I. Introduction

In Philippine labor practice, one of the most misunderstood subjects is the difference between:

Fixed monthly salary (monthly-paid employees), and
Daily rate (daily-paid employees).

Employees often assume that being “monthly salaried” automatically means better benefits or more protection, while employers sometimes misapply formulas that result in underpayment or non-compliance with minimum wage and statutory benefits.

This article explains, in Philippine context, how monthly and daily pay systems work, their legal implications, computation methods, and common pitfalls in drafting employment contracts and payroll policies.

II. Basic Concepts and Terminology

Monthly-paid employee
- Receives a fixed salary for the entire month regardless of the actual number of working days in that month.
- The fixed monthly salary is intended to cover all days of the year, including:
  - Ordinary working days
  - Rest days
  - Regular holidays
  - Special days (in some company policies, not always)
- Still subject to deductions for absences, tardiness, or LWOP (leave without pay) under company policy.
Daily-paid employee
- Paid a certain amount per day actually worked.
- Typically follows the “no work, no pay” principle, subject to statutory exceptions like holiday pay and certain leave benefits where applicable.
- Some benefits (e.g., regular holiday pay) may still be due even if the employee is daily-paid, depending on eligibility and actual work rendered or status.
Wage vs Salary (in practice)
- In Philippine usage, “wage” often refers to compensation of rank-and-file, blue-collar or daily-paid workers, while “salary” is used for monthly-paid or more administrative roles.
- Legally, both are simply forms of “wage” – remuneration for work done. The label does not by itself determine entitlement to benefits.
Payroll frequency vs pay basis
- Payroll may be semi-monthly, bi-weekly, or monthly, but that is about when pay is released.
- Basis of pay (monthly vs daily) is about how the amount is computed and what days it is intended to cover.

III. Legal Framework (Overview)

Key legal principles come from:

The Labor Code of the Philippines and its Implementing Rules, particularly on:
- Minimum wage
- Holiday pay
- Service Incentive Leave (SIL)
- Overtime (OT)
- Premium pay (rest days, special days)
- Night shift differential
Special laws and issuances on 13th month pay and benefits; and
Department of Labor and Employment (DOLE) regulations and labor advisories that prescribe standard conversion factors and computation methods.

Important points:

The law generally does not force employers to choose monthly or daily as the pay basis.
However, whichever method is chosen must:
- Comply with minimum wage orders, and
- Correctly apply statutory benefits (holiday pay, SIL, etc.).
Mislabeling employees (e.g., calling them “monthly” but paying them like daily-paid) can result in claims for underpayment, particularly in labor complaints before DOLE or the NLRC.

IV. Monthly-Paid vs Daily-Paid: Conceptual Differences

A. Coverage of Days

Monthly-paid employees
- Their annual pay is typically computed on a 365-day basis, meaning:
  - 365 days a year, consisting of:
    - Ordinary working days
    - Rest days
    - Regular holidays
    - Special days (if company policy so provides)
- The fixed monthly salary is presumed to include payment for unworked rest days and regular holidays.
Daily-paid employees
- Their pay is based on days actually worked.
- They are usually paid for:
  - Ordinary working days worked
  - Regular holidays if they work on those days (with premium rates) or are entitled by law even if not worked (subject to conditions like being present or on leave with pay on the workday immediately preceding the holiday).
- Rest days are normally unpaid unless:
  - They are required to work on that rest day (then premium rates apply), or
  - A special arrangement or CBA grants paid rest days.

B. “No Work, No Pay” Principle

Daily-paid workers: This principle straightforwardly applies, subject to holiday pay rules and SIL if granted.
Monthly-paid workers:
- The concept is softened but still applies via salary deductions for absences, tardiness, or days without pay (e.g., beyond available leave credits).
- Thus, even monthly-paid employees do not receive pay for unauthorized or unpaid absences; the employer simply makes pro-rated deductions.

