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What’s the true cost of contractualization?

Experts agree that the practice of endo does more harm to your business and the welfare of employees

Photo by chuttersnap /Unsplash | Illustrations by Marian Hukom

For the food and beverage industry, the buzz words right now are endo, labor-only contracting, and contractualization. The news is filled with declarations of “end endo”, lists of companies guilty of labor-only contracting, and accusations against the current government and its inability to solve this issue.

Endo, derived from end of contract, is the practice of hiring a worker for a period of less than one year (but in most cases less than six months) and upon the expiration of his contract, rehiring the same worker for the same period. Labor-only contracting, on the other hand, is the practice of hiring workers who perform work directly related to the business of the employer from a contractor, who does not have substantial capital or the necessary investment or equipment.  

Because of the clamor to address the contractualization issues, Congress is pressed to pass a law that further protects the rights of all workers. Currently, the House of Representatives has approved House Bill 6908 while the Senate is still set for their second reading of Senate Bill 1826 on the Security of Tenure of Workers. 

Despite all the news and all the clamor we hear against contractualization, the question remains – why do companies still practice endo or labor-only contracting in the first place? 

The easy answer is simple math—regularization is costly. 

For regular employees, regularization comes with more benefits, such as payment of service incentive leave, separation pay, retirement pay, and more rights such as to unionize and to remain employed unless dismissed for specified causes under the Labor Code. 

In the end, employers are called to shift their perspective—from what costs more to what can earn more, both for the business and the lives of its employees.

On the other hand, for employers, more benefits come with more costs; costs which can be easily lessened by resorting to contractualization. By simply rehiring workers under five-month contracts or through an illegitimate contractor, employers are not burdened with the “rights” and “benefits” required by regularization. In essence, contractualization continues to promote a cycle of hiring, firing, and rehiring completely disregarding the efforts and service of the employee. 

But are they right? Are the costs that come with regularization too high a price to pay for large, medium, and more so, small-sized businesses?  

This, it turns out, is a widespread misconception.

When it comes to regularization, the costs are actually manageable and the returns more profitable in the long-run. With proper planning and management, there are various ways businesses can minimize the costs that come with regularization.  

For one, employers can properly plan for monetary benefits to be given to regular employees. One option is for employers to put aside in a fund every year an amount equivalent to one-half month pay of every employee. This fund can be used to pay the necessary separation pay of any terminated employee. 

To dismiss erring employees, employers simply need to comply with all the rules and procedures in the Labor Code. Examples of these rules would be to terminate employees based only on the specified grounds in the Labor Code or to send the required notices for explanation and termination to the employee prior to their termination. 

By empowering and valuing labor through regularization, the employer creates a workforce that is motivated to work every day resulting in a more beneficial, sustainable, and profitable business.

For cases when employees have unionized, employers can embrace this practice as something positive. Employers can treat unionization as a means to be able to properly listen to the collective voice of employees and treat them as invaluable partners to the success of the company. 

In contrast to regularization, contractualization devalues the idea of a partnership and undermines the worth of labor. It lowers the status of an employee below that of even a computer or machine, which a company is always willing to invest thousands of pesos in. 

Contractualization degrades the employees who work day in and day out for a company and treats them as merely an asset—as merely labor. Instead of valuing their work and raising their spirits and motivation through regularization, contractualization brings them down as employees and as people. 

Some food business owners see regularization as a means to both value and motivate their employees and to grow and improve the success of their business. By regularizing their employees and granting more benefits (such as giving one hundred percent of their service charge to the employees, both rank-and-file and managerial), their employees stay longer and work harder for the company. The business profits by retaining a high customer return encouraged by the service of familiar and experienced wait staff.   

It is still up to the employers to see regularization as either a necessary or excessive cost of business. However, in the long run, it is clear that valuing labor is an investment in the future. By empowering and valuing labor through regularization, the employer creates a workforce that is motivated to work every day resulting in a more beneficial, sustainable, and profitable business. In the end, employers are called to shift their perspective—from what costs more to what can earn more, both for the business and the lives of its employees.

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