!ernment proc#rement 1( Control o!er the per%ormance o% the $or0 o% the employee deployed or assigned to render the contracted $or0 or ser!ices 6( ot engaged in labor"only contracting arrangement as pro!ided in Section 6 .Certi%icate o% Ban0 Deposits 7( ot engaged in prohibited acti!ities en#merated in Section 7 8( Obser!es the rights o% the $or0ers as pro!ided in Section 8 9( Obser!es the re/#ired contracts #nder Section 9 '2( ot delisted %rom the registry o% legitimate contractor:s#bcontractor What is the "a%ital #e& i#ement 'o# (o#%o#ations, Pa#tne#shi%s o# (oo%e#ati)es$ *aid"#p Capital& s#bscribed and %#lly"paid #p capital stoc0s Acceptable *roo%& '. a#dited %inancial statements .. income ta; ret#rn +. SEC Certi%ication o% Capitalization 3. CDA Certi%ication o% Capitalization E<CL=DE corporate assets or properties What is the s !stantial "a%ital #e& i#ement 'o# single %#o%#ieto#s$ E> ?OR>@& >otal Assets min#s >otal Liabilities Acceptable *roo%& '. A#dited %inancial statements .. Ancome ta; ret#rn +. BAR Certi%icate o% title:proo% o% o$nership o% real property $ith assessed %air mar0et !al#e

3. Stoc0 Certi%icate on its %ace !al#e 1. Certi%icate o% Ban0 Deposits 6. D>A Certi%icate o% Capitalization *s the#e a +i''e#en"e !et,een legitimate s !"ont#a"ting an+ la!o#-onl- "ont#a"ting$ Legitimate s#bcontracting is allo$ed $hile labor"only contracting is not allo$ed. De'inition o' la!o#-onl- "ont#a"ting .LO(/$ Contractor: s#bcontractor merely recr#its, s#pplies or places $or0ers to per%orm a Bob, $or0 or ser!ice %or a principal, and the %ollo$ing elements are present& a( contractor or s#bcontractor does not ha!e s#bstantial capital or in!estment to act#ally per%orm the Bob, $or0 or ser!ice #nder its o$n acco#nt and responsibility- and b( employees recr#ited, s#pplied or placed are per%orming acti!ities directly related to the main b#siness o% the principal- or c( contractor does not e;ercise the right to control o!er the per%ormance o% the $or0 o% the employees. E''e"t o' la!o#-onl--"ont#a"ting$ '. >he s#bcontractor $ill be treated as the agent o% the principal, and representations by the s#bcontractor to the employees $ill bind the principal. .. >he principal $ill become the employer as i% it directly employed the $or0ers, and $ill be responsible %or all their entitlements and bene%its #nder the labor la$s. +. >he principal and the s#bcontractor $ill be solidarily treated as the employer. 3. >he employees $ill become employees o% the principal, s#bBect to the classi%ications o% employees #nder Article .82 o% the Labor Code. Di''e#en"e !et,een a s !"ont#a"to# an+ a %#i)ate #e"# itment an+ %la"ement agen"-.PRPA/$ *R*A merely recr#its $or0ers %or placing them $ith an employer or company. At is not the employer o% the $or0ers it recr#ited and placed. A s#bcontractor directly #nderta0es a speci%ic Bob or ser!ice %or a principal, and employs its o$n $or0ers. >he %o#r"%old test o% E"E relationship sho#ld be satis%ied by the s#bcontractor in relation to the employees it engages. >he s#bcontractor is also re%erred to as independent contractor. *s the#e a +i''e#en"e !et,een an o#+ina#- em%lo-e#-em%lo-ee #elationshi% an+ s !"ont#a"ting$ An an ordinary ER"EE relationship, t$o parties in!ol!ed are the employer 5directly hires the employee(, and the employee.

