In the Philippine labor landscape, the computation of Social Security System (SS) contributions is a critical intersection of labor law and social legislation. A recurring point of confusion for both employers and employees is whether overtime pay should be included in the "Monthly Salary Credit" (MSC) used to determine SSS premiums.
To understand this, one must look at the Social Security Act of 2018 (Republic Act No. 11199) and the implementing rules provided by the SSS.
The Definition of "Compensation"
Under R.A. 11199, the basis for SSS contributions is the employee's compensation. 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."
While this definition is broad, the application of "actual remuneration" is further clarified by SSS circulars and long-standing administrative interpretations.
Overtime Pay: Included or Excluded?
In the Philippine context, overtime pay is generally included in the computation of the Monthly Salary Credit (MSC).
The SSS interprets "remuneration for employment" to encompass not just the basic salary, but also additional pay for services rendered. Because overtime pay is payment for actual work performed beyond the normal eight hours, it constitutes part of the total monthly earnings of the employee.
Key Components of the Computation
When an employer determines the MSC for a given month, they must consider the "Gross Income," which typically includes:
- Basic Salary
- Overtime Pay
- Night Shift Differential
- Holiday Pay
- Hazard Pay (if regular)
- Cost of Living Allowance (COLA)
The Impact of the Monthly Salary Credit (MSC) Cap
While overtime pay increases the total compensation, it does not always increase the SSS contribution. This is due to the MSC Ceiling.
- The Ceiling: The SSS implements a maximum MSC (currently for the regular SSS fund and up to including the WISP/Mandatory Provident Fund as of the 2023–2025 schedule).
- The Effect: If an employee’s basic salary alone already reaches or exceeds the maximum MSC, the addition of overtime pay will not increase the contribution amount, as the premium is already capped at the highest bracket.
- Low-to-Mid Income Earners: The inclusion of overtime pay most significantly affects employees whose total earnings (Basic + OT) fluctuate within the lower or middle brackets of the SSS contribution table.
Legal Obligations of the Employer
Under the law, the employer is mandated to:
- Accurately Report Earnings: Use the total actual compensation (including overtime) to determine the correct MSC bracket.
- Deduct and Remit: Withhold the employee’s share and provide the employer’s share based on the total compensation.
- Avoid Under-reporting: Failure to include overtime pay in the computation—if it would have moved the employee to a higher MSC bracket—can be considered under-remittance. This may subject the employer to penalties, including a 2% monthly interest on the deficiency.
Summary Table: Compensation vs. SSS Basis
| Type of Pay | Included in SSS Computation? |
|---|---|
| Basic Salary | Yes |
| Overtime Pay | Yes |
| Holiday Pay | Yes |
| 13th Month Pay | No (Statutory limit applies) |
| De Minimis Benefits | No (within BIR limits) |
| Reimbursable Expenses | No |
Conclusion
For the purpose of SSS contributions in the Philippines, overtime pay is treated as part of the employee's regular remuneration. While it increases the contribution burden for both the employer and the employee in the short term, it serves a long-term benefit for the member. Since SSS benefits (such as sickness, maternity, and retirement pensions) are calculated based on the average of the highest Monthly Salary Credits, including overtime pay in the computation ultimately leads to higher social security benefits for the worker.