V. Standard Conversion Factors (Philippine Practice)

In the Philippines, DOLE uses standard “day-equivalents” for converting between daily and monthly rates, depending on whether the employee is monthly-paid or daily-paid with varying coverage of days.

Common factors (for explanation purposes):

365 days
- Used for monthly-paid employees whose pay covers:
  - 297 ordinary working days
  - 52 rest days
  - 12 regular holidays
  - 4 special days (depending on issuance; some computations differ slightly per region/order)
- Formula (Monthly to Daily): [ \text{Equivalent Daily Rate} = \frac{\text{Monthly Rate} \times 12}{365} ]
313 days
- Used for certain daily-paid employees whose pay already covers:
  - All working days and regular holidays
  - But not rest days and special days
- Formula (Daily to Monthly): [ \text{Monthly Rate} = \frac{\text{Daily Rate} \times 313}{12} ]
261 days or 262 days
- Used for daily-paid employees paid only for actual working days, excluding rest days and all holidays, with slight variations depending on whether there are 12 or more holidays taken into account.
- E.g. formula (Daily to Monthly): [ \text{Monthly Rate} = \frac{\text{Daily Rate} \times 261}{12} ]
- The exact factor depends on the company policy, CBA, and regional wage order guidelines.

These factors are essential in determining minimum wage compliance and in converting from daily to monthly (or vice versa) when adjusting payroll systems or drafting contracts.

VI. Minimum Wage Compliance

Regional Tripartite Wages and Productivity Boards issue minimum wage orders usually expressed as daily rates. Employers must ensure that monthly-paid employees are not paid below the equivalent of the mandated daily minimum, properly converted.

For daily-paid employees
- The rule is straightforward: the daily rate must not be below the applicable minimum wage for each day actually worked.
For monthly-paid employees
- The monthly salary must be at least equal to: [ \text{Minimum Daily Wage} \times \text{Applicable Annual Factor} \div 12 ]
- The annual factor depends on whether the monthly salary is meant to cover 365 days or some other yearly basis.
Common compliance mistake
- Employer sets a monthly salary without doing proper conversion, and while it looks “big” in absolute terms, when broken down to a daily equivalent it falls below the legal minimum wage.
- This can lead to underpayment claims, wage differentials, and DOLE assessments.

VII. Treatment of Benefits

A. 13th Month Pay

Entitlement
- Rank-and-file employees in the private sector are generally entitled to 13th month pay, whether monthly-paid or daily-paid, provided they have worked at least one month during the calendar year.
Computation
- In general, 13th month pay is one-twelfth (1/12) of the employee’s total basic salary earned within the calendar year.
- For monthly-paid employees: [ \text{13th Month Pay} = \frac{\text{Total Basic Monthly Salaries for the Year}}{12} ]
- For daily-paid employees:
  - Compute total basic wages actually earned (daily rate × number of days worked for the year), then divide by 12.
The method of payment (monthly vs daily) affects how you track the earnings, but not the entitlement itself.

B. Holiday Pay

Regular holidays
- Daily-paid employees:
  - If they do not report for work on a regular holiday and meet the legal requirements (e.g., present or on leave with pay on the workday immediately preceding the holiday), they are generally entitled to 100% of their daily wage for that day.
  - If they work on the regular holiday, they are entitled to 200% of their daily rate for the first 8 hours (and more for OT).
- Monthly-paid employees:
  - Their fixed monthly salary is presumed to already include payment for unworked regular holidays, since the 365-day factor takes these into account.
  - If they actually work on the holiday, they are entitled to the appropriate premium on top of their regular pay.
Special (non-working) days
- If an employee does not work on a special non-working day, generally the rule is “no work, no pay”, unless a favorable company policy or CBA grants otherwise.
- If they work on a special day, they receive premium pay (commonly 30% of basic rate for the first 8 hours).
- For monthly-paid employees, some companies consider certain special days as already included in the monthly rate; others do not, and pay premium only when worked. What is critical is that the policy is clear and consistent and does not undercut legal minimums.

