Contractor or Subcontractor

Summary

▪ A contractor or a subcontractor is registered with the Department of Labor and Employment (DOLE) as legitimate job contractors, who perform a job or work farmed out or outsourced by a principal under a Service Agreement.

▪ They have a distinct and independent business, which enables them to perform the outsourced job or work according to their own manner and method.

▪ They are free from the control and/or direction of the principal.

▪ The Service Agreement between the principal and the contractor should have terms that would ensure compliance with all rights and benefits for all the employees of the contractor or subcontractor under labor laws.

1. Concept

A contractor refers to “any person or entity engaged in a legitimate contracting or subcontracting arrangement providing services for a specific job or undertaking farmed out by (a) principal under a Service Agreement.” (Section 3(d), DO-174)

2. Permissible job contracting

Notwithstanding the rules on absolute prohibition against labor-only contracting (Section 5, DO-174) and the other illicit forms of employment arrangements (Section 6, DO-174), contracting or subcontracting are allowed if all of the following conditions are present:

1) The contractor or subcontractor is engaged in a distinct and independent business and undertakes to perform the job or work on its own responsibility, according to its own manner and method;

2) The contractor or subcontractor has substantial capit...

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