1) The legal frame: what “wage” is and why computation matters

In Philippines, wage rules for private-sector employment are anchored on the constitutional policy of protecting labor and the statutory scheme in the Labor Code and wage orders. Computation issues usually arise because payroll practices must align with two overlapping ideas:

The employee’s agreed compensation structure (e.g., a fixed monthly salary); and
Mandatory labor standards (minimum wage, holiday pay, premium pay, overtime, 13th month pay, statutory deductions, and limits on wage deductions).

A “wage” (or “salary”) is generally the remuneration or earnings payable by an employer to a worker for work done or to be done. The label used in the contract—“salary,” “monthly rate,” “package,” “all-in”—does not automatically control if it results in underpayment of mandatory benefits or illegal deductions. In practice, correct computation prevents (a) underpayment claims, (b) payroll disputes over absences/late/undertime, and (c) improper deductions that can trigger labor money claims.

2) Monthly-paid vs daily-paid: the practical classification

A. Monthly-paid employees (in labor-standards usage)

A “monthly-paid” employee is typically understood as one whose pay is computed and paid on a monthly basis and is treated as compensation for all days of the month, not only the days actually worked. In many Philippine payroll setups, this means the salary already contemplates pay for:

Ordinary workdays,
Rest days, and
Regular holidays (and often special days, depending on policy and legal treatment).

This classification matters because it affects the divisor used in deriving an equivalent daily rate and the way holiday pay is handled in the monthly figure.

B. Daily-paid employees

A daily-paid employee is paid only for days actually worked (subject to legally mandated paid days like certain holidays if qualified, and paid leave credits if granted/mandated).

3) Fixed monthly salary: what it usually covers and what it does not

A fixed monthly salary generally covers the employee’s basic pay for the month. It does not automatically include legally distinct items unless clearly included and compliant, such as:

Overtime pay
Night shift differential
Premium pay for rest day or holiday work
Other allowances/benefits (some may be part of “basic salary,” others not)

Even if a contract says “inclusive,” employers must still ensure the employee receives at least what labor standards require, and that the structure does not waive non-waivable benefits.

4) Deriving the daily rate from a monthly salary (Philippine payroll realities)

“Daily rate” can mean different things depending on what you are computing:

Equivalent Daily Rate (EDR) for labor-standards computations (e.g., deductions for unpaid absences, hourly rate derivation); versus
Company policy divisors for internal leave conversion (e.g., 26-day divisor), which may be used for leave accounting but can be problematic if used to compute statutory pay or deductions in a way that underpays.

A. Common legally-aligned approach for monthly-paid employees: the 365-day factor

A widely used compliance approach is:

Equivalent Daily Rate (EDR) [ \text{EDR}=\frac{\text{Monthly Salary} \times 12}{365} ]

Rationale: A true monthly-paid rate is understood as pay spread across the calendar year (including rest days and regular holidays), so dividing the annualized salary by 365 yields the daily equivalent.

Equivalent Hourly Rate (EHR) (for an 8-hour workday) [ \text{EHR}=\frac{\text{EDR}}{8} ]

For minute-based deductions: [ \text{Per-minute rate}=\frac{\text{EHR}}{60} ]

B. The 313/261/26 divisors you see in practice—and why caution is needed

You may encounter these divisors:

261: approximate working days in a year for a 5-day workweek
313: approximate days paid in a year for some daily-paid-with-paid-holidays frameworks
26: “average working days per month” used by many companies

These can be acceptable in specific contexts if they accurately reflect the pay structure and do not diminish mandated pay. Problems occur when a divisor is used that results in:

Over-deduction for absences (employee loses more than one day’s equivalent), or
Underpayment of benefits (e.g., holiday pay, premium pay computations skewed)

A good compliance lens is: Does the divisor match what the monthly salary is deemed to cover under labor standards? If the employee is truly monthly-paid (paid for all calendar days), the 365-day method is the cleanest conceptual match.

