In the Philippine labor landscape, a common misconception persists among both employers and employees: that a "fixed monthly salary" automatically renders an employee ineligible for overtime and premium pay. Many believe that if a contract stipulates a flat rate—often referred to as an "all-in" salary—the employee is expected to work whenever required without additional compensation.
Under the Labor Code of the Philippines (Presidential Decree No. 442) and its Implementing Rules and Regulations, this assumption is often legally erroneous.
The General Rule: Right to Additional Compensation
The fundamental principle is that every employee is entitled to additional compensation for work performed beyond eight hours a day or during rest days and holidays. A fixed salary is merely a method of payment; it does not, by itself, exempt an employer from the obligation to pay for extra time served.
1. Overtime Pay
Work performed beyond eight (8) hours a day entitles an employee to an additional compensation equivalent to their regular wage plus at least 25% thereof. If the overtime is performed on a holiday or rest day, the premium increases to 30%.
2. Night Shift Differential
For work performed between 10:00 PM and 6:00 AM, employees are entitled to a night shift differential of not less than 10% of their regular wage for each hour of work performed.
3. Premium Pay (Rest Days and Special Days)
Work performed on a scheduled rest day or a Special Non-Working Day entitles the employee to an additional 30% of their daily rate.
The "Excluded" Classes: Who is NOT Entitled?
The law provides specific exceptions. If a fixed-salary employee falls under these categories, they are generally not entitled to overtime or premium pay:
- Government Employees: Governed by Civil Service laws, not the Labor Code.
- Managerial Employees: Those whose primary duty consists of the management of the establishment or a department.
- Officers or Members of a Managerial Staff: Supervisory employees who assist in policy-making or exercise independent judgment.
- Field Personnel: Non-agricultural employees who regularly perform their duties away from the principal place of business and whose actual hours of work in the field cannot be determined with reasonable certainty.
- Members of the Family: Those dependent on the employer for support.
- Domestic Helpers (Kasambahay): Governed by the Batkas Kasambahay.
- Persons in the Personal Service of Another.
Key Distinction: Just because an employee has a "Manager" title does not mean they are exempt. The law looks at the actual duties and responsibilities, not the job title. If a "Manager" has no power to hire, fire, or exercise independent judgment, they may still be entitled to overtime.
The Validity of "All-Inclusive" Contracts
Can an employer and employee agree that the fixed salary already includes overtime pay?
The Supreme Court has ruled that such arrangements (often called "Commingled" or "Overtime-Included" pay) are generally frowned upon unless two conditions are met:
- The mathematical breakdown of the salary clearly shows that the overtime pay is accounted for.
- The resulting "basic" rate is still at or above the minimum wage.
If the contract simply says "The salary is PHP 40,000 inclusive of all overtime," but the employee works 60 hours a week, the employer may still be liable if the hourly rate (after deducting the supposed overtime) falls below legal standards or if the agreement is deemed a waiver of labor rights, which is generally void under Philippine law.
Computing the Hourly Rate for Fixed-Salary Employees
To determine if a fixed-salary employee is being underpaid, the "Monthly Salary" must be converted to the "Equivalent Daily Rate" (EDR) and then to the "Hourly Rate."
| Factor | Description |
|---|---|
| 365 days | Includes Sundays/Rest Days, Special Days, and Regular Holidays (Paid Every Day). |
| 313 days | Excludes Sundays/Rest Days. |
| 261 days | Excludes Saturdays and Sundays. |
The Formula:
Burden of Proof and Non-Waiver
In labor disputes, the burden of proof to show that overtime and premium pay have been paid rests on the employer. Since employers maintain payrolls and time records (DTRs), they must produce these to prove compliance.
Furthermore, the principle of Non-Waiver applies. An employee signing a contract that says they "waive the right to overtime pay" is generally not bound by that provision. Labor protections are a matter of public policy, and individual contracts cannot override the minimum protections set by the Labor Code.
Summary Table of Entitlements
| Work Type | Premium Rate (on top of 100% daily wage) |
|---|---|
| Regular Overtime | +25% of hourly rate |
| Rest Day / Special Day | +30% of daily rate |
| Regular Holiday | +100% of daily rate (Total 200%) |
| Night Shift (10PM-6AM) | +10% of hourly rate |
Fixed-salary employees who do not fall under the "exempt" categories are legally entitled to every centavo of overtime and premium pay they earn. Any practice to the contrary constitutes a violation of labor standards and may lead to a money claim before the Department of Labor and Employment (DOLE).