Executive summary

Yes—an employer in the Philippines may convert an employee’s pay scheme from monthly-paid to daily-paid, provided the change (a) does not reduce the employee’s lawful or contractual pay and benefits, (b) is done in good faith, (c) complies with wage orders and statutory pay rules (holiday, rest day, premium, OT, 13th-month), and (d) is clearly documented and accepted. If the conversion results in a real or effective pay cut or circumvents labor standards, it risks an unlawful diminution of benefits and may constitute constructive dismissal.

Key definitions

Monthly-paid employee: Paid a fixed monthly salary covering all days of the month, including unworked rest days, special days, and regular holidays (unless the contract or policy says otherwise). Their monthly pay already “bundles” paid non-working days required by law.
Daily-paid employee: Paid only for days actually worked and for unworked regular holidays (if covered), but not for unworked special days or rest days unless company policy, CBA, or practice provides otherwise.

These classifications affect how holidays, rest days, and absences are paid—and therefore how any conversion must be computed to avoid underpayment.

Legal bases and constraints (high level)

Labor Code & DOLE rules on minimum wage, hours of work, overtime, premium pay, night shift differential, service incentive leave (SIL), holiday pay, and rest days.
Article on Non-diminution of benefits (Labor Code): prohibits unilateral elimination or reduction of benefits that have ripened into demandable rights.
Wage Rationalization Act (R.A. 6727) and Regional Wage Orders: set minimum wage rates by region and sector; you cannot convert to a scheme that ends up below the current minimum.
Presidential Decree No. 851 (13th-month pay): mandates at least 1/12 of basic salary for all rank-and-file who worked at least a month within the calendar year.
Good-faith exercise of management prerogative (jurisprudence): allowed if reasonable, not arbitrary, and does not run afoul of law, CBA, or established practice.

When conversion is generally allowed

No reduction in total pay/benefits. Over a representative period (commonly one year), the new daily scheme must yield at least the same as the old monthly scheme for the same work schedule and attendance.
Compliant with wage orders. The resulting daily rate must meet or exceed the applicable regional minimum wage (and COLA where still applicable).
Clear documentation & notice. Contracts, handbooks, or policy memoranda are updated; the employee acknowledges the change.
No evasion of labor standards. Conversion cannot be used to avoid paying mandated holiday, premium, and OT pay.

When conversion is not allowed (or risky)

Results in a pay cut (net of previously paid rest days/holidays).
Dodges premium/holiday pay. E.g., relabeling as “daily-paid” while keeping the same schedule but quietly removing paid regular holidays that were previously included in monthly pay.
Unilateral and harmful change to essential terms of employment (possible constructive dismissal), especially if the employee’s status or security of tenure is compromised.
Violates a CBA or a binding company practice (benefits that have ripened cannot be withdrawn).

Practical differences after conversion

Topic	Monthly-paid (before)	Daily-paid (after)
Coverage of monthly pay	Includes unworked rest days, special days, and regular holidays (unless excluded by policy)	Pays only days worked + unworked regular holidays as mandated
Absences without pay	Usually deducted from monthly rate using a daily/hourly equivalent	Simply no pay for the day absent (subject to rules)
Special days (unworked)	Typically paid if covered by monthly arrangement	Not paid unless worked or company practice grants pay
Regular holidays (unworked)	Paid (1.0 day)	Paid (1.0 day) if covered; if worked, apply holiday premium rules
Computation base for OT/premiums	Based on hourly equivalent of monthly salary	Based on hourly equivalent of daily rate

Safe conversion math (frameworks you can defend)

There is no single nationwide “magic formula.” What matters is equivalence and compliance. The standard, defensible approach is:

Step 1 — Establish the employee’s Equivalent Daily Rate (EDR) under the current monthly scheme

A commonly accepted approach for a monthly-paid employee (paid for all 365 days): [ \textbf{EDR} ;=; \frac{\text{Monthly Rate} \times 12}{365} ]

This yields the value of one paid day under the monthly scheme (already inclusive of paid rest days/holidays embedded in the monthly salary).

If your monthly-paid policy does not cover special days (rare), adjust the annual divisor/factor to reflect the actual paid-days coverage in your policy. Document your assumption.

Step 2 — Determine the target work schedule (e.g., 6-day or 5-day week)

Daily-paid monthly equivalent depends on the typical number of paid days in a year:

For many 6-day operations, practitioners use an annual factor around 313 days (approx. 365 − 52 rest days).
For many 5-day operations, practitioners use an annual factor around 261 days (approx. 365 − 104 rest days).

These factors are illustrative; your actual paid-day count should reflect your company calendar (e.g., shutdowns, additional paid special days). Using your real calendar is the most defensible route.

Step 3 — Set the Daily Rate so the annualized pay is not less than before

Target annual pay under the daily scheme should be at least the annual pay under the monthly scheme:

[ \textbf{Daily Rate (target)} ;\ge; \frac{\text{Monthly Rate} \times 12}{\text{Number of paid days under daily scheme}} ]

Then test for equivalence over a representative year:

Add pay for ordinary workdays actually worked (use your calendar’s count).
Add pay for unworked regular holidays (must be paid at 1.0 day).
Exclude unworked special days unless your policy pays them.
Include premiums for worked rest days/special days/holidays per law.

