In the Philippine labor landscape, the determination of "Monthly Salary Credit" (MSC) for Social Security System (SSS) and the "Monthly Basic Salary" (MBS) for PhilHealth is a critical exercise. It dictates the financial burden on both employers and employees and, conversely, the level of benefits a member can claim. A recurring point of contention is whether the Cost of Living Allowance (COLA) should be integrated into the base amount used to compute these mandatory premiums.
The Legal Framework: Definition of "Compensation"
The resolution of this issue hinges on how Philippine law defines the basis for contributions. While the SSS and PhilHealth are governed by separate charters, the underlying principle of what constitutes "remuneration for services" remains the common thread.
1. Social Security System (SSS)
Under Republic Act No. 11199 (The Social Security Act of 2018), contributions are based on the Monthly Salary Credit. The law defines "Compensation" as:
"All actual remuneration for employment, including the mandated cost-of-living allowance, as well as the cash value of any remuneration paid in any medium other than cash except that part of the remuneration received during the month which is in excess of the maximum salary credit as provided in this Act."
By express statutory provision, the COLA is mandatory for inclusion in the SSS contribution computation. The SSS explicitly considers the COLA as part of the total compensation package that reflects the employee's actual economic gain from employment.
2. Philippine Health Insurance Corporation (PhilHealth)
PhilHealth’s basis is the Monthly Basic Salary (MBS). For years, there was ambiguity regarding whether "Basic Salary" included allowances. However, the Universal Health Care (UHC) Act (Republic Act No. 11223) and its implementing rules have sought to streamline this.
Under current PhilHealth guidelines, the basis for the premium contribution is the Monthly Basic Salary. While "Basic Salary" typically excludes overtime pay, bonuses, and 13th-month pay, the inclusion of COLA depends on whether it is integrated into the basic wage by law (such as through Wage Orders) or by company practice.
Integration via Wage Orders
The most common way COLA becomes part of the computation is through Wage Orders issued by the Regional Tripartite Wages and Productivity Boards (RTWPBs).
- Integration into Basic Wage: Many Wage Orders mandate that a specific amount of COLA be provided to workers. Over time, subsequent Wage Orders often "integrate" the previous COLA into the new Minimum Basic Wage.
- The Rule of Thumb: Once a COLA is integrated into the basic wage by a Wage Order, it loses its character as a separate "allowance" and becomes part of the Basic Pay. In this scenario, it is automatically included in the computation for both SSS and PhilHealth.
Jurisprudence and Administrative Rulings
The Supreme Court and administrative bodies have generally leaned toward a broad interpretation of compensation to protect the viability of the social security funds and ensure higher benefits for members.
- SSS vs. Court of Appeals: The courts have consistently ruled that for SSS purposes, the term "compensation" is all-encompassing. Unless a specific type of remuneration is expressly excluded by law, it is deemed included. Since the SSS Act explicitly mentions COLA, there is no legal room for its exclusion.
- The "Total Compensation" Concept: For the private sector, the SSS relies on the "Total Actual Remuneration." Even if an employer labels a portion of the pay as "COLA" to attempt to lower premium remittances, the SSS has the authority to reclassify it as part of the compensable income if it is paid regularly for services rendered.
Practical Implications for Employers and Employees
The inclusion of COLA in the computation results in several outcomes:
| Factor | Impact |
|---|---|
| Premium Cost | Both the Employer Share (ER) and Employee Share (EE) increase if the inclusion of COLA pushes the salary into a higher bracket. |
| SSS Benefits | Higher contributions result in a higher Average Daily Salary Credit (ADSC), which increases Sickness and Maternity benefits, as well as the eventual Retirement Pension. |
| PhilHealth Coverage | While PhilHealth benefits are currently mostly standardized (case rates), the contribution is still a percentage of the salary (currently 5% as of 2024/2025, subject to the UHC Act's sliding scale). |
Summary of Current Treatment
| Agency | Inclusion of COLA | Legal Basis |
|---|---|---|
| SSS | Mandatory | Section 8(f), R.A. 11199 |
| PhilHealth | Included (If part of Basic Salary/Wage Order) | R.A. 11223 & PhilHealth Circulars |
In the Philippine context, the COLA is not merely a "bonus" but a recognized component of the worker's earnings. For SSS, its inclusion is a statutory requirement. For PhilHealth, it is included insofar as it constitutes part of the basic remuneration or is mandated by regional wage orders to be part of the compensable base. Failure to include mandated COLA in these computations can lead to assessments for underpayment, penalties, and interest for the employer.