An s#bcontracting, three parties are in!ol!ed& the principal, the s#bcontractor, and the employees. What *' the legitimate 0 !"ont#a"to# "annot %a- the ,ages o' its em%lo-ees$ A principal has t$o types o% liability in relation to the employees o% the s#bcontractor. '. limited liability& >he mere inability o% the s#bcontractor to pay $ages $ill only ma0e the principal Bointly and se!erally liable $ith the s#bcontractor %or payment o% the employeesC $ages to the e;tent o% the $or0 per%ormed #nder the contract. .. absol#te D direct liability& Arises $hen there is labor"only contracting. >he principal shall be responsible to the $or0ers in the same manner and e;tent as i% it directly employed these $or0ers. What is the hi#ing %#a"ti"e o' #e%eate+ 12-2-21 o# 1en+o1 ,o#3e#s that a#e %#ohi!ite+ !- DO 18-A, 0. 2011$ At is the hiring practice deliberately resorted to pre!ent $or0ers %rom ac/#iring reg#lar stat#s done thro#gh repeated short" term arrangements 5e.g., E1 months, 1 months, E1"1" 1, or less( a( by one principal thro#gh the same contractor, or #nder di%%erent contractors, or b( thro#gh a Ser!ice Agreement o% short d#ration #nder the same contractor, or di%%erent contractors. Repeated hiring o% the same $or0ers sho$s that he:she is per%orming %#nctions that is #s#al and necessary to the trade or b#siness o% the employer. On the other hand, the 1"1"1 $or0ing arrangement that is not repeated has been declared as a !iolation o% p#blic policy as it has been sho$n to ha!e been resorted to pre!ent reg#lar employment. Who a#e "o)e#e+ !- DO18-A$ '. manpo$er ser!ice "ooperati!es .. Banitorial and sec#rity agencies What a#e the #ights o' an em%lo-ee o' the "ont#a"to#$ A contractorFs employees, $hether deployed or assigned as relie!er, seasonal, $ee0" ender, temporary, or promo Bobbers, are entitled to all 5a( sa%e and health%#l $or0ing conditions5b( labor standards s#ch as ser!ice incenti!e lea!e, rest days, o!ertime pay, holiday pay, '+th month pay, and separation pay as may be pro!ided in the Ser!ice Agreement or #nder the Labor Code5c( retirement bene%its #nder the SSS or retirement plans o% the contractor, i% there are any5d( social sec#rity and $el%are bene%its5e( sel%"organization, collecti!e bargaining and peace%#l concerted acti!ities- and

5%( sec#rity o% ten#re. Reme+- o' ,o#3e# against a s !"ont#a"to# o# %#in"i%al ,ho )iolates the %#o)isions o' DO 18-A$ >hey can %ile a complaint %or cancellation o% the contractorFs registration be%ore the DOLE Regional O%%ice. DO'8"A pro!ides %or gro#nds %or cancellation o% contractorFs certi%icate o% registration, and the proced#re. 4o, ,ill DO18-A eliminate the %#a"ti"e o' "ont#a"to#s o' 5#a"e to the !ottom6 ,hen !i++ing 'o# se#)i"e "ont#a"ts$ At sets a standard administrati!e %ee o% at least ten percent 5'2G( to pre!ent the Erace to the bottom competition to the detriment o% $or0ersF $ages and bene%its. >he standard administrati!e cost is based on the total contract cost, and not the total contract price. At is is deri!ed by %irst comp#ting the amo#nt re/#ired %or the payment o% $age" and $age"related bene%its incl#ding employeesHsocial $el%are bene%its. e;t, the standard administrati!e cost is obtained by comp#ting '2G o% total contract cost. >he res#lting s#mmary o% the total contract cost *L=S the standard administrati!e %ee o% '2G acco#nts %or the total contract price. IA> and other ta;es are O> incl#ded in total contract price. *' the Regional Wage 7oa#+ iss es a Wage O#+e# at an- time o' a s !sisting 0e#)i"e Ag#eement, ,ho is #es%onsi!le 'o# the #es lting ,age +i''e#entials$ >he principal :client shall bear the cost o% any re/#ired $age increases pl#s the standard '2G administrati!e cost. B#t i% the principal:client %ails, the contractor is deemed Bointly and se!erally liable.