What is a legitimate subcontractor?
It is an independent employer who meets the following:
1) Minimum capitalization of at least P3 Million
· fully paid up capital for corporation, partnership and cooperative;
· net worth for single proprietorship
2) Proof of ownership or lease agreement on tools, equipment, machineries and work premises
3) Payment of P25,000.00 registration fee
4) Proof of financial capacity to pay the wages and benefits of its workers using the Net Financial Contracting Capacity (NFCC) formula in government procurement
5) Control over the performance of the work of the employee deployed or assigned to render the contracted work or services
7) Not engaged in prohibited activities enumerated in Section 7
8) Observes the rights of the workers as provided in Section 8
9) Observes the required contracts under Section 9
10) Not delisted from the registry of legitimate contractor/subcontractor
What is the capital requirement for Corporations, Partnerships or Cooperatives?
1. audited financial statements
2. income tax return
3. SEC Certification of Capitalization
4. CDA Certification of Capitalization
EXCLUDE corporate assets or properties
What is the substantial capital requirement for single proprietors?
NET WORTH: Total Assets minus Total Liabilities
Is there a difference of legitimate subcontracting from labor-only contracting?
Legitimate subcontracting is allowed while labor-only contracting is not allowed.
Definition of labor-only contracting (LOC)?
Effect of labor-only-contracting?
1. The subcontractor will be treated as the agent of the principal, and representations by the subcontractor to the employees will bind the principal.
2. The principal will become the employer as if it directly employed the workers, and will be responsible for all their
entitlements and benefits under the labor laws.
3. The principal and the subcontractor will be solidarily treated as the employer.
4. The employees will become employees of the principal, subject to the classifications of employees under Article 280 of
the Labor Code.
Difference between a subcontractor and a private recruitment and placement agency(PRPA)?
PRPA merely recruits workers for placing them with an employer or company. It is not the employer of the workers it recruited and placed.
A subcontractor directly undertakes a specific job or service for a principal, and employs its own workers. The four-fold test of E-E relationship should be satisfied by the subcontractor in relation to the employees it engages. The subcontractor is also referred to as independent contractor.
Is there a difference between an ordinary employer-employee relationship and subcontracting?
In an ordinary ER-EE relationship, two parties involved are the employer (directly hires the employee), and the employee.
In subcontracting, three parties are involved: the principal, the subcontractor, and the employees.
What If the legitimate Subcontractor cannot pay the wages of its employees?
A principal has two types of liability in relation to the employees of the subcontractor.
1. limited liability: The mere inability of the subcontractor to pay wages will only make the principal jointly and severally liable with the subcontractor for payment of the employees' wages to the extent of the work performed under the contract.
2. absolute & direct liability: Arises when there is labor-only contracting. The principal shall be responsible to the workers in the same manner and extent as if it directly employed these workers.
What is the hiring practice of repeated "5-5-5" or "endo" workers that are prohibited by DO 18-A, S. 2011?
It is the hiring practice deliberately resorted to prevent workers from acquiring regular status done through repeated short- term arrangements (e.g., “5 months, 5 months”, “5-5-5”, or less)
Who are covered by DO18-A?
A contractor’s employees, whether deployed or assigned as reliever, seasonal, week-ender, temporary, or promo jobbers, are entitled to all
(a) safe and healthful working conditions;
(b) labor standards such as service incentive leave, rest days, overtime pay, holiday pay, 13th month pay, and separation pay as may be provided in the Service Agreement or under the Labor Code;
(c) retirement benefits under the SSS or
retirement plans of the contractor, if there are any;
(d) social security and welfare benefits;
(e) self-organization, collective bargaining and peaceful concerted activities; and
(f) security of tenure.
Remedy of worker against a subcontractor or principal who violates the provisions of DO 18-A?
They can file a complaint for cancellation of the contractor’s registration before the DOLE Regional Office. DO18-A provides for grounds for cancellation of contractor’s certificate of registration, and the procedure.
How will DO18-A eliminate the practice of contractors of “race to the bottom” when bidding for service contracts?
It sets a standard administrative fee of at least ten percent (10%) to prevent the “race to the bottom” competition to the detriment of workers’ wages and benefits.
The standard administrative cost is based on the total contract cost, and not the total contract price. It is is derived by first computing the amount required for the payment of wage- and wage-related benefits including employees‘social welfare benefits. Next, the standard administrative cost is obtained by computing 10% of total contract cost. The resulting summary of the total contract cost PLUS the standard administrative fee of 10% accounts for the total contract price. VAT and other taxes are NOT included in total contract price.
If the Regional Wage Board issues a Wage Order at any time of a subsisting Service Agreement, who is responsible for the resulting wage differentials?
The principal /client shall bear the cost of any required wage increases plus the standard 10% administrative cost. But if the principal/client fails, the contractor is deemed jointly and severally liable.