Substantial capital test

How it works

Labor-only contracting can be found when the contractor lacks substantial capital or investment and the workers perform work directly related to the principal’s business. Later readings of the order treat substantial capital as enough on that prong without also proving a warehouse of tools. Ask for SEC papers and paid-up capital you can verify, plus proof they run payroll on their own employer numbers. A WeWork key and a Canva logo are not capital. For an EOR buyer this test is the difference between a local employer and a relay.

Example: vendor claims EOR. Paid-up capital is ₱50,000 on an old SEC printout, no office, no HR staff. Your manager writes every SOP. A later LOC analysis does not need poetry. The capital line is already thin and control sits with you.

How it differs

The four-fold control test asks who directs the worker. Substantial capital asks whether the contractor is a firm. You can fail either one.

Common errors

Accepting ‘we’re PEZA-registered’ as capital. PEZA is a zone status for an enterprise, not proof this vendor can employ your hire.

In practice

Treat Substantial capital test as a week-one operating object. Ask who signs the notice, who remits, and who would answer DOLE. If three vendors each point at the other, you have a story rather than a file. Write an owner - founder, local employer, or worker - and a date you will look at it again: first cutoff, first holiday, or first miss. If nobody can show a contract clause, a payslip line, a calendar block, or a checklist box, you do not have substantial capital test yet. You have a conversation. Convert the conversation before the person starts, while changing the deal still costs a paragraph rather than a resignation. Re-read the worked example above against the actual hire in front of you. If the numbers in that example cannot be swapped for this seat’s pesos, hours, and start date, the brief is still unfinished.