10/07/2026
In our previous article, we discussed the possibility of operating a business without an HR department but with some risks as the business grows.
Labor laws in the Philippines are strongly pro-worker, strictly mandated by the Labor Code of the Philippines and actively monitored by the Department of Labor and Employment (DOLE) and the National Labor Relations Commission (NLRC) (Labor Law PH, 2026). Here are some critical risks of operating a business or an organization without a designated HR:
1. Violations of the “Two-Notice” Procedural Due Process
Unlike in other countries, we cannot fire employees in the Philippines at will. Terminating employees for just cause, like misconduct or gross negligence, requires adherence to the so-called “Two-Notice” rule (Feliciano, 2026) which untrained HR managers often neglect. For instance, even if an employee caught stealing is terminated, the dismissal is illegal if the employee is not given a formal Notice to Explain (NTE) with at least 5 calendar days to respond, followed by a formal hearing and a final Notice of Termination (hrpayrollguru, 2015). Worse, the NLRC often orders companies to pay full backwages (salaries accrued from the time of termination to the finality of the case in court), separation of pay, and moral damages (Sprout Solutions, 2026).
2. Miscalculations in General Labor Standards
Payroll in the Philippines is complex. It involves keeping track of local regional minimum wages, Overtime (OT), Night Shift Differentials, Holiday Pay (Regular vs. Special Non-Working), and the mandatory 13th Month Pay (Feliciano, 2026). When payroll is handled only by accounting for example, without an HR compliance framework, statutory premiums may be miscalculated, particularly during overlapping holidays or graveyard shifts. Under Republic Act No. 8188, double indemnity applies to unpaid or underpaid wages (Respicio & Co., 2025). Moreover, business owners may be fined ranging from ₱25,000 to ₱100,000 and even face criminal liability/imprisonment of up to 4 years for severe, willful non-compliance.
3. Non-Compliance with Required Statutory Contributions
Employers are required to accurately calculate, deduct, and remit monthly contributions to the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund (Pag-Ibig). Without HR to monitor and check updates in contribution tables or coordinate the registration of new employees with the different government agencies, the possibility of the company missing the due date or under-remit is most likely to happen, which could result in significant compound interest and penalties. Furthermore, willful non-remittance of SSS contributions is a criminal offense (Sprout Solutions, 2026).
4. Automatic Regularization of Employees
Organizations without HR often overlook the 6-month probationary period of employees wherein their fitness to qualify for regular employment should be evaluated. There are also some organizations using successive “fixed term” contracts to avoid giving out benefits to employees. The moment the employee reports for work for more than the 180 calendar days of the probationary period, they will automatically become regular employees by operation of law, with security of tenure (Labor Law PH, 2025).
5. Administrative Disasters
Without a skilled HR, the organization faces the risks of ineffective recruitment and onboarding processes, employee retention, and benefits administration which could lead to employee dissatisfaction, failure to attract top talents, and losing key employees to competitors (Harper, 2021).
6. Inconsistent Conflict Resolution and Toxic Culture
Companies are more susceptible to unconscious bias, favoritism, and nepotism in the absence of HR procedures that standardize promotions and performance reviews (Eisen, 2025). Additionally, lawsuits are more likely when line managers lack the necessary training to resolve interpersonal conflicts or impartially look into allegations of harassment or discrimination.
7. Non-Compliance with Workplace Safety, Health and Special Laws
Compliance in the modern workplace goes much beyond the basic payroll. Organizations are required to actively implement specialized national mandates such as the Occupational Safety and Health Law (RA 11058), Safe Spaces Act (RA 11313), and the Data Privacy Act (RA 10173). These procedures are rarely developed in the absence of HR, putting leadership at serious administrative and criminal risk.
8. Leadership Bottlenecks
When an organization doesn't have a dedicated HR department, the executive team is greatly distracted from more general business objectives by all personnel matters, wage discussions, and hiring decisions (Charleston, 2018).
These are some of the crucial implications of not having an HR in running a business or an organization. Therefore, MSMEs must really strategize to handle Philippine labor laws. They say automating the payroll system would spell the difference to avoid the nightmare of manually calculating the complex deductions, the TRAIN Law graduated tax-tables, and the varying regional minimum wages. There are a lot of local HRIS platforms now available on the market. The question is, would micro and small enterprises have a budget for this? In addition, organizations should also factor in additional 20% to 25% of the base pay for the mandatory contributions/benefits like the 13th month pay, SSS, PhilHealth, Pag-Ibig, and withholding tax (for annual taxable income of more than Php 250,000).
Creating a DOLE-compliant Employee Handbook would serve as a legal defense for an organization without HR. The Employee Handbook must include the mandatory workplace policies on Occupational Safety and Health Standards (OSH), Anti-Sexual Harassment and Safe Spaces, and Health Programs for Drug-Free Workplace, Alcohol-Free Workplace, HIV/AIDS, Tuberculosis, and Hepatitis B prevention.
Finally, mastering the “Two-Notice Rule” for terminating employees is a must as there is no “at-will” employment in the country, and employees enjoy the strong security of tenure.
For more information and inquiries on the subject matter as well as fractional and outsourced HR services, please contact Hothouse Management Consultancy Services at +63 9217255654 or +63 9178563548 or email us at inquiry@hothousemanagement.com or hothousemgtconsultancy@gmail.com.
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