5) “No work, no pay” and the core rule on absence deductions

A. General rule

Philippine labor standards recognize the basic principle often summarized as “no work, no pay”—meaning if an employee does not work, the employer generally is not obliged to pay for that time unless:

The law requires payment (e.g., certain holiday pay situations, paid leaves), or
The employee has leave credits (statutory or company-granted) that convert the absence into paid leave, or
The absence is otherwise treated as compensable by policy/contract/CBA.

B. Deductions for absences must be proportionate and lawful

For unpaid absences (AWOL or leave without pay), the lawful approach is to deduct the equivalent pay for the time not worked, typically using EDR/EHR calculations consistent with the employee’s salary structure.

A compliant absence deduction is not a penalty; it is simply withholding pay corresponding to time not worked.

6) Deducting a full-day absence for a monthly-paid employee

A. If the absence is unpaid

A common compliant method:

Compute EDR using the 365-day method; then
Deduct EDR × number of unpaid absent days.

This preserves proportionality: one absent day equals one day’s pay equivalent.

B. If the employee uses paid leave credits

If the employee has leave credits that cover the absence, there is typically no wage deduction, because the absence is converted into paid leave. (Leave policy terms matter: e.g., whether leave is convertible, when it accrues, and approval rules.)

C. If the absence is only partly covered

If half-day is paid leave and half-day is unpaid, deduct only the unpaid portion using hourly computation.

7) Tardiness and undertime: partial-day deductions

A. Late or undertime deductions

Deductions should be time-based, not arbitrary. Compute:

Hourly rate = EDR ÷ 8
Per-minute rate = hourly rate ÷ 60
Deduct minutes late/undertime × per-minute rate

B. A critical compliance point: undertime vs overtime offsetting

A recurring issue is whether an employer may offset undertime with overtime (or vice versa). As a labor-standards principle, overtime and undertime are treated distinctly; payroll should not be designed to defeat premium pay entitlements by informal netting that reduces what is legally due. The safer compliance posture is:

Pay overtime when due (with correct premium), and
Deduct undertime/late based on actual minutes not worked (if unpaid), without “trading” them in a way that undermines mandated premiums.

(Company timekeeping rules can still require completed hours, but the payroll treatment must remain compliant.)

8) Absences around holidays, rest days, and special days

This is where monthly-paid computation becomes sensitive.

A. Regular holidays

Regular holidays are generally paid days under labor standards, subject to qualifying rules and to the employee’s pay scheme.

If the employee is truly monthly-paid, the monthly salary commonly already includes payment for regular holidays.
If the employee is daily-paid, holiday pay rules determine whether the holiday is paid even without work.

A key risk area is making deductions that effectively negate holiday pay where it should be paid. Employers must ensure that an unpaid absence deduction is not structured so broadly that it removes compensation that the law treats as already due (or included) for regular holidays.

B. Special non-working days

Special days generally follow a “no work, no pay” rule unless a company policy, CBA, or wage order provides otherwise. If the employee is monthly-paid, some employers treat special days as already included in the monthly salary; others treat them under separate rules. The main compliance requirement is consistency with labor standards and wage orders, and no reduction below mandated minima.

C. Rest days

Monthly-paid employees are often treated as paid even on rest days as part of the monthly structure. Deductions should reflect only time not covered by the monthly structure or authorized unpaid time.

9) Authorized and prohibited wage deductions (the “deductions law” essentials)

The Labor Code restricts wage deductions. As a working compliance framework:

A. Deductions that are typically lawful

Statutory contributions and withholdings
- Social Security System contributions
- PhilHealth contributions
- Pag-IBIG Fund contributions
- Withholding tax (BIR rules)
Deductions with employee authorization (preferably written)
- Loan payments, salary advances
- Union dues/agency fees (subject to union rules and authorization where required)
- Benefits purchases or insurance premiums if clearly authorized
Deductions allowed by law, regulation, or valid CBA
- Certain deductions for loss/damage may be allowed only under strict conditions (due process, proof, and reasonableness), and not as a shortcut penalty.