C. Service Incentive Leave (SIL)

Employees who qualify (e.g., at least one year of service and not otherwise excluded) are entitled to at least 5 days of SIL with pay per year.
For daily-paid employees, SIL pay is based on their daily rate at the time the leave is used.
For monthly-paid employees, SIL deductions or leave credits are often recorded in days but the pay is already embedded in the monthly salary; adjustments are required only when absences or negative leave balances occur.

D. Overtime, Night Shift Differential, and Premium Pay

Overtime (OT):
- Both monthly-paid and daily-paid employees are generally entitled to OT premiums (at least 25% over the hourly rate for OT work on ordinary days, with higher rates for rest days and holidays).
- For monthly-paid employees, the hourly rate is typically derived from: [ \text{Hourly Rate} = \frac{\text{Monthly Rate} \times 12}{\text{Number of working days in a year} \times \text{number of working hours per day}} ]
Night Shift Differential (NSD):
- Usually 10% of the regular hourly rate for work between 10 p.m. and 6 a.m., regardless of whether the employee is monthly- or daily-paid.
Premium pay for rest days and special days works similarly; what changes is the base daily or hourly rate used in the computation.

VIII. Absences, Tardiness, and Deductions

Monthly-Paid Employees
- Despite having a fixed monthly salary, employers are allowed to:
  - Deduct pay for unexcused absences or tardiness, and
  - Convert absences into equivalent days or hours using a daily/hourly factor.
- Example (illustrative only):
  - Monthly salary: ₱30,000
  - Yearly factor: 313 days (for working days) or 365 (if including rest/holidays, depending on company practice)
  - Daily equivalent: [ \frac{30,000 \times 12}{365} \quad \text{(if using 365)} ]
  - Hourly equivalent: Daily rate ÷ 8 hours.
  - If the employee is absent for 1 day, a daily equivalent may be deducted from the monthly salary.
Daily-Paid Employees
- If absent, they generally simply receive no pay for that day.
- There is usually no need for “deductions” because the pay is computed based on days worked.
Important Caution
- A recurring practice of:
  - Paying an employee a so-called “monthly salary”, yet
  - Treating every holiday and rest day as unpaid, may show that the employee is in truth daily-paid, with consequences for minimum wage and benefit compliance.

IX. Contract Drafting and Policy Considerations

When drafting employment contracts and company policies, employers should:

Clearly state the basis of pay
- Example clauses:
  - “The Employee shall receive a basic monthly salary of ₱______, payable semi-monthly, which is inclusive of pay for all regular holidays and rest days as provided by law.”
  - Or, “The Employee shall be paid a daily wage of ₱______, payable weekly, for each day actually worked, subject to applicable laws on holiday pay, overtime, premium pay, and other benefits.”
Define what the monthly salary covers
- Clarify whether the monthly salary is computed using the 365-day factor, and specify whether it covers:
  - Regular holidays
  - Rest days
  - Special days (if any)
Ensure alignment with minimum wage rules
- Internally document how the monthly rate was derived from the applicable daily minimum wage.
Cover absences and tardiness explicitly
- State:
  - How deductions are computed, and
  - The formulas for converting monthly salary into daily/hourly equivalents for purposes of leave and deductions.
Consistent payroll practice
- Payroll computations, payslips, and internal HR procedures must match the written policies; inconsistencies often become evidence in labor disputes.

