In the wake of evolving global work trends and the formalization of alternative work schemes by the Department of Labor and Employment (DOLE), Philippine businesses have increasingly adopted Flexible Work Arrangements (FWA). While these arrangements offer operational resilience, they necessitate a precise understanding of wage computation to ensure compliance with the Labor Code of the Philippines and existing DOLE Integrated Guidelines.
I. Governing Legal Basis
The primary authority for FWAs in the Philippines is DOLE Advisory No. 02, Series of 2009, and DOLE Advisory No. 04, Series of 2010. These advisories recognize FWAs as "alternative arrangements or schedules other than the traditional or standard workhours, workdays, and workweek."
For monthly-paid employees, the cornerstone of salary computation remains Article 82 to 94 of the Labor Code, supplemented by the Telecommuting Act (Republic Act No. 11165) for those working remotely.
II. Common Types of FWA and Impact on Salary
Under Philippine law, the "No Work, No Pay" principle generally applies, but its application varies based on the specific FWA adopted:
Compressed Workweek (CWW): The normal workweek is reduced to fewer than 6 days, but the total number of hours remains 48 per week (or 40 for certain industries).
Computation: No reduction in monthly salary. Overtime (OT) only kicks in after the agreed extended daily hours (e.g., after 10 hours in a 4-day workweek).
Reduction of Workdays/Hours: The workweek is shortened (e.g., to 3 days) or the daily hours are reduced.
Computation: This is a "pro-rata" arrangement. Monthly salary may be reduced based on the actual hours or days worked, provided the arrangement is temporary and aimed at preventing business closure.
Broken-Time Schedule: Employees work within a bandwidth but with long uncompensated breaks.
Computation: Only actual hours worked are compensable.
Flexi-Holidays: Employees agree to trade a specific holiday for another day.
Computation: Holiday pay rules must still align with the law; if worked, the employee is entitled to 200% (Regular Holiday) or 130% (Special Non-Working Day).
III. The Formula for Monthly-Paid Employees
Monthly-paid employees are those whose monthly salary constitutes a flat rate regardless of the number of days in a month. To compute daily and hourly rates—crucial for FWA deductions or OT—the Estimated Equivalent Monthly Rate (EEMR) formula is used.
1. Determining the Factor
The "Factor" represents the total number of paid days in a year. For those who do not work and are not paid on Sundays or rest days:
(365 days - 52 Sundays)
2. Computing the Daily Rate
3. Computing the Hourly Rate
IV. Salary Computation Scenarios under FWA
A. Reduction of Workdays (The Pro-Rata Shift)
If an employee with a monthly salary of PHP 30,000 is placed on a 3-day workweek due to a valid FWA, the computation for the month is:
- Find Daily Rate:
- Multiply by Actual Days Worked: If they worked 12 days in a month: .
B. Telecommuting and FWAs
Under RA 11165, telecommuting employees must receive a rate of pay, including overtime and night shift differential, and other benefits not lower than those provided to comparable employees working at the employer’s premises.
- Allowances: Employers and employees may stipulate a "Telecommuting Allowance" to cover utility costs, but this cannot be deducted from the basic salary to offset FWA costs.
V. Mandatory Compliance Requirements
To legally implement FWA-based salary adjustments, the following must be met:
- Voluntariness and Agreement: The FWA must be mutually agreed upon by the employer and employee, preferably in writing.
- DOLE Notification: The employer must notify the DOLE Regional Office having jurisdiction over the workplace by submitting the prescribed "Report on Adoption of Flexible Work Arrangements."
- Non-Diminution of Benefits: While the gross pay may decrease because of fewer hours worked, the hourly rate must not fall below the minimum wage. Furthermore, existing benefits (13th-month pay, leaves) must not be permanently reduced or eliminated.
VI. Impact on 13th Month Pay and De Minimis
- 13th Month Pay: This is computed based on the total basic salary earned during the calendar year divided by 12. If an FWA reduced the monthly earnings, the 13th-month pay will be naturally lower.
- Government Contributions (SSS, PhilHealth, Pag-IBIG): These are based on the actual salary bracket of the employee. If the FWA results in a lower monthly income, the contribution brackets may shift accordingly.
VII. Summary Table: FWA Salary Impact
| FWA Type | Basic Monthly Salary | Overtime Threshold |
|---|---|---|
| Compressed Workweek | Unchanged | Beyond agreed daily hours (e.g., >10 hrs) |
| Reduced Workweek | Reduced pro-rata | Beyond 8 hours/day |
| Telecommuting | Unchanged | Beyond 8 hours/day |
| Flexi-Time | Unchanged | Beyond 8 hours/day (total) |
Conclusion
Salary computation for monthly-paid employees under FWA requires a delicate balance between the "No Work, No Pay" principle and the "Non-Diminution of Benefits" rule. While the total take-home pay may vary based on actual time rendered, the underlying rates and legal protections remain fixed under the Labor Code. Proper documentation and DOLE filing are essential to protect the employer from claims of illegal wage deduction.