Transferring Employees to a Sister Company in the Philippines: Tenure, Contracts, Statutory Accounts and Work Visas

The conclusion first: a new entity is a new employer, and only settle-and-rehire or written succession are lawful

The law looks at who signed the employment contract, not who owns the company. The employee's relationship is with the old corporation; the new corporation is a different legal person. So "moving over" necessarily contains two events: how the relationship with the old company ends, and how the relationship with the new one begins. Both need paper, and a missing document on either side becomes a dispute later.

Route one: settle and rehire. The old company terminates on a lawful ground, usually an authorised business cause such as restructuring or closure of a unit, serves the required notices, pays final pay and whatever the law requires on termination, and the employee signs a brand-new contract with the new company with tenure starting from zero. The advantages are a clean boundary and a one-time close-out of the old company's liability. The costs are separation-type payments, the loss of accumulated tenure for the employee, and exposure to an illegal dismissal claim if the ground or the procedure is defective.

Route two: written succession. The old company, the new company and the employee sign a transfer agreement under which the employee consents to the new company taking over the employment, the new company expressly recognises length of service, rank, pay and benefits at no less than the existing level, and the old company pays no separation but remains liable for everything before the transfer date. The advantages are no loss for the employee, no separation outlay, and a stable team. The cost is that the new company inherits the entire service history: every future separation, retirement or leave computation runs from the original hiring date.

Routes that do not exist. Changing the payroll account and signing nothing; having employees "resign voluntarily" and rejoin the new company to avoid separation pay (employees later claim forced resignation and the company struggles to prove otherwise); or parking staff in a shell that pays salaries and does nothing else. None of these survives contact with the labour department or an arbiter.

The two routes can coexist: core staff by succession, genuinely redundant positions by lawful termination. But each employee takes exactly one route, and the choice is written down. How transfers relate to lawful retrenchment is covered in the lawful retrenchment process in the Philippines.

Inventory before you move anyone: headcount, contracts, tenure, unpaid entitlements and foreign staff

Build a complete inventory before signing anything, because the cost, the risk and the documents of the transfer all depend on the numbers in that table. Signing agreements without an inventory is where most disputes begin.

1. Headcount. Each employee's name, hiring date, position, employment type (regular, probationary, fixed-term, project), department, and whether the position continues to exist in the new company. Anyone whose position disappears needs a separate assessment of whether a lawful termination ground exists.
2. Contract status. The version and signing date of each current contract, any non-compete or confidentiality clause, any training bond or signing-bonus clawback. Decide at transfer whether each clause is assumed by the new company or terminated.
3. Tenure and benefits. Accumulated service, accrued unused paid leave, promised but unpaid bonuses, pro-rated year-end benefits, and any service-linked benefit such as loyalty awards or retirement plans. These are what the new company inherits under succession and what the old company pays under settlement.
4. Unpaid entitlements. Whether the old company owes wages, has under-remitted statutory contributions, or holds unreimbursed expenses. The old company must clear these before the move; otherwise employees raise them after the transfer and the new company may be dragged in. How employees check whether contributions were actually remitted is covered in when contributions were deducted but never remitted.
5. Foreign employees. List them separately, because their employment permits and work visas are tied to the old company and a transfer means reapplying or amending, covered in the final section.
6. Specially protected employees. Pregnant employees or those on maternity leave, employees on work-injury leave, and anyone involved in a labour complaint or union activity. Any termination or change affecting them should be assessed individually by counsel.

If the transfer is driven by a restructuring of the parent company abroad, the Philippine entity's own registrations must be updated in parallel; the checklist is in what a Philippine subsidiary or branch updates after a parent company change in this series.

Once the inventory exists, have the accountant run two figures: what full settlement would cost the old company, and what full succession would load onto the new one. The figures are not in this guide, but they decide which route you take.

Settle and rehire: lawful termination, complete settlement, genuine new contracts

Settle-and-rehire works only if all three steps are lawful: a valid ground and procedure for termination, a complete settlement, and a genuine new contract. Cut a corner on any one and the employee can recast the whole exercise as illegal dismissal after the move.

Ground and procedure. A restructuring under which the old company stops a line of business or closes a unit is usually an authorised cause, but it must meet the legal conditions: the cause is real, written notice is served on the employee and the labour department within the required lead time, termination pay is settled at the statutory standard, and the selection of affected staff is fair. The conditions follow current labour regulation and should be checked by counsel. One caution: if the same people are terminated by the old company and immediately do the same work for the new one, the labour department may question whether the cause was genuine, so be ready to explain the real commercial reason for the entity change, such as a business split, a licensing requirement or a change in the contracting entity under client agreements.

Settlement. The old company pays final pay at termination: wages to the last day, the pro-rated year-end benefit, conversion of unused leave under company policy and law, statutory termination pay, and any promised bonus; it issues a certificate of employment and completes the statutory contribution and tax close-out for each employee. What final pay contains and where disputes arise is in final pay and separation pay explained; the certificate is covered in how a certificate of employment is issued.

The new contract. The new company signs a fresh contract that truthfully reflects the new position, pay and probation arrangement. Two common mistakes: imposing a new probationary period on someone who has done the same job for years, which reads as an attempt to strip regular-employee protection; and setting pay or benefits below the previous level, which invites the claim that the transfer was a pretext for a pay cut. The new company's onboarding and statutory registrations are covered in the first week in a new job.

Keep the paper separate. The old company's termination notice, settlement computation and certificate form one set; the new company's offer and contract form another. Do not use one document for both events, and do not let the new company sign termination papers on the old company's behalf.

Written succession: what the three-party agreement says, which terms cannot worsen, and how to avoid being seen as evasion

The heart of the succession route is a three-party transfer agreement: the employee consents to the transfer, the new company recognises tenure and existing terms, and the old company remains liable for everything before the effective date. The more specific the agreement, the fewer disputes later.

