A food manufacturer in the Philippines with about 500 workers — roughly 350 of whom are supplied by three manpower agencies and one cooperative — is rethinking its staffing structure to avoid regulatory problems, according to labor and management columnist Rey Elbo, writing in BusinessWorld on November 12, 2026.

Responding to a reader inquiry signed "Guiding Light," Elbo said a workforce in which 70% (350 out of 500) of workers come from manpower agencies and a cooperative deserves closer scrutiny. While Philippine labor laws do not prescribe a fixed mathematical ratio between regular and outsourced workers, he noted, the legality of such an arrangement depends heavily on compliance with the requirements for legitimate contracting.

Central to that assessment is how the outsourced workers are managed, which depends on the nature of their tasks. Elbo pointed to the classic Four-Fold Test of employer-employee relations, which covers four elements: selection and engagement of employees, payment of wages, the power of dismissal, and the power of control. Weighing those elements is how inspectors would determine whether the three agencies and the cooperative — not the manufacturer — act as the workers' true employer.

He advised the manufacturer to make the necessary changes as soon as possible — before being forced to deal with labor inspectors or union organizers who may test the legality of its business operations.

Weighing the Trade-Offs

The columnist framed the company's dilemma as a question many firms face in today's dynamic business landscape: whether to invest in directly hiring regular workers or to rely on manpower agencies or cooperatives. Both options carry advantages and disadvantages, and the right mix matters not only in manufacturing but in other industries as well, given its significant impact on cost, motivation, productivity, and long-term growth.

On cost, Elbo observed that agency workers appear at first glance to be the cheaper option. The client pays only for the workers' services for the period covered by the contract, after which they return to their employer — the agency or the cooperative. That generally translates into lower fixed costs, even with the service fees charged by the agency or cooperative. Directly hiring regular employees, by contrast, means higher upfront costs, including above-average industry rates if a company wants to keep the best and the brightest, plus a range of benefits such as health insurance, paid vacation and sick leaves, and bonuses.

These costs, however, should not be evaluated in isolation. While agency workers may save money initially, high turnover, repeated training, and constant coaching can accumulate significant hidden costs. Investing in regular employees, he wrote, often yields a sizeable return in the form of continuity, reliability, and long-term organizational knowledge.

On quality and productivity, Elbo noted that direct hires may develop stronger familiarity with company systems and processes over time, particularly when supported by effective training, supervision, and performance management. Because of their above-average industry pay and perks, their long-term commitment fosters high engagement and motivation, which are crucial for sustaining performance. Agency or cooperative workers, by contrast, may lack long-term attachment to the client's business. While some bring specialized skills, the client risks losing valuable knowledge when their contracts end, and their productivity and work quality may fluctuate, especially under short-term contracts.

On flexibility, Elbo wrote that businesses facing seasonal demand, project-based work, or sudden spikes in workload can scale their workforce quickly without long-term commitments by hiring contractual workers — an approach he described as ideal for retail, hospitality, or IT project development. Regular employees are less flexible: companies must manage fixed headcounts, which can be challenging amid fluctuating business demands, and adding or reducing staff can be costly and time-consuming.

On the legal front, Elbo stressed that labor laws must shape the decision. Directly hired regular employees enjoy comprehensive rights covering salary, benefits, and job security, and employers must comply — primarily with the Department of Labor and Employment's (DoLE) Department Order No. 174, Series of 2017, which spells out when it is lawful for an agency or cooperative to act as an independent business carrying out its own operations free of the client company's control, except as to the actual results. Read plainly, that standard leaves day-to-day direction of the work with the contractor, with the client entitled only to the results.

A Hybrid Approach

In making the decision, Elbo said many successful organizations adopt a hybrid model, maintaining a stable base of regular employees for essential jobs while supplementing them with agency or cooperative talent. Based on his observation of clients, they keep an average of about 80% of their workforce as directly hired regular workers — a benchmark that frames how far the food manufacturer's 70% agency-and-cooperative mix sits from the balance he recommends.

He said this strategy allows companies to balance cost, remain flexible, and build long-term worker loyalty, adding that hiring decisions are more than a financial calculation because they shape an organization's future capabilities and resilience. The key, he concluded, is recognizing that both employment models have a role to play and that smart businesses use each where it makes the most sense — but not to the extent of letting agency or cooperative workers dominate the workforce composition.

For the manufacturer, the items to watch are concrete: whether the staffing mix shifts toward a heavier share of directly hired regulars, and whether each of the three agencies and the cooperative can demonstrate the independence DO 174 requires if inspectors or union organizers examine the setup.

Readers may consult Rey Elbo for free by e-mail at elbonomics@gmail.com, by direct message on Facebook, LinkedIn, or X, or via Anonymity is guaranteed if requested.

This article is based on a column originally published by BusinessWorld on November 12, 2026: https://bworldonline.com/labor-and-management/2026/11/12/793562/when-outsourcing-becomes-a-burden/