Overtime Pay Rate Reduction from 130% to 125% (Philippines)

A practitioner-style explainer for HR, payroll, and counsel. We’ll pin down what the Labor Code actually requires (125%), when 130% and higher rates legitimately apply, and when cutting a long-used 130% down to 125% is lawful (or an unlawful diminution of benefits). General information only, not legal advice.

1) What the law requires for overtime (baseline)

For non-exempt employees (rank-and-file; not managerial, not field personnel without definite hours, etc.):

Ordinary day overtime (beyond 8 hours): +25% of the hourly basic wage → Pay = 125% of the hourly rate per OT hour.

That’s the statutory floor. You may grant more, but you cannot pay less.

Who’s not entitled to OT? Managerial employees, officers with the power to lay down and execute management policies; field personnel whose time cannot be determined; and a few other exempt categories recognized in the Labor Code/IRR. Everyone else: the 8-hour rule and OT apply.

2) Where 130% (and higher) actually belongs

Many payrolls confuse the 25% OT premium with the 30% “rest day/special day” premium. Here’s the clean grid:

Scenario	First 8 hours	OT hours on same day
Ordinary working day	100%	125% (100% + 25%)
Rest day or Special non-working day	130% (100% + 30%)	169% (130% × 1.30)
Regular holiday	200%	260% (200% × 1.30)
Regular holiday that falls on rest day	260% (200% × 1.30)	338% (260% × 1.30)

So, 130% is not the legal OT rate on an ordinary day; it’s the rest-day/special-day base rate for the first 8 hours. Ordinary-day OT is 125%.

Night Shift Differential (NSD): Add +10% of the applicable hourly rate for work between 10:00 p.m.–6:00 a.m. This stacks on top of OT/holiday/rest-day premiums for the night hours only.

3) Can an employer reduce an OT rate from 130% → 125%?

Short answer:

If you were paying 130% for ordinary-day OT by mistake, you may align to the law’s 125% prospectively, provided you do it correctly (see §6).
If 130% is already a company benefit (CBA, policy, or established practice), unilaterally cutting it can violate the non-diminution of benefits rule.

3.1 Non-diminution of benefits (the doctrine)

A benefit cannot be unilaterally reduced if all are present:

It is company-granted (policy, CBA, or practice);
Consistently and deliberately given over a significant period;
Not due to error in interpreting a doubtful law/policy;
The employer cuts it without lawful basis.

If the 130% rate arose from a good-faith mistake (confusing rest-day premiums with OT), employers can correct it. But you should be ready to prove the mistake (training decks, memo trail, audit findings) and that there was no intent to create a permanent benefit.

3.2 When reduction is usually unlawful

CBA or employment contracts promise 130% for OT.
A written policy/handbook or clear past practice for years shows ordinary-day OT is paid at 130% with no “error” history.
Reduction is done without notice/consultation, and employees relied on it in wage-structuring (e.g., accepted lower base because of richer OT).

3.3 When reduction is usually lawful

130% was paid on ordinary-day OT sporadically or briefly, then discovered in a payroll audit.
HR can document the misclassification (e.g., a software setting that applied “rest day” template to weekdays).
The company has no CBA/policy promising 130% OT; the handbook cites “per law”.
You implement a prospective correction with clear notice, and no recovery of past overpayments (to avoid undue hardship and disputes).

4) Computation examples (plug-and-play)

Assume Hourly Basic = ₱100.

4.1 Ordinary day, 2 hours OT (no NSD)

OT rate: 125% → ₱125/hour
Total OT pay: 2 × ₱125 = ₱250

4.2 Rest day, 9th and 10th hour worked (i.e., 2 hours OT on rest day)

First 8 hours: 130% → 8 × ₱130 = ₱1,040
OT hours: 169% → 2 × ₱169 = ₱338
Total day pay = ₱1,378

4.3 Regular holiday, 3 hours OT at night (10 p.m.–1 a.m.)

Holiday base: 200% → OT rate: 260%
OT hour pay: ₱100 × 2.60 = ₱260
NSD (10% of hourly rate on that day): 10% × ₱200 = ₱20 per night hour
For each OT night hour: ₱260 + ₱20 = ₱280
3 night OT hours = ₱840

Stacking tip: Compute the day’s correct base/premium first, then apply OT (×1.30) for hours beyond 8, then add NSD for night hours.

