The distinction between monthly-paid and daily-paid employees is one of the most important yet frequently misunderstood aspects of Philippine labor law. The classification affects not only take-home pay but also holiday pay, 13th month pay computation, service incentive leave conversion, overtime premium, rest day premium, separation pay, deductions for absences, minimum wage compliance, and even the application of “no work, no pay” during suspensions or calamities.
The Supreme Court has repeatedly emphasized that the true nature of the compensation structure is determined by the substance of the arrangement, not merely the label used in the contract (see, for example, Wellington Investment and Manufacturing Corporation v. Trajano, G.R. No. 114698, July 3, 1995, and subsequent cases).
Legal Framework
The Labor Code (Presidential Decree No. 442, as amended), the Omnibus Rules Implementing the Labor Code, Republic Act No. 6727 (Wage Rationalization Act), and all Regional Wage Orders issued by the Regional Tripartite Wages and Productivity Boards (RTWPBs) form the backbone of the rules.
Key provisions:
- Article 87, Labor Code – Wages shall be paid at least once every two weeks or twice a month.
- Article 94 – Regular holiday pay rules differ depending on whether the employee is monthly- or daily-paid.
- Article 95 – Service incentive leave.
- Article 100 – Non-diminution of benefits.
- All current Wage Orders explicitly publish both the daily minimum wage and the equivalent monthly rate computed as Daily Rate × 365 ÷ 12.
The use of the 365-day factor in official wage orders is decisive proof that the law considers the monthly rate as compensation for all calendar days in the year, including rest days and regular holidays.
Monthly-Paid Employees: Definition and Characteristics
An employee is considered monthly-paid when the contract provides a fixed amount payable every month regardless of the number of working days in that month (28, 29, 30, or 31 days) and the salary is not reduced just because the month has fewer working days.
Legal consequences of being monthly-paid:
Holiday pay is already deemed included in the monthly salary. No additional payment for unworked regular holidays (Article 94, Labor Code; DOLE Explanatory Bulletin on Holiday Pay, 1997).
Service incentive leave cash conversion and 13th month pay use the 365-day factor.
The employee is considered paid even on rest days without working them. Therefore, when required to work on a rest day, the premium is only +30% (or +50% if on a special rest day) on top of the salary already deemed earned for that day.
Deduction for absences: (Monthly rate × 12 ÷ 365) × number of absent days, or whatever factor the company consistently uses, provided it does not result in diminution.
Minimum wage compliance is tested using the equivalent monthly rate published in the Wage Order (Daily MW × 365 ÷ 12).
“No work, no pay” during fortuitous events or temporary suspensions is applied more leniently. DOLE Labor Advisory No. 09-20 (COVID-19) and subsequent advisories allowed monthly-paid employees to be paid full salary even during lockdowns under the principle that their salary covers the entire month.
Daily-Paid Employees (including those paid weekly or semi-monthly based on attendance)
An employee is daily-paid when compensation is computed based on actual days/hours rendered or output, and non-working days are not paid unless premium pay applies.
Legal consequences:
Entitled to separate regular holiday pay even if the holiday is not worked (100% of daily rate, provided the employee worked or was on paid leave the day before or after).
If the regular holiday falls on a rest day and is not worked → 200% holiday pay.
Work on rest day (not holiday) → +30% premium on the daily rate (since the rest day was otherwise unpaid).
13th month pay = total basic wages actually earned in the calendar year ÷ 12.
Service incentive leave conversion = actual daily rate × 5 (or unused portion).
Minimum wage compliance is tested daily. The employee must receive at least the daily minimum wage for every day worked.
During suspensions of work (calamities, ECQ, etc.), strict “no work, no pay” applies unless the employer agrees otherwise.
Conversion Formulas Accepted in Law and Practice
Official formula in all RTWPB Wage Orders (2023–2025)
Equivalent monthly rate = Daily minimum wage × 365 ÷ 12
This is the rate that monthly-paid employees in the region must at least receive to be compliant.
