Yes, it is not only legal but the most common and DOLE-recognized method of paying rank-and-file employees in the Philippines. Paying a fixed monthly salary that is derived from (or “based on”) a daily rate is the standard practice for establishing the basic salary of monthly-paid employees, provided the computation follows the correct legal factors and the resulting pay complies with minimum wage, statutory benefits, and the non-diminution rule.
This article explains everything you need to know about this salary structure under Philippine labor law as of December 2025.
1. Legal Classification: Monthly-Paid vs. Daily-Paid Employees
The classification is determined by the manner of payment, not by what is written in the contract or payroll title.
| Type | Characteristics | Holiday Pay (Regular) | Typical Divisor/Factor Used |
|---|---|---|---|
| Monthly-paid | Fixed amount every payday regardless of number of working days in the pay period (deductions only for unauthorized absences) | Deemed already included in the monthly salary (no additional payment required) | 365/12 ≈ 30.4167 |
| Daily-paid / Output-based | Pay varies depending on actual days worked or output accomplished | Entitled to separate holiday pay if holiday is unworked | Actual days worked |
Supreme Court: “The true test is whether the employee receives a predetermined amount constituting his regular compensation on a fixed basis per month, without regard to the varying number of days actually worked in a month.” (Jose Rizal College v. NLRC, G.R. No. 65482, December 1, 1987; reiterated in many subsequent cases.)
If the employee receives the same gross amount every 15th and 30th (or every payday) regardless of whether the month has 20, 22, or 24 working days, the employee is legally monthly-paid even if the payroll says “daily rate employee.”
2. The Legally Recognized Way to Compute Fixed Monthly Salary from Daily Rate
DOLE uses the following formula for determining the equivalent monthly salary for minimum wage compliance and for converting daily rates to fixed monthly rates:
Equivalent Monthly Salary = Applicable Daily Wage Rate × 365 days ÷ 12 months
365 days = 105 rest days (for 5-day workweek) or 52 rest days (for 6-day workweek) + regular holidays + special non-working days + ordinary working days.
This is the only formula expressly recognized by the Department of Labor and Employment in its Handbook on Workers’ Statutory Monetary Benefits (latest edition 2024) and in all Regional Tripartite Wages and Productivity Board wage orders.
Example (NCR as of December 2025 – minimum daily wage P645):
Monthly minimum = P645 × 365 ÷ 12 = P19,613.75
Any fixed monthly salary below this amount for a rank-and-file employee working 5 or 6 days a week is presumptively illegal unless the employee is exempt (managerial, field personnel, piece-rate, etc.).
Companies that use lower factors (e.g., 313, 314, 300, 261, 250, 26 days × 12 = 312) are effectively underpaying because they exclude the cost of paid rest days and holidays that the law requires to be shouldered by the employer.
3. Why the 365/12 Factor Is Mandatory and Beneficial to Employees
The 365-day factor forces the employer to absorb the cost of:
- 52 or 104 weekly rest days
- 12–13 regular holidays
- 7–9 special non-working days
These are all paid non-working days under the law. By using 365/12, the employer spreads the cost of these paid days throughout the year, which is exactly what the law intends.
Using a lower factor (e.g., 313 or 261) shifts part of the cost of paid rest days and holidays to the employee, making the effective daily rate lower than the legal minimum — a violation repeatedly declared illegal by DOLE and the Supreme Court.
4. Holiday Pay Treatment Under Fixed Monthly Salary
Regular holidays (deemed paid) → No additional payment
Special non-working days → Additional 30% if worked; no pay if unworked (but monthly salary remains the same)
If the holiday falls on a rest day → Additional 30% of the daily rate (200% rule still applies, but since monthly is fixed using 365 factor, it is already covered)
This is why DOLE repeatedly states: “Monthly-paid employees are presumed to be already paid the 10 regular holiday pay” (Omnibus Rules, Book III, Rule IV, Section 8).
