I. Governing framework and basic principles

Monthly wage computation in the Philippines sits on a few core legal anchors:

Labor Code of the Philippines (as amended), its Implementing Rules and Regulations, and DOLE (Department of Labor and Employment) issuances interpreting pay rules (e.g., holidays, service incentive leave, permissible wage deductions).
Wage Orders issued by the Regional Tripartite Wages and Productivity Boards (RTWPBs) setting minimum wages by region/sector.
Separate laws on statutory benefits and leaves (e.g., 13th Month Pay rules, SSS, PhilHealth, Pag-IBIG, maternity/paternity and other special leaves).

Two principles appear repeatedly:

Non-diminution of benefits – once a benefit or favorable pay practice is granted and consistently given, it generally cannot be reduced or withdrawn unilaterally.
Wage protection – wages are protected; deductions are limited and must fall within legal categories.

II. What “monthly-paid employee” means (and why it matters)

In practice, “monthly-paid” refers to employees whose compensation is stated as a monthly salary (e.g., ₱30,000/month). But the legal/payroll consequences depend on what that monthly salary is intended to cover.

A. Common payroll classification

Monthly-paid: receives a fixed salary per month, typically paid regardless of the number of workdays in a month (28/29/30/31), subject to lawful deductions for absences.
Daily-paid: paid per day actually worked (“no work, no pay” as the default), with specific exceptions (regular holidays, service incentive leave, and other legally-mandated paid leaves/benefits).

B. The “coverage” question

A monthly salary may be designed to cover:

All calendar days in the year (including rest days and holidays), or
Only certain paid days by company policy/contract (less common, but seen in some setups).

This affects the correct daily rate divisor used for deductions and conversions.

III. Minimum wage compliance for monthly-paid employees

Even if an employee is monthly-paid, the employer must ensure that the monthly salary is not below what the employee would receive if paid at least the applicable minimum daily wage for the days required/covered.

Practical compliance checks:

Confirm the employee’s work location/region and sector classification under the relevant Wage Order.
If you convert salary to a daily equivalent, the result should not fall below the minimum daily wage for similarly situated employees.

IV. How to compute the daily rate of a monthly-paid employee

There are two commonly used conversion approaches in Philippine payroll. Which one is appropriate depends on what the monthly salary is deemed to cover.

Approach 1: Calendar-day equivalent daily rate

Used when the monthly salary is treated as spreading pay across the entire year (all calendar days).

Equivalent Daily Rate (EDR) [ \text{EDR} = \frac{\text{Monthly Rate} \times 12}{365} ]

This yields a “calendar-based” daily equivalent. It is often used for:

Salary-to-daily conversions for deductions due to absences (especially when company policy treats the monthly salary as inclusive of rest days/holidays),
Consistent prorating across months of different lengths.

Equivalent Hourly Rate (EHR) (typical 8-hour day) [ \text{EHR} = \frac{\text{EDR}}{8} ]

If the normal working hours per day differ, divide by the actual normal hours.

Approach 2: Working-day-based daily rate

Used when salary is intended to cover only paid working days (e.g., a policy that effectively equates monthly salary to “X workdays” per month). A common internal divisor is 26 days (typical workdays in a month for 6-day workweeks), but this is policy-based and must not violate minimum wage, holiday pay rules, or benefit entitlements.

[ \text{Daily Rate} = \frac{\text{Monthly Rate}}{26} ] (or another agreed divisor consistent with the employer’s pay scheme)

Important caution: If the divisor method results in underpayment of holiday pay, overtime computations, or minimum wage equivalency, it is not compliant. The divisor must match the compensation design and must not defeat statutory entitlements.

V. Monthly pay for partial months (proration)

Proration is needed when:

Newly hired mid-month,
Resigned/terminated mid-month,
Unpaid leave/absences exist,
Suspensions or work stoppage rules apply.

A defensible proration method should be:

Written (policy/contract/handbook),
Consistent across employees,
Non-discriminatory,
Not resulting in underpayment of minimum wage and mandated benefits.

Common proration methods:

Calendar-day proration using EDR: [ \text{Pay} = \text{EDR} \times \text{Paid Days (calendar-based)} ]
Workday proration using a workday daily rate: [ \text{Pay} = \text{Workday Daily Rate} \times \text{Days Paid/Worked} ]

Because months vary in length, many employers prefer the 365-based method for uniformity—provided it aligns with the salary design and internal policies.

VI. Deductions for absences: rules and computations

A. Core rule: “No work, no pay” (with exceptions)

As a default, if an employee does not work on a day that is not otherwise paid by law or policy, the employer may deduct pay for that absence.

But absences may be paid if covered by:

Company-granted leave benefits (vacation leave, sick leave, birthday leave, etc.),
Statutory paid leaves (e.g., service incentive leave if not commuted; maternity/paternity leave under their governing laws; special leave for women; solo parent leave where applicable),
Regular holiday pay rules (regular holidays are generally paid even if unworked, subject to conditions for certain employee categories),
Other legally mandated pay rules (e.g., certain situations involving closure/suspension may have special treatment depending on cause and DOLE guidance).