Essential contents. The effective date; full recognition by the new company of the employee's original hiring date and accumulated service; position, pay, benefits and workplace at no less than pre-transfer levels; the treatment of accrued leave (carried into the new company or cashed out by the old one); the old company's continuing liability for wages, contributions, reimbursements and any dispute before the effective date; the new company's liability for everything after; the employee's confirmation that the transfer is voluntary and not a forced resignation; and whether confidentiality, non-compete and training-bond clauses in the current contract are assumed by the new company.

Terms that cannot worsen. Pay, benefits and working conditions the employee already enjoys cannot, in principle, be reduced because the entity changed; otherwise the employee may claim a disguised pay cut or constructive dismissal. If the new company genuinely needs to restructure roles or pay, complete the transfer first, then negotiate the change under the normal procedure with written consent.

Continuity of statutory contributions. Succession does not carry statutory accounts over automatically. The old company files separation reports under its employer number, the new company files new-hire reports under its own, and the months must connect without a gap. The next section covers this.

Avoiding the evasion finding. What the labour department watches for most is the use of affiliates to escape employer obligations, for example moving staff into a thinly capitalised company with no real operations that only runs payroll. Such an arrangement may be found to be an unlawful labour-only setup, and both the operating company and the new company can be held liable. The defence is substance: the new company has a real business, assets and management, the employees genuinely work for its business, and it carries the employer's management responsibilities itself. The succession agreement should also state the genuine commercial reason for the move.

If an employee refuses. Succession requires consent. An employee who declines cannot be forced and cannot be dismissed for declining; either negotiate, or the old company deals with that employment under the lawful procedure in the previous section.

Migrating statutory and tax accounts: register the new employer first, then file separations and new hires

The sequence is: the new company completes its own employer registrations and obtains employer numbers from each agency; only then does the old company file separation reports and the new company file new-hire reports, with effective dates that connect. Reverse the order and employees end up with a contribution gap, the single most common basis for a later complaint.

New employer registration. Register as an employer with the social security, health insurance and housing fund agencies and obtain employer numbers; register with the tax authority on the employer side so the company may withhold and remit for its staff. Some registrations are online, some require attendance, and each agency's current requirements govern. Without an employer number the new company cannot report or remit for anyone.

Separation reports by the old company. File the separation or transfer-out reports each agency requires, state the last month of coverage, and pay every amount due up to and including that month. Arrears stay with the old company; they cannot be carried into the new one.

New-hire reports by the new company. Report each employee as a new hire under the new employer number, with coverage starting in the month after the old company's last month. The employee's personal numbers do not change, only the employer number, so no new personal accounts are needed, but employees must supply their numbers and sign the new employer's forms.

Tax. The old company issues each employee a withholding certificate covering the period before transfer; the new company withholds under its own registration from then on, and the two records are combined at annual reconciliation. A mid-year transfer needs the two withholding records to connect, or the employee's annual computation will be wrong. The accountant should design this step in advance.

Common failures. Letting staff start before the new registration is complete, creating a gap; filing separations at the old company and forgetting new-hire reports at the new one, discovered months later as a missing record; and the old company being renamed or dissolved so that employees cannot later trace their historical contributions, which is why the old company must keep complete remittance records and give each employee a copy even after it stops operating. Contribution continuity is a standard item in labour inspections; see handling a DOLE labour inspection.

Foreign employees: the employment permit and work visa follow the company and must be reapplied or amended

A foreign employee's employment permit and work visa are issued on the application of a specific employer. Moving to the new company means the new company applies or amends in its own name; nothing issued under the old company carries across. This is the longest and least forgiving part of the whole transfer.

Employment permit. The permit records the employer's name and the position; a change of employer normally requires a new application by the new company. The process and documents are in the Alien Employment Permit guide. Whether and in what capacity the employee may work for the new company while the application is pending follows the current position of the labour department and the Bureau of Immigration; do not decide this yourself.

Work visa. A work visa sponsored by the old company must be dealt with under the Bureau's procedure once the employer changes, typically involving release or downgrading under the old sponsor and a fresh petition by the new one. Whether it is a fresh filing or an amendment, and how status is bridged in between, is explained in changing employer on a 9G visa. If the old company is dissolved or stops operating after the transfer, every foreign employee still under its name is affected; see when the sponsoring employer is deregistered.

Timing. Start foreign staff earlier than local staff: confirm the new company qualifies as a sponsor (complete registration, paid-up capital, genuine operations), then launch the permit and visa applications, and move the employee formally only once the new company's documents are in place. Until the new permit and visa are approved, the employee should not be working outwardly in the new company's name.

The old company's duties. The old company must cooperate with the release or reporting steps and issue separation documents when required. An uncooperative old company leaves the employee's status stuck, so make this an express obligation in the overall transfer plan.

Several affiliates. Where the owner has multiple related companies, a foreign employee may work only for the company named on the permit and visa, not rotate among affiliates on one set of documents. Anyone who must serve several companies needs separate advice on a compliant arrangement.

A group transfer runs on four tracks at once, labour, statutory contributions, tax and immigration, and one misordered track produces a dispute. Yixing can lay out local staff documents, statutory account migration and foreign staff permit and visa steps on one timeline and execute them in order.

Moving staff to an affiliate and need local paperwork and foreign staff visas to connect cleanly? → Yixing visa and HR compliance services

Yixing (SEC Registration No. CS202009551, BI Accreditation No. CA-202624381-1, DOLE accredited) is a private consultancy with no affiliation to any government agency and does not promise any approval outcome. Consult a licensed attorney for your specific case; this article is not legal advice.