B. Deductions that are high-risk or generally prohibited

Unilateral “fines” or penalties that are not legally grounded
Deductions that reduce wages below the applicable minimum wage for the pay period
Forced deposits as a condition of employment (with limited exceptions under specific rules)
Deductions that lack clear documentation/authorization or are imposed without due process where required

The compliance posture should be: If it’s not clearly allowed, don’t deduct. Treat disciplinary violations through the disciplinary process, not through wage docking beyond time not worked.

10) Semi-monthly payroll of a monthly salary: splitting the month correctly

Many monthly-paid employees are paid semi-monthly (e.g., 15th and 30th/31st). This can create perceived mismatches when a month has 28, 30, or 31 days, or when absences occur early/late in the month.

Best practice principles:

The monthly salary is fixed, but deductions for unpaid absences should be computed using a consistent daily/hourly equivalent method.
The payroll system should clearly show how the absence deduction was applied—either in the current cutoff or the next—so the employee can audit it.

11) Interaction with mandatory benefits

A. 13th month pay (basic concept)

13th month pay is generally computed as:

[ \text{13th Month Pay}=\frac{\text{Total Basic Salary Earned in the Calendar Year}}{12} ]

“Basic salary earned” typically includes pay for work performed and certain paid days treated as basic salary, but excludes many allowances and monetary benefits not integrated into basic pay. Unpaid absences reduce “earned” basic salary because they reduce the actual salary paid/earned for the year.

B. Service Incentive Leave (SIL)

Eligible employees are entitled to SIL under labor standards (with common exemptions depending on the business and role). If SIL is used, the day becomes paid; if not used or not yet accrued, the day may be unpaid.

C. Overtime, premium pay, night shift differential

These are computed off the employee’s rate and require correct derivation of hourly rate. Using inconsistent divisors can lead to systematic under/overpayment.

12) Common compliance pitfalls and how to avoid them

Using a 26-day divisor to deduct absences for a true monthly-paid employee
- This can overstate the daily rate and cause excessive deductions, depending on how the monthly salary is legally understood.
“All-in salary” without itemization
- If the payroll cannot show that overtime/holiday/rest day premiums are properly paid, “package” language will not cure underpayment.
Treating deductions as discipline
- Wage deductions must track actual unpaid time or authorized/statutory items. Discipline should be addressed through notices, hearings (when needed), and proportionate sanctions allowed by company rules and law.
Holiday-pay confusion
- Especially when absences occur around holidays, employers must ensure they are not unlawfully removing pay that holiday rules protect or that the monthly salary already includes.
Poor documentation
- Time records, leave applications, approvals, and deduction explanations are essential in case of disputes.

13) A practical, defensible computation framework (summary)

For a typical monthly-paid employee (paid on a calendar-month basis):

Compute EDR = (Monthly Salary × 12) ÷ 365
Compute hourly rate = EDR ÷ 8
Unpaid full-day absence: deduct EDR per day
Late/undertime: deduct per-minute rate × minutes
Only deduct what is:
- Statutory (SSS/PhilHealth/Pag-IBIG/tax), or
- Authorized, or
- A proportionate reduction for time not worked (unpaid), consistent with the salary structure
Keep holiday/premium pay computations consistent with labor standards and wage orders, ensuring no underpayment or double deductions.

14) Enforcement and dispute posture

Wage underpayment, illegal deductions, and miscomputed benefits are common subjects of labor money claims. In disputes, the employer is typically expected to show:

Clear payroll records and timekeeping,
A computation method consistent with labor standards, and
Proof that deductions were statutory, authorized, or truly corresponded to unpaid time.

Employees, meanwhile, often challenge unclear divisors, unexplained deductions, and “inclusive” salary schemes that appear to erase premium pay or holiday pay entitlements.