1) Why underpayment happens (and why monthly-paid status is often misunderstood)

“Monthly-paid” in the Philippines is commonly used to describe employees whose wages are paid per month rather than per day. In law, what matters is not the label, but whether the employee is covered by minimum wage laws, and how the employer computes pay for ordinary days, rest days, special days, regular holidays, overtime, and night work. Many underpayments happen because employers:

treat monthly pay as a fixed amount regardless of working day/holiday rules;
use the wrong divisor to derive daily rate;
fail to include legally mandated premium pay and holiday pay;
misclassify employees as “managerial/exempt” to avoid overtime/holiday pay;
exclude required components from wage computations (or make unlawful deductions);
implement “no work, no pay” in situations where the law requires payment (e.g., certain holiday pay scenarios).

A “monthly salary” is not a shield against statutory entitlements. If the law says a premium is due, it is due—even for monthly-paid employees.

2) Core legal framework (what rules govern)

Key Philippine labor standards governing underpayment issues include:

Labor Code of the Philippines (as amended)
Implementing Rules and Regulations (IRR) of Book III (Conditions of Employment)
Department of Labor and Employment (DOLE) issuances (e.g., holiday pay and wage rules)
Regional Wage Orders (vary by region/sector; set minimum wages and related rules)
Jurisprudence (Supreme Court decisions interpreting computation, exemptions, burden of proof, etc.)

These rules apply primarily to private sector employees, subject to exemptions/coverage limitations.

3) Coverage: Who is entitled to statutory wage-related benefits

3.1 Generally covered

Most rank-and-file employees are entitled to:

at least the applicable minimum wage;
holiday pay (regular holidays);
premium pay for rest day work and certain special days;
overtime pay when work exceeds 8 hours/day;
night shift differential (work between 10:00 p.m. and 6:00 a.m.);
other labor standards benefits when applicable.

3.2 Common exclusions (often misused)

Certain employees are excluded from some labor standards benefits—commonly overtime, holiday pay, and rest day pay—depending on classification and actual duties. Typical categories include:

managerial employees (as defined by law: primary duty is management, with authority/participation in hiring/firing or effectively recommending managerial actions);
certain officers or members of the managerial staff (subject to specific criteria);
field personnel (those who regularly perform duties away from the principal place of business and whose hours of work cannot be determined with reasonable certainty), with important nuance;
some domestic workers (kasambahay) are under a separate framework (Batas Kasambahay) with different rules.

Misclassification is a major underpayment driver. Titles like “supervisor,” “team leader,” “officer,” or “account manager” do not automatically exempt an employee. The actual work and control over hours matter.

4) Minimum wage compliance for monthly-paid employees

4.1 Minimum wage is usually expressed as a daily wage

Regional wage orders typically set minimum wage per day. For monthly-paid employees, compliance is tested by converting monthly salary into a daily equivalent using the proper divisor and comparing against the mandated daily minimum wage.

4.2 The divisor problem: 261 vs 365 (and why it matters)

A frequent source of underpayment is using an incorrect divisor when converting monthly salary to daily rate.

Many employers compute daily rate as: Daily rate = Monthly salary ÷ 26 (or 30) This can be wrong depending on how the monthly salary is intended to cover days, including paid holidays and rest days.

In Philippine practice, the proper divisor depends on what the monthly salary “covers”—i.e., whether it already includes pay for:

all calendar days (365),
paid rest days,
paid regular holidays,
paid special days (often treated differently than regular holidays).

There are two common lawful structures:

A) Monthly salary that covers all days of the year (calendar-day pay). This approach typically uses a 365-day divisor (or 366 in a leap year) to derive daily rate, because the monthly rate is intended to cover all calendar days, including rest days and holidays (subject to premium rules when work is performed on those days).

B) Monthly salary that covers only “working days” plus certain paid days (e.g., includes 12 regular holidays, includes rest days, etc.). This approach often uses a divisor reflecting the count of paid days per year, commonly 261 for a 6-day workweek (where 261 is a conventional count of ordinary working days in a year), with adjustments depending on whether regular holidays/rest days are paid and how the employer’s pay structure is designed.

Critical point: The divisor is not chosen for convenience; it must reflect the compensation design and must not reduce statutory benefits. If an employer uses a divisor that results in a daily rate below minimum wage or underpays premiums, it can create liability.

4.3 A practical compliance check (minimum wage)

To check if a monthly-paid employee meets minimum wage:

Determine the applicable daily minimum wage under the wage order (region, sector, classification).
Determine the correct daily rate from the monthly salary using the correct divisor aligned with the employer’s pay scheme.
Compare computed daily rate vs minimum wage.

If the computed daily rate falls below the minimum wage, there is underpayment (unless a lawful exemption applies).

5) Proper pay computation: what must be paid on top of monthly salary

Even if monthly salary already covers ordinary days, the law requires additional pay in certain situations—particularly when work is performed on rest days, holidays, or beyond 8 hours, and when work occurs at night.