If the sum is less than the previous annualized monthly pay, increase the daily rate (or retain monthly-paid status).

Worked example (illustrative only)

Old Monthly Rate: ₱30,000 (monthly-paid, covers all days). EDR ≈ 30,000 × 12 / 365 ≈ ₱986.30 per paid day (rounded).
New schedule: 6-day operation; company calendar shows in a typical year: 297 ordinary workdays + 12 unworked regular holidays + 4 special days (unworked, not paid) = 309 paid days (if no special-day pay for unworked).
To preserve annual pay: Target Daily Rate ≥ (30,000 × 12) / 309 ≈ ₱1,165.05.
Test equivalence: 309 paid days × ₱1,165.05 ≈ ₱359,999. Meets ₱360,000 prior annual pay (rounding difference can be cured by a few centavos).

Your calendar will vary. Always recompute with your actual paid-day counts and round up to avoid underpayment.

Compliance checkpoints (do these before you flip the switch)

Minimum wage check Confirm the resulting Daily Rate meets or exceeds the current Regional Wage Order for your region/industry (and any sectoral tiers).
Holiday pay rules Under a daily scheme, unworked regular holidays are paid at 100%; if worked, apply the lawful premium (e.g., 200% for first 8 hours, plus differentials for OT/night work as applicable). Special non-working days, if worked, are paid with the prescribed premium; if unworked, generally no pay (unless your policy grants it).
Premiums & OT Re-derive the hourly equivalent from the new Daily Rate (commonly Daily ÷ 8) and apply statutory premiums:
- Overtime: at least +25% of hourly rate (ordinary day)
- Night shift differential: +10% of hourly rate for 10 PM–6 AM
- Rest day work: premium on top of the base rate (and OT if applicable)
13th-month pay Still at least 1/12 of basic salary actually earned within the year. Daily-paid employees accrue 13th-month based on the sum of basic pay earned, which now comes from daily earnings (include paid unworked regular holidays; exclude allowances not part of basic pay).
SIL (Service Incentive Leave) If the employee is covered (non-exempt and has at least 1 year of service), keep the 5-day SIL benefit (convertible to cash if unused per policy).
Written documentation
- Issue a pay-scheme conversion memo detailing: effectivity date, new Daily Rate, coverage (which days are paid when unworked), hourly equivalent, premium/OT rules, 13th-month treatment, and a statement that no diminution is intended.
- Obtain employee acknowledgment; for unionized settings, follow CBA procedures.
Payroll systems & timekeeping Align cut-offs, daily time records, and pay codes (ordinary day, rest day, special day, regular holiday, OT, night differential).
Non-diminution cross-check Run a side-by-side annual simulation using last year’s attendance and holiday calendar to evidence that the new scheme does not reduce the employee’s earnings.

Frequently encountered edge cases

Hybrid schedules (compressed workweek, 4×10): Convert using actual paid days and hours; make sure hourly OT and premiums still map correctly.
Field personnel/managerial employees: Some overtime/premium rules may not apply, but minimum wage (if rank-and-file) and holiday pay rules still do for covered employees. Managerial/executive employees are generally exempt from OT/premium pay, but you must still avoid diminution when changing schemes.
Commission- or piece-rate employees: You may keep commissions/piece rates and layer a daily floor to satisfy minimum wage; document the structure carefully.
Established practice of paying special days/rest days even if unworked: If this practice is regular, deliberate, and consistent, it may be demandable—don’t remove it via conversion without equivalent offset (risk of non-diminution violation).
Probationary employees: Same standards apply; conversion cannot be a disguise for cutting pay.

Implementation template (you can adapt)

Audit current pay inclusions (which days are paid when unworked).
Choose the operational calendar (5-day vs 6-day, shutdowns, customary special-day pay).
Compute a target Daily Rate that preserves annual pay and clears current minimum wage.
Draft and issue a conversion memo; conduct a quick briefing.
Run parallel payroll for one cycle (dry-run) to verify outcomes.
Go live and monitor the first two cut-offs for discrepancies.
Keep records of computations, memos, and employee acknowledgments.

Short answers to common questions

Is employee consent required? While management may adjust pay modalities, written acknowledgment is strongly advisable—especially where the change is material. If there’s a CBA, follow it.
Can we lower the daily rate if attendance is perfect anyway? No. The daily rate must be set so that even with statutory paid days (e.g., unworked regular holidays) the annualized pay is not lower than before.
Can we exclude special non-working days from pay after conversion? Yes, if consistent with law and policy—but if special days were previously paid under the monthly scheme as a regular practice, removing them may violate non-diminution unless offset by a higher daily rate or another equivalent benefit.
How do we handle half-month payroll cut-offs? Pay actual days worked within the cut-off, plus any paid unworked regular holidays within the period. Keep a clear timekeeping trail.

Bottom line

Conversion is lawful if you preserve total compensation, honor statutory pay rules, respect minimum wages and existing benefits, and document the change transparently. The safest path is to reverse-engineer a daily rate from the monthly pay using your real paid-day calendar, round up, and keep clear records showing no diminution occurred.