Overview
Overtime pay (Article 87, Labor Code) is a premium that attaches only to hours actually worked beyond eight (8) in a day. Leave with pay, on the other hand, is a statutory or voluntary benefit that replaces lost earnings for days on which no work is done. Because no services are rendered while an employee is on paid leave, no overtime can arise for those leave hours themselves. The legal issue therefore is not “overtime while on leave” (there is none), but how overtime performed on other days in the same work-week is treated when the employee also enjoyed leave with pay.
Under Article 88 of the Labor Code, two allied rules settle the matter:
- Undertime not offset by overtime – Fewer than eight hours on one day cannot be “balanced” by longer hours on another.
- Leave with pay not a defense – “Permission given the employee to go on leave on some other day of the week shall not exempt the employer from paying the additional compensation required.”
Put simply, an employer must still pay the overtime premium for every hour beyond eight that was actually worked, even if the employee also enjoyed leave credits elsewhere in the same payroll period.
1. Statutory Foundations
| Provision | Key rule | Practical effect |
|---|---|---|
| Art. 87, Labor Code | Work beyond 8 hours → 25 % premium (ordinary); 30 % if work falls on a rest day/holiday. | Establishes the right to overtime pay. |
| Art. 88 | (a) Undertime cannot offset overtime. (b) Leave with pay does not cancel overtime liability. | Bars employers from using absences or leaves to wipe out overtime pay. |
| Art. 89 | Allows compulsory or “emergency” overtime in five narrowly-defined cases. | Overtime may be required, but still paid at statutory rates. |
| Article 95 & special statutes | Enumerate paid‐leave entitlements (Service Incentive Leave, maternity, paternity, VAWC, solo-parent, Magna Carta of Women, etc.). | Identify what counts as “leave with pay.” |
Coverage and Exemptions
Only rank-and-file private-sector workers fall under Articles 87–88. Managerial employees, field personnel, domestic helpers, and workers paid by results are exempt.
For government employees, overtime is governed by CSC-DBM Joint Circular No. 1-2015: cash payment is allowed only in “exceptional cases,” otherwise overtime is compensated through compensatory time-off (CTO). The circular likewise prohibits using overtime to offset undertime or leave with pay.
2. How Leave-With-Pay Interacts with Overtime
No work, no overtime principle Paid leave replaces the regular wage only; the employee earns neither overtime pay nor premium pay for the leave hours themselves.
Non-deductibility rule An employer may not deduct leave credits (or the fact that the employee was on leave) from the computation of overtime hours already worked on another day. This flows directly from Article 88 and is restated in DOLE training materials and HR guides.
Illustrative computation
Scenario: A monthly-paid employee (₱30,000/month) takes paid vacation leave on Monday, then works 10 hours on Tuesday.
Daily rate = ₱30,000 ÷ 26 days = ₱1,153.85 Hourly rate = ₱1,153.85 ÷ 8 = ₱144.23
| Item | Hours | Multiplier | Amount |
|---|---|---|---|
| Tuesday – first 8 h | 8 | 1.00 | ₱1,153.85 |
| Tuesday – OT (2 h) | 2 | 1.25 | ₱360.58 |
| Monday – paid leave | 8 | 1.00 | ₱1,153.85 |
| Total for payroll | ₱2,668.28 |
The leave day is paid at 100 % of the daily rate; the overtime premium is in addition, unaffected by the leave.
- Rest-day or holiday overlap If an employee, while on multi-day paid leave, is required to work on a rest day or holiday, the day ceases to be leave and is paid as actual work at the corresponding rest-day/holiday and overtime rates (200 % + 30 % OT for regular holidays; 130 % + 30 % OT for special days).
3. Jurisprudence & Administrative Guidance
| Case / Issuance | Take-away |
|---|---|
| PD 442 text (Labor Code), Art. 88 | Cited by the Supreme Court in several decisions to reject “offsetting” schemes. |
| Alburo Law commentary (2019) | Explains why undertime/leave cannot cancel overtime: overtime rate is higher than the regular daily rate. |
| Respicio Law Note (2025) | Reiterates that “undertime or leave cannot be charged against overtime premiums due.” |
| CSC-DBM J.C. 1-2015 | Sets identical limits in the public sector; requires at least 2 hours OT, bars offsetting, and allows cash OT only when CTO will disrupt agency work. |
No Supreme Court ruling squarely awards “overtime while on leave,” because the doctrine is settled: overtime is earned only when work is performed. Cases instead focus on offsetting or record-keeping; where timecards proved actual work beyond eight hours, employees prevailed notwithstanding their leaves earlier that week.
4. Compliance Pointers for Employers
Maintain separate ledgers for (a) leave credits, (b) hours actually worked, and (c) overtime hours.
Honor Article 88: Never net-out overtime against absences, tardiness, or leave with pay.
Use payroll factors correctly:
- Daily-paid = daily rate × days actually worked + leave pay + OT premium.
- Monthly-paid = monthly rate already covers Sundays, regular holidays, and paid leaves; add OT premiums on top.
For government offices, prefer CTO over cash OT unless operations would suffer.
Communicate policies in writing; align company manuals and time-keeping software with the Article 88 rule to avoid illegal deductions.
5. Frequently Asked Questions
| Question | Answer |
|---|---|
| Does an employee on maternity leave earn overtime? | No. She is not performing work; maternity leave benefits under R.A. 11210 are a social insurance replacement, not overtime. |
| If an employee renders OT on Tuesday, can we require him to apply leave for undertime on Thursday instead of paying OT? | No. Article 88 forbids offsetting overtime with undertime or leave. |
| Can leave credits be converted to cash to avoid overtime pay? | Conversion (monetization) of leave credits is allowed in limited cases (e.g., SIL at year-end) but cannot replace overtime premiums already earned. |
| Are managers on leave but checking emails entitled to OT? | Managerial personnel are exempt from overtime altogether; the question does not arise. |
Bottom line
In Philippine labor law, overtime pay and leave with pay operate on separate tracks. Leave with pay guarantees wages for non-working days, while overtime pay rewards extra hours actually worked. Article 88 cements two bright-line rules: undertime can never erase overtime, and the mere fact that an employee enjoyed paid leave in the same week does not reduce or cancel the employer’s overtime liability.
Consistent time-keeping, faithful payroll computation, and a clear understanding of this interaction are the surest ways to stay compliant—and to avoid the penalties that attach to short-paid overtime.