When ENDO ends

Cherrylin M. Javier Assurance Partner, PwC Philippines 09 Sep 2016

Ate Faith, a contractual worker, told me that she has been with an agency for 14 years and is not aware whether or not she will receive retirement pay other than what she is entitled to under the Philippine Social Security System (SSS) when she retires. For her annual five-day vacation leave entitlement, she is given the cash equivalent after each year of service; but throughout the year the agency adheres to a policy of no-work-no-pay policy with time keeping which reduces her take-home pay. She receives her 13th-month pay while all government mandated deductions such as SSS, HDMF, and Philhealth are taken out of her monthly pay. She mentioned having been hospitalized at once and managed to get a subsidy from Philhealth; nonetheless, she had to shell out a huge amount. If there are other benefits that she can get from her agency, Ate Faith is not aware or has no recollection of any that has been explained to her or if there is anything stated in her employment contract.

Millions of contractual workers are in the same boat as Ate Faith, a boat bereft of a few things that would help them cope better with daily life and assure them of at least augmentation funds as they age beyond retirement. These millions have long been hoping that someone will come to their rescue and as fate would have it, came the promise of President Duterte. With his 100th day in office approaching, the President’s army are probably gathering facts to report on the progress of making this a reality soon enough.

What is ENDO
ENDO or end of the contract is the term used for contractualization of workers in the Philippines. As differentiated from a regular employee, a contractual worker serves a particular company for a limited period that is anchored on a project (project-based) or fixed-term, most often not exceeding six months.

The most common set up for companies needing a huge number of contractual workers is to commission an agency providing such workers. These agencies become the party responsible for the welfare and ‘employment’ if at all there is one, of such contractual workers and their costs are billed/charged to their clients. In practice, one set of contractual workers is replaced by another set of contractual workers before they exceed service of six months in any particular company. As to why contract workers can serve a particular company for a continuous period of more than six months—at times extending to years—has yet not been able to establish, an employee-employer relationship that would allow an employee to become a regular member of the company is something that I have not attempted to rationalize in this article; but this condition, I believe, exists.

What does “end” mean for contractual workers
Ending ENDO can mean regularization of a contractual worker; thus belonging to a company that one can call a second home. This home comes with, probably, some benefits if not a higher base compensation. For contractual workers becoming regular employees of generous companies, increment benefits can include mandatory pension benefits under Republic Act 7641 or based on the company’s terms besides SSS pension benefits, improved medical coverage, more vacation, and sick leave credits, life insurance, de minimis benefits, allowances or other forms of benefits. The regularized employee can even get performance-based bonuses, merit increase during salary reviews, or be entitled to profit share. The benefits (or the lack of it) widely differ among companies and industries. While there is hope for higher compensation, no one is assured of this given the overarching impact on operations of ending ENDO. I am personally hoping that an end to ENDO does not increase the unemployment rate in the Philippines.

What does “end” mean for regular employees
Regular employees should not be unaware of ENDO ending implications to them. Since ending ENDO may eat up company resources, a regular employee may have to contend with the company’s reallocation of resources among its larger number of regular employees. This, however, is based on the assumption that regularization does not bring about better productivity for companies/employers. As every human capital person knows, the sense of belonging and good working conditions are effective performance enhancers. Who knows, it just might be the multiplier effect a company needs to show better results of operation. I am keeping my fingers crossed on huge productivity plus of ending ENDO to cushion its increment cost.

What does “end” mean for employers
If and when contractualization is put to a halt and companies are forced to regularize its entire workforce, the cost increase can be huge for manufacturing, construction, services, and many other employers that heavily rely on contractual workers. These companies should factor in benefits such as those mentioned above and may have to redesign its compensation structure for incoming employees while being careful about not committing diminution for pre-ENDO era employees. Support services—human capital, finance, etc.—may also need additional headcount to support and manage new employees. Agencies supplying workers may also have to review their business models to make sure they survive this “end.”

Companies should, if they haven’t yet, start working on their simulations or sensitivity analyses for “end ENDO” scenario to manage its shareholders’ expectations or protect shareholder value. While companies can pass up the cost increase to consumers, they have to strike a balance between profit management and market’s price sensitivity.

What does “end” mean for consumers
As the cost of processing, manufacturing, building, or servicing increases, consumers could expect higher prices for goods and services. Honestly, I do not think I am ready for the higher cost of living in the Philippines than what is currently prevalent.

What are the possible government interventions
After the age of 65, an SSS beneficiary’s maximum monthly pension of about P16,000 is hardly adequate for an aging, sometimes even sickly, adult.

Ending ENDO brings good tidings and challenges as well. The lawmakers voting for ending ENDO may win some and lose a few votes but are not free from seemingly harmless questions as Why is private pension needed; Can SSS be simply modified to become the solution to all post-retirement needs of retirees? Can the government create programs to address at least the basic needs of its citizenry—housing, health, education, etc.? Can traffic woes be minimized to improve productivity not just for employers’ gain but also for workers work-life balance? I dare you to ask more questions in the hope that our leaders will take action.

At the end of it all, if all stakeholders to this ENDO are currently religiously delivering on their share of responsibilities in managing and “taking care” of their people, the end of ENDO would only mean a change of payment responsibility—from agencies to their clients. Agree or agree to disagree?

Che is the assurance lead partner for the consumer and industrial products and services industry of PwC Philippines. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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Cherrylin M.  Javier

Cherrylin M. Javier

Assurance Partner, PwC Philippines

Tel: +63 (2) 459 3010

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