Daily rate of a monthly-paid employee (factored rate)
Factored daily rate = Monthly basic salary × 12 ÷ 365 (use 366 in leap year)
This rate is used for:
- Cash conversion of unused service incentive leave
- Prorated 13th month pay for employees who did not work the entire year
- Equivalent daily rate for separation pay comparison
- Deduction for absences/tardiness (most favorable practice)
- Computation of overtime, holiday premium, rest day premium, night differential for monthly-paid employees
Alternative divisors used by some companies (still valid if no diminution results)
| Work Schedule | Common Divisor | Annual Working Days Considered | Typical Use |
|---|---|---|---|
| 5-day week | 313 or 314 | 261 working + 52 rest days | Overtime base (some companies) |
| 6-day week | 365 – 52 = 313 | 313 working days | Older practice |
| Compressed workweek | 251–262 | Actual working days only | Overtime base when rest days are paid separately |
| 365-day factor | 365 | All calendar days | Most protective and DOLE-recommended for benefits |
The Supreme Court has consistently ruled that whatever divisor the employer uses must not result in wages lower than what the employee would have received using the 365-day factor (see PNB v. Cabansag, G.R. No. 157010, June 21, 2005; Leyte IV Electric Cooperative v. LEYECO Employees, G.R. No. 157775, October 19, 2007).
Using a divisor higher than 365 (e.g., 390–393) has been struck down in several NLRC and Court of Appeals decisions as constituting diminution of benefits.
Overtime Pay Computation Comparison
Monthly-paid employee (P30,000/month, 2025 non-leap year)
Factored daily rate = 30,000 × 12 ÷ 365 = P986.30
Hourly rate = 986.30 ÷ 8 = P123.29
Overtime on ordinary day (1 hour) = 123.29 × 1.25 = P154.11
Daily-paid employee (P986/day, works 8 hours)
Hourly rate = 986 ÷ 8 = P123.25
Overtime (1 hour) = 123.25 × 1.25 = P154.06
The amounts are practically identical when the 365-day factor is used — this is deliberate and ensures parity.
Best Practices in Drafting Employment Contracts
Clearly state the nature:
- “Employee shall receive a basic monthly salary of Php ___ payable semi-monthly.” → Clearly monthly-paid.
- “Employee shall be paid a daily rate of Php ___ for every day actually worked.” → Clearly daily-paid.
Specify the factor to be used for all computations: “For purposes of computing overtime pay, holiday premium, service incentive leave conversion, and other monetary benefits, the daily rate shall be the monthly rate multiplied by 12 divided by 365 (or 366 in a leap year).”
Indicate whether holiday pay is included or separate (especially important if the company intends to treat office employees as monthly-paid).
For hybrid arrangements (common in BPO/call centers with compressed workweeks), explicitly state: “Although paid on a monthly basis, holiday pay on unworked regular holidays shall be paid separately, and the divisor for overtime shall be ___.”
Failure to specify often leads to the DOLE or NLRC applying the most favorable interpretation to the employee (Article 4, Labor Code – doubts resolved in favor of labor).
Conclusion
The monthly vs daily distinction is not a mere payroll technicality; it is a fundamental classification that determines the employee’s entitlement to approximately 10–15% additional compensation annually through absorbed holiday and rest day pay.
Employers who label employees as “monthly-paid” but compute benefits using a divisor higher than 365, or deduct holiday pay, or apply strict “no work, no pay” during suspensions, expose themselves to substantial backwage claims, often covering the entire employment period (5-year prescriptive period for money claims under Article 291, Labor Code, now Article 306 under renumbered code).
Employees, on the other hand, must read their contracts carefully: accepting a “monthly salary” means you are generally better protected, while a “daily rate” structure, although appearing higher on paper, usually results in lower annual take-home pay once unworked holidays and rest days are factored in.
In current Philippine labor practice (2025), the 365-day factor remains the safest, most legally defensible, and most employee-favorable standard for monthly-paid workers. Any deviation must be justified, consensual, and must not result in diminution of benefits.