Projects and Services

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

6)         Not engaged in labor-only contracting arrangement as provided in Section 6 
            Certificate of Bank Deposits

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?

 Paid-up Capital:  subscribed and fully-paid up capital stocks

 Acceptable Proof: 


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

Acceptable Proof:


1.     Audited financial statements
2.    Income tax return
3.     BIR Certificate of title/proof of ownership of real property with assessed fair market value
4.   Stock Certificate on its face value
5.   Certificate of Bank Deposits
6.   DTI Certificate of Capitalization

 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)?

 Contractor/ subcontractor merely recruits, supplies or places workers to perform a job, work
 or service for a principal, and the following elements are present:
a)  contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service          under its own account and responsibility; and
b)  employees recruited, supplied or placed are performing activities directly related to the main business of the principal; or
c)  contractor does not exercise the right to control over the performance of the work of the employees.

 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)

 a) by one principal through the same contractor, or under different contractors, or
 b) through a Service Agreement of short duration under the same contractor, or different contractors.
     Repeated hiring of the same workers shows that he/she is performing functions that is usual and necessary to the trade or      business of the employer.
     On the other hand, the 5-5-5 working arrangement that is not repeated has been declared as a violation of public policy as      it has been shown to have been resorted to prevent regular employment.

 Who are covered by DO18-A?

 1.  manpower service cooperatives
 2.  janitorial and security agencies 
What are the rights of an employee of the contractor?

 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.


FOR FURTHER CLARIFICATION, please contact the nearest DOLE Field Office or the Regional Office:

Ilocos Norte:     (077)7720727   

Ilocos Sur: (077)6320022

La Union: (072)7003122

Eastern Pangasinan: (075)5148098

Central Pangasinan: (075)5152590

Western Pangasinan: (075)5514525

Regional Office: (072)7002520

RD Nat V. Lacambra
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