5.1 Overtime pay

Overtime is work beyond 8 hours in a day.
Overtime pay is typically computed as an additional percentage of the hourly rate (the hourly rate derived from the daily rate).
Underpayment occurs when employers:
- refuse overtime pay because employee is “monthly”;
- apply “time-off” without legal basis or without employee agreement where payment is required;
- use an understated hourly rate because of wrong divisor/base.

5.2 Night shift differential (NSD)

Work performed between 10:00 p.m. and 6:00 a.m. is entitled to NSD (generally an additional 10% of the regular wage for each hour worked during the night period), unless the employee is exempt under the law’s categories.

5.3 Rest day premium

If the employee works on the scheduled rest day, premium pay is generally due unless exempted.

5.4 Special (non-working) days

Special days (such as certain declared special non-working holidays) have a different pay rule than regular holidays. The pay depends on whether the employee worked and on the pay scheme (monthly-paid vs daily-paid), and the employee’s classification/coverage. Underpayment disputes here are common because employers mix up special-day rules with regular-holiday rules.

5.5 Regular holidays (holiday pay and holiday premium)

Regular holidays carry holiday pay obligations. Key underpayment scenarios include:

employee not paid holiday pay when entitled;
employee made to “offset” holiday work without proper premium;
monthly salary treated as already fully covering holiday work premiums (it does not; premiums for work performed are separate).

6) Typical underpayment patterns (what to look for)

6.1 Wrong daily rate base

Monthly salary divided by 26 or 30 without aligning with legally recognized paid days and premium computation, resulting in:
- lower hourly rate → lower overtime/NSD/premiums;
- difficulty proving minimum wage compliance.

6.2 “All-in” pay clauses

Contracts sometimes state salary is “all-in” including overtime/holiday pay. Such clauses are risky and often ineffective if they result in paying below the legally required amounts or if the breakdown is not clear and the employee in fact rendered overtime/holiday work that is not properly compensated.

A lawful “all-in” arrangement generally requires:

the total pay still meets or exceeds all legal minimums;
clarity and demonstrable computation;
non-waiver of statutory rights (employees cannot validly waive minimum standards).

6.3 Unpaid work time

pre-shift/post-shift tasks, required briefings, donning/doffing where integral, time spent opening/closing, or “on call” time treated as unpaid when it should be compensable depending on the level of control/restriction.

6.4 Unlawful deductions

Wage deductions are strictly regulated. Underpayment can occur through:

unauthorized deductions;
deductions exceeding limits or not supported by law/valid authorization;
shifting business losses to employees.

6.5 Misclassification as managerial or field personnel

Employers sometimes deny overtime/holiday pay by labeling an employee managerial, supervisory, or field personnel. The real test is the legal definition and actual job circumstances, not the job title.

7) Evidence and burden of proof (how underpayment claims are proven)

Underpayment cases are often document-driven. Useful evidence includes:

employment contract and any salary annexes;
payslips/payroll registers;
time records (bundy cards, biometrics, log-in/out reports);
schedules, shift rosters, duty assignments;
company policies on holidays, overtime, rest days, and timekeeping;
email/chat instructions requiring overtime or off-day work;
bank records showing actual pay received;
government filings where relevant (SSS, PhilHealth, Pag-IBIG remittances can corroborate wages, though not perfect).

In labor standards disputes, employers are generally expected to keep proper payroll and time records. Absence or unreliability of records can weigh against the employer, especially where the employee presents credible, consistent evidence of hours worked and pay received.

8) Computing underpayment: a structured approach

A practical computation method used in disputes:

Identify coverage and applicable wage order. Confirm minimum wage, any COLA, and whether the employee is covered/exempt.
Determine the proper basic rates.
- Determine daily rate from monthly salary using a divisor consistent with the pay scheme and legal standards.
- Derive hourly rate: typically daily rate ÷ 8 (for an 8-hour day), unless a different lawful basis applies.
Reconstruct hours and premium-eligible days.
- ordinary hours;
- overtime hours;
- night hours (10 p.m.–6 a.m.);
- rest day work;
- special day work;
- regular holiday work.
Apply statutory premiums. Compute what should have been paid.
Compare to actual pay. Underpayment is the difference, plus potential legal consequences (see below).

Because pay schemes differ, the divisor and assumptions must be consistent with company practice and lawful standards. In proceedings, a clear narrative of “what the salary covers” is essential.

9) Remedies and forums: where to file and what you can recover

9.1 DOLE enforcement (inspection and compliance)

For labor standards issues, DOLE has authority to conduct labor inspections and enforce compliance through orders and mandatory restitution, depending on the situation and applicable rules.

This route is often practical for:

straightforward underpayment and unpaid statutory benefits;
violations evident in payroll/time records;
cases where the employee wants administrative enforcement without a full-blown litigation posture.

9.2 NLRC / Labor Arbiter (money claims and related causes)

Money claims (including wage differentials, unpaid overtime, holiday pay, premium pay, 13th month pay if applicable, etc.) are commonly pursued before the NLRC through the Labor Arbiter, especially when:

there are contested facts;
there are larger amounts;
claims are joined with illegal dismissal or other employment disputes.