B. Unpaid absences (LWOP)

For unpaid absences, deduction is typically:

Using EDR: [ \text{Deduction} = \text{EDR} \times \text{Number of Unpaid Absence Days} ]
Or using a workday daily rate, if that is the established and compliant scheme: [ \text{Deduction} = \text{Workday Daily Rate} \times \text{Unpaid Workdays Missed} ]

C. Absences on rest days

If the employee is not scheduled to work on a rest day and does not work, there is ordinarily no absence to deduct. Deduction issues arise when:

The rest day is swapped or scheduled as a workday,
The employee is required/scheduled to work on that day and fails to report.

D. Tardiness, undertime, and partial-day absences

Tardiness and undertime are generally deductible proportionately, but employers must observe wage protection and should avoid unlawful “penalty deductions” that exceed the value of time not worked.

Typical computation: [ \text{Deduction} = \text{Hourly Rate} \times \text{Hours (or fraction) not worked} ] where hourly rate is derived consistently (e.g., EDR/8).

Important: While discipline for tardiness can be imposed (per due process), the wage deduction should correspond to actual time not worked, not an arbitrary punitive amount—unless a lawful deduction category applies and is properly documented.

VII. Interaction with holidays and special days

Holiday rules are a frequent source of payroll errors.

A. Regular holidays

Regular holidays are generally paid days, even if unworked, for covered employees—subject to conditions for certain categories and valid absences.

Common compliance points:

If the employee did not work on the holiday, they may still be entitled to holiday pay.
If the employee worked, premium pay applies.
If the employee is on unpaid absence immediately before the holiday, entitlement questions can arise depending on the circumstances and employee category; policies must be consistent with wage rules.

B. Special non-working days

Special non-working days are generally “no work, no pay” unless:

Company policy/CBA grants pay, or
The employee works, in which case premium rules may apply.

Because special days treatment can change based on proclamations and specific DOLE guidance, employers typically encode rules in payroll tables and update them as needed.

VIII. Statutory contributions and withholding tax

Monthly-paid employees typically have mandated deductions for:

SSS contributions (employee share),
PhilHealth contributions (employee share),
Pag-IBIG contributions (employee share),
Withholding tax (if applicable).

Key points:

These deductions are lawful and expected.
The employer must remit on time and in correct amounts.
For employees with absences and reduced gross pay, contributions and tax may adjust depending on the governing contribution/tax rules.

IX. Permissible vs. impermissible wage deductions

A. Generally permissible deductions

Statutory deductions: SSS, PhilHealth, Pag-IBIG, withholding tax.
Deductions with employee authorization where allowed (e.g., certain loans, union dues where applicable, authorized insurance).
Deductions for loss/damage in limited situations, typically requiring due process, proof, and compliance with wage deduction rules (and often employee consent or a legally recognized basis).
Deductions under a valid CBA or lawful company policy consistent with wage protection rules.

B. Generally impermissible or high-risk deductions

Deductions that function as penalties unrelated to time not worked.
Deductions that bring pay below minimum wage for the pay period (in covered contexts).
Deductions for tools, uniforms, or employer-required expenses that effectively shift business costs to employees in a way that violates wage protection principles (unless clearly allowed and structured legally).
Unilateral deductions without lawful basis or proper authorization/documentation.

X. Sample computations (illustrative)

Assume:

Monthly salary: ₱30,000
8-hour workday

A. EDR method (365-based)

[ \text{EDR} = \frac{30{,}000 \times 12}{365} = \frac{360{,}000}{365} \approx 986.30 ] Hourly: [ \text{EHR} = 986.30 / 8 \approx 123.29 ]

1 day unpaid absence deduction: [ 986.30 \times 1 = 986.30 ]

3 hours undertime deduction: [ 123.29 \times 3 \approx 369.87 ]

B. 26-day divisor method (policy-based)

[ \text{Daily} = 30{,}000/26 \approx 1{,}153.85 ] Hourly: [ 1{,}153.85/8 \approx 144.23 ]

1 day unpaid absence: [ 1{,}153.85 ]

The two methods produce materially different deductions. The correct one is the one that matches (1) how the salary is structured to cover days, (2) the employer’s written policy/contract, and (3) statutory compliance (minimum wage equivalency and benefit/holiday rules).

XI. Documentation and enforcement essentials

To reduce disputes and increase legal defensibility, employers should maintain:

Employment contracts stating salary basis and pay period,
A clear handbook/policy on proration, divisor method, tardiness/undertime deductions, leave conversions, and holiday handling,
Time records (Daily Time Records) and leave applications,
Payroll registers and payslips showing gross pay, itemized deductions, and net pay,
Authorizations for non-statutory deductions (when required),
Consistent application across similarly situated employees.

Employees challenging wage deductions commonly succeed when employers cannot show:

A lawful basis,
Proper computation,
Consistent practice,
Or documentation that the employee agreed to/was notified of the method.

XII. Practical compliance checklist

Use a consistent daily-rate conversion aligned with the salary design and written policy.
Ensure deductions for absences reflect actual unpaid time/days, not punitive amounts.
Apply holiday and special day rules correctly and consistently.
Keep statutory deductions accurate and remitted on time.
Avoid deductions that shift business costs improperly or lack written authorization.
Maintain audit-ready payroll documentation (time records, leave records, payslips, policies).