5. Overtime, Night Shift, Rest Day, and Holiday Premium Computation
Even monthly-paid employees are entitled to overtime and premium pays. The daily rate used for premium computation is usually derived differently to avoid underpayment.
Most legally compliant companies use two rates:
(a) Basic daily rate for minimum wage compliance = Monthly × 12 ÷ 365
(b) Factor daily rate for overtime/premium = Monthly × 12 ÷ applicable ordinary working days in the year
Common legal divisors for overtime (recognized by DOLE and jurisprudence):
| Work Schedule | Ordinary Working Days/Year | Common Divisor | Notes |
|---|---|---|---|
| 5-day workweek | 313 days | 313 | Most common and conservative (favors employee) |
| 6-day workweek | 365 days | 365 | Rarely used now |
| With compressed workweek | Varies | As approved by DOLE |
Using 365 as divisor for overtime would underpay overtime by ≈16–20% and has been declared illegal in several NLRC and CA decisions when contested.
6. 13th Month Pay, Service Incentive Leave, and Separation Pay Computation
All based on actual basic salary earned.
13th month = Total basic salary in the calendar year ÷ 12
SIL cash conversion = (Monthly rate × 12 ÷ 365) × 5 days
Separation pay (if qualified) = (Monthly rate × 12 ÷ 365) × years of service × ½ or 1
The 365 factor is again used.
7. Common Illegal Practices That Appear “Fixed Monthly” But Are Actually Daily-Paid in Disguise
| Practice | Why Illegal/Problematic |
|---|---|
| Monthly pay = daily rate × actual working days in the payroll period (varies every cutoff) | Destroys the “fixed” character; employee becomes daily-paid and entitled to separate holiday pay, ECOLA, etc. |
| Using 26 × daily rate or 22 × daily rate every month | Effectively excludes holidays and some rest days; underpayment |
| Deducting absences on holidays or rest days | Violation of paid rest day/holiday rule |
| Labeling employee as “daily rate” but paying fixed amount | Misclassification; employee can claim underpayment of overtime, holiday pay, 13th month, etc. for past 3 years |
8. Relevant Supreme Court Decisions (Key Rulings)
Jose Rizal College v. NLRC (1987) – Monthly salary already includes regular holiday pay.
Wellington Investment v. Trajano (1991) – Fixed monthly compensation makes the employee monthly-paid.
Leyte Geothermal Project v. NLRC (1995) – Reaffirmed use of 365-day factor.
PNB v. Cabansag (2005) – Manner of payment determines classification, not contract label.
Numerous 2020–2025 CA and SC decisions upholding the 365/12 factor for minimum wage compliance and benefit computation.
9. DOLE Position (2024–2025)
The current DOLE Handbook (2024 edition) and all RTWPB wage orders explicitly use the 365/12 formula.
DOLE Department Advisory No. 01, Series of 2022 (Computation of Equivalent Monthly Rate) again confirmed the 365-day rule.
During the 2024–2025 wage hearings, all regional boards continued to publish the equivalent monthly minimum wage using exactly this formula.
Conclusion
Paying a fixed monthly salary that is based on a daily rate is not only legal — it is the correct and mandatory method under Philippine law when done using the 365/12 factor.
Any other factor (313, 300, 261, 250, 26×12, 22×12, etc.) results in systematic underpayment of wages and benefits and exposes the employer to money claims covering the last three years plus 10% attorney’s fees, damages, and possible criminal liability for violation of minimum wage laws.
Employees who are currently paid using lower factors have a valid cause of action for wage differentials, holiday pay differentials, overtime differentials, 13th-month differentials, and SIL differentials — all prescribable only after three years.
Employers who want to be 100% compliant should immediately adopt the 365/12 rate for basic salary and at least the 313-day divisor for overtime/premium computation in 5-day workweek setups.
This salary structure, when properly implemented, fully complies with the Labor Code, the Wage Rationalization Act, and all related jurisprudence and DOLE issuances.