5) Common payroll mix-ups (and how to fix them)

Using 130% for all OT — Confuses rest-day/special-day rate with ordinary-day OT. Fix: Re-map day types in the T&A/payroll system; train schedulers.
Applying OT to compressed workweeks — In a DOLE-compliant Compressed Workweek (CWW), daily hours may exceed 8 without OT so long as weekly hours cap and CWW rules are met. Outside that, daily excess counts as OT. Fix: Frame CWW properly and get employees’ written consent.
Wrong NSD base — NSD should be computed on the rate applicable to that day (e.g., 130%, 200%), not always on 100%.
Treating meal allowances as wage — Keep non-wage benefits separate in the ledger; don’t use them to offset wage/premium deficits.
OT for exempt staff — Don’t book OT for managerial/exempt positions; if you do as a perk, keep it in a separate non-wage bucket to avoid reclass trouble.

6) If you’re cutting 130% → 125%: a safe-harbor implementation plan

(a) Audit and memo the error. Document the legal basis (125%), when/why 130% was mistakenly used, and payroll periods affected.
(b) Check CBAs, contracts, handbooks. If any promise 130%, bargain or amend first; unilateral cuts risk a labor case.
(c) Consult/notify. Brief the workforce (and the union, if any). Transparency reduces disputes.
(d) Prospective only. Do not claw back past “overpayments” unless there was clear fraud; otherwise you invite claims.
(e) Fix systems. Lock correct multipliers in payroll; configure day-type logic (ordinary/rest/holiday), OT triggers, and NSD stacking.
(f) Keep a grace period. Consider a short transition (e.g., effective next cutoff) to avoid alleged constructive dismissal claims framed around a sudden “pay cut.”
(g) Provide a help sheet. Publish a one-pager of examples (like §4) so supervisors stop overriding rates “to be safe.”

7) Litigation lens: how disputes play out

Employees’ angle: “We’ve been paid 130% for years; cutting it is an unlawful diminution of benefits.”
Employer’s angle: “130% was a mistake; law says 125% for ordinary-day OT; we corrected prospectively with notice; no binding policy/CBA promised 130%.”

Key evidences:

Length and consistency of paying 130%; written policies; CBAs.
HR/payroll audit trail proving error vs. deliberate grant.
Communications showing notice and good-faith correction.

Typical outcomes:

If it looks like a long, deliberate grant (or bargained), the cut is often struck down; company must restore 130% (and sometimes pay differentials).
If it looks like a documented mistake corrected prospectively, with no history of a promise, the correction is usually upheld.

8) Quick compliance checklist (print-friendly)

Confirm employee exemption status (OT entitlement).
Lock ordinary-day OT = 125%; rest/special/holiday mapping correct.
NSD stacks correctly with day-type and OT.
CWW (if any) documented and compliant.
Review CBA/handbook/LOA for any 130% promises.
If reducing, prepare audit memo + notice; implement prospectively.
Train schedulers/payroll on scenario grid (see §2).
Keep pay slip transparency: show base rate, day type, OT hours, multipliers.

9) Ready-to-use policy language (sample)

Overtime Pay Policy (Ordinary Days). Overtime on ordinary working days is compensated at one hundred twenty-five percent (125%) of the employee’s hourly basic wage for each hour worked beyond eight (8) hours, consistent with the Labor Code and its IRR. Rest/Special/Regular Holidays. Work on rest days or special non-working days is paid at one hundred thirty percent (130%) of the hourly basic wage for the first eight (8) hours, with overtime on the same day at one hundred sixty-nine percent (169%). Work on regular holidays is paid at two hundred percent (200%); overtime at two hundred sixty percent (260%). Where a regular holiday falls on a rest day, the applicable rates are two hundred sixty percent (260%) for the first eight (8) hours and three hundred thirty-eight percent (338%) for overtime. Night Shift Differential of ten percent (10%) applies to work between 10:00 p.m.–6:00 a.m. No Diminution. Nothing in this policy reduces benefits granted by CBA, written company policy, or established practice that are more favorable than the law.

Bottom line

125% is the legal OT rate for hours beyond eight on a regular working day.
130% is the rest day/special day base (first 8 hours), not the ordinary-day OT rate.
Cutting 130%→125% for ordinary-day OT is lawful only if 130% was a correctable mistake or never ripened into a benefit by policy, CBA, or long practice.
If you must correct, do it prospectively, transparently, and system-wide—and keep the rest-day/holiday multipliers and NSD stacking accurate.