X. Common Issues and Disputes

Mislabeling of monthly-paid employees
- An employee is called “monthly-paid”, but:
  - Receives no pay for unworked regular holidays, and
  - Monthly rate is not truly computed on a 365-day basis.
- This may indicate that the employee is actually daily-paid and may have been underpaid on holiday benefits.
Underpayment when daily minimum wage increases
- Wage orders usually increase the daily minimum. Employers paying monthly must re-compute the equivalent monthly minimum.
- Failure to adjust may result in wage differentials due for past periods.
Disputes over 13th month pay of daily-paid workers
- Some employers mistakenly believe daily-paid workers (especially casual, seasonal, or piece-rate) are not entitled to 13th month; this can lead to valid claims.
Confusion around “no work, no pay” for monthly-paid staff
- Employees sometimes assume monthly salary means all absences are automatically paid.
- In reality, employers may lawfully deduct for unapproved or unpaid absences, so long as the computation is fair, clear, and consistent with law.
Piece-rate or task-based workers mislabeled as daily-paid or monthly-paid
- Some industries pay per piece or per output but then use daily or monthly labels for convenience.
- Care must be taken to ensure that effective pay per day still complies with minimum wage and that statutory benefits are correctly applied.

XI. Special Categories of Workers

Project-based, seasonal, and casual employees
- Often paid on a daily or piece-rate basis, but they may still be entitled to certain benefits depending on:
  - Nature and length of employment, and
  - Applicability of exemptions under the Labor Code and DOLE rules.
Managerial and supervisory employees
- Frequently monthly-paid, but the fact that they are “monthly-paid” does not automatically exempt them from all benefits.
- Some statutory benefits (like 13th month) may exclude certain managerial employees, but the basis of pay (monthly vs daily) is not the decisive factor; rather, it is the nature of their role and their level of authority.
Probationary vs regular employees
- Either may be monthly-paid or daily-paid.
- The status of employment (probationary, regular, project, etc.) is independent of the pay basis, though both can be relevant in benefit entitlement.

XII. Practical Examples (Illustrative Only)

Example 1: Converting daily minimum wage to monthly salary

Daily minimum wage: ₱610 (sample figure)

Employee will be monthly-paid and covered for all 365 days.

Annual equivalent: [ 610 \times 365 = 222{,}650 ]

Monthly equivalent: [ \frac{222{,}650}{12} \approx 18{,}554.17 ]

Thus, a monthly salary of ₱18,554.17 (rounded appropriately) would be the minimum to comply, using this factor.

Example 2: Deducting one day’s absence from a monthly-paid employee

Monthly salary: ₱30,000

Using 365-day factor:

Daily rate: [ \frac{30{,}000 \times 12}{365} \approx 986.30 ]

If employee is absent 1 day with no leave credit, the employer may deduct about ₱986.30 from the pay for that month (subject to internal policy to avoid centavo issues).

Example 3: Holiday pay for daily-paid employee

Daily rate: ₱610

Regular holiday, employee does not work but meets legal conditions:

Holiday pay: ₱610

If employee works on the regular holiday (8 hours):

Pay: 200% × 610 = ₱1,220 for the day (exclusive of OT).

These examples are simplified; actual company policies and CBAs may use slightly different factors, but the principles remain.

XIII. Key Takeaways

Monthly vs daily pay is about computation, not entitlement.
- Both monthly-paid and daily-paid employees can be entitled to 13th month pay, holiday pay, SIL, OT, and other benefits, subject to legal rules and exemptions.
Monthly-paid employees are generally covered on a 365-day basis.
- Their fixed monthly salary normally includes rest days and regular holidays, but absences can still be deducted.
Daily-paid employees follow “no work, no pay” with statutory exceptions.
- They are paid for days actually worked and for certain holidays under legal conditions.
Correct conversion between daily and monthly rates is crucial.
- Employers must use appropriate annual factors (365, 313, 261, etc.) to ensure minimum wage compliance.
Written policies and actual payroll practice must align.
- Mislabeling employees or inconsistently applying formulas is a common source of labor disputes and DOLE findings of underpayment.

XIV. Final Note

The distinction between fixed monthly salary and daily rate in Philippine employment is more than just terminology; it affects how pay is computed, which days are covered, and how statutory benefits are applied. When in doubt, both employers and employees are well-advised to:

Examine the actual practice, not just the labels in the contract; and
Seek tailored legal or HR advice to address specific situations, especially when wages, benefits, or holiday entitlements are in dispute.