9.3 Small money claims procedure

The NLRC has a small claims mechanism for qualified cases (typically limited amounts and simplified proceedings), designed for speed and reduced technicalities. Eligibility and thresholds depend on current NLRC rules.

9.4 Barangay conciliation?

Employment money claims are generally governed by labor law mechanisms rather than barangay conciliation, and labor agencies/forums are typically the proper venues. In many cases, barangay processes are not the controlling path for employer-employee labor standards disputes.

10) Prescription periods (deadlines to file)

A crucial issue in wage underpayment is prescription—the period within which claims must be filed. As a general framework in Philippine labor law:

Money claims arising from employer-employee relations have prescriptive periods, commonly three (3) years for many money claims under the Labor Code framework.
Other causes of action (like illegal dismissal) have different timelines.

Because prescription can be outcome-determinative, employees should identify:

when the underpayment occurred (each pay period can matter);
whether claims are continuing;
whether any events tolled or interrupted prescription (fact-dependent).

11) Common defenses by employers (and how they are evaluated)

11.1 “You are monthly-paid, so no overtime/holiday pay.”

Not automatically valid. Monthly pay does not negate statutory premiums. Exemptions depend on legal classification and factual duties.

11.2 “Your salary is already above minimum wage.”

Even if above minimum wage, the employer must still pay:

statutory premiums for overtime/holiday/rest day work when applicable;
at least the legally required rates and differentials.

11.3 “We have an all-in salary agreement.”

A contract cannot waive statutory minimums. For an all-in claim to succeed, the employer must prove the employee actually received at least what the law requires for the work rendered, and that the structure is clear and compliant.

11.4 “No proof of overtime.”

Time records matter. If employer-controlled records are missing or unreliable, tribunals may rely on credible employee evidence. The employer’s statutory duty to keep records can be significant.

12) Settlement, quitclaims, and releases

Employers may offer quitclaims in exchange for payment. In Philippine labor law, quitclaims are not automatically void, but they are scrutinized. They are often disregarded when:

the amount is unconscionably low compared to the lawful entitlement;
consent was vitiated (pressure, deception, lack of understanding);
the employee did not receive a reasonable settlement.

A carefully drafted and fairly compensated settlement is more likely to be respected; a token quitclaim to defeat statutory rights is vulnerable.

13) Practical guidance for monthly-paid employees (documentation and computation)

13.1 What to request or preserve

payslips and payroll summaries per period;
timekeeping reports and schedules;
official holiday/rest day work instructions;
screenshots/emails showing required extra hours;
any handbook/policy on overtime approvals and holiday work.

13.2 Red flags that strongly suggest underpayment

fixed monthly salary with frequent overtime but no overtime pay line item;
night shifts with no NSD reflected;
rest day or holiday work without a premium;
inconsistent “daily rate” on payslips (or none stated);
deductions that are unexplained or not consented to.

13.3 How to do a quick self-audit

compute an implied daily rate from your monthly salary using the divisor your company appears to be using (check payslips/HR policy);
compute implied hourly rate;
compute expected overtime/NSD/premiums for a sample month with clear time records;
compare to what you were paid.

Even a sample-month audit can establish a pattern.

14) Special topics that frequently intersect with underpayment

14.1 Commissions, allowances, and “wage” definition

Some pay components are considered part of “wage” depending on their nature (e.g., regularity, integrality, whether they are facilities vs supplements). Mislabeling compensation as “allowance” to avoid premiums can lead to underpayment findings if it is actually part of wage.

14.2 13th month pay underpayment

Underpayment issues often include miscomputed 13th month pay if the employer excludes remunerations that should be included in the “basic salary” computation or commits arithmetical/proration errors.

14.3 Payment delays vs underpayment

Late payment can be a separate violation. Underpayment is about amount; delay is about timeliness. Both can be actionable depending on circumstances.

15) Drafting and compliance tips for employers (to avoid underpayment liability)

While this topic is often employee-driven, employers can avoid disputes by:

stating clearly in contracts/policies what the monthly salary covers (ordinary days, paid holidays, rest days);
using a divisor consistent with the pay scheme and ensuring minimum wage compliance;
paying and itemizing overtime, NSD, holiday and rest day premiums in payroll;
maintaining accurate time records and approvals processes;
conducting periodic payroll audits, especially after wage orders or policy changes;
ensuring correct classification of exempt employees based on duties, not titles.

16) Key takeaways

Monthly-paid employees are not automatically exempt from labor standards premiums.
Underpayment often stems from wrong conversion/divisor, misclassification, and missing premium pay.
Proper computation requires: correct base rates + correct identification of premium-eligible work + reliable records.
Remedies typically run through DOLE enforcement mechanisms and/or NLRC adjudication, with prescriptive periods that must be respected.
Documentation is decisive: payslips, time records, schedules, and instructions can make or break the case.