WAGE

By: Atty. Edwin E. Torres (MSU 2018)

"Wage" paid to any employee shall mean the remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece,
or commission basis, or other method of calculating the same, which is payable by an employer
to an employee under a written or unwritten contract of employment for work done or to be done,
or for services rendered or to be rendered, and includes the fair and reasonable value, as
determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished
by the employer to the employee. ‘Fair and reasonable value’ shall not include any profit to the
employer or to any person affiliated with the employer.” [Article 97(f), Labor Code]

A. COVERAGE

1. "SALARY," the etymology of which is the Latin word "salarium," is often used interchangeably with "wage", the
etymology of which is the Middle English word "wagen." Both words generally refer to one and the same meaning, that
is a reward or recompense for services performed. Likewise, "pay" is the synonym of "wages" and "salary" (Black's Law
Dictionary, 5th Ed.). Inasmuch as the words "wages, ''pay" and "salary" have the same meaning, and commission is
included in the definition of "wage", the logical conclusion, therefore, is, in the computation of the separation pay of
petitioners, their salary base should include also earned sales commissions.1

2. SALES COMMISSIONS earned by salesmen who make or close a sale of duplicating machines distributed by
petitioner corporation constitute part of the compensation or remuneration paid to salesmen for serving as salesmen, and
hence as part of the "wage" or "salary" of petitioner's salesmen. Indeed, it appears that petitioner pays its salesmen a
small fixed or guaranteed wage; the greater part of the salesmen's wages or salaries being composed of the sales or
incentive commissions earned on actual sales closed by them. No doubt this particular salary structure was intended for
the benefit of petitioner corporation, on the apparent assumption that thereby its salesmen would be moved to greater
enterprise and diligence and close more sales in the expectation of increasing their sales commissions. This, however,
does not detract from the character of such commissions as part of the salary or wage paid to each of its salesmen for
rendering services to petitioner corporation. 2

3. The definition of “wage” explicitly includes commissions. While COMMISSIONS are, indeed, incentives or forms
of encouragement to inspire employees to put a little more industry on the jobs particularly assigned to them, still these
commissions are direct remunerations for services rendered. In fact, commissions have been defined as the recompense,
compensation or reward of an agent, salesman, executor, trustee, receiver, factor, broker or bailee, when the same is
calculated as a percentage on the amount of his transactions or on the profit to the principal. The nature of the work of a
salesman and the reason for such type of remuneration for services rendered demonstrate clearly that commissions are
part of a salesman's wage or salary. The establishment of a minimum wage only sets a floor below which an employee's
remuneration cannot fall, not that commissions are excluded from wages in determining compliance with the minimum
wage law. In a case where drivers and conductors who are compensated purely on a commission basis, they are
automatically entitled to the basic minimum pay mandated by law should said commissions be less than their basic
minimum for eight hours work. It can, thus, be inferred that were said commissions equal to or even exceed the minimum
wage, the employer need not pay, in addition, the basic minimum pay prescribed by law. It follows then that commissions
are included in determining compliance with minimum wage requirements. 3

4. The term "basic salary"4 to compute the 13th month pay under PD 851 is used to distinguish wage or salary
from "FRINGE BENEFITS" which are not integrated into "basic salary" for certain specific purposes. The catch-all phrase
"allowances" and "monetary benefits'" which are deemed not considered or integrated as part of "basic salary" was
construed to refer to "any and all additions which may be in the form of allowances or 'fringe' benefits." These fringe
benefits include payments for sick leave, vacation leave or maternity leave; premium pay for work performed on rest day
and special holidays; premium pay for regular holidays and night differential pay; and cost of living allowances. Sales
commissions form part of the "wage" or "salary" of salesmen and are not in the nature of an "allowance" or "additional
fringe" benefit. Once more, we note that in the instant case, sales commissions form the bulk of the salaries or wages of
petitioner's salesmen. Hence, the 13th month pay of employees paid a fixed or guaranteed wage plus sales commission

1
Songco, et al. vs. NLRC, et al. (G.R. No. L-50999, 23 March 1990).
2
Philippine Duplicators, Inc. vs. NLRC and Philippine Duplicators Employees Union-Tupas (G.R. No. 110068, 11 November 1993).
3
Iran vs. NLRC, et al. (G.R. No. 121927, 22 April 1998).
4
Rules and Regulations Implementing PD 851: “Basic salary" shall include all remunerations or earnings paid by an employer to an
employee for service rendered, but may not include cost of living allowances granted pursuant to President Decree No. 525 or Letter
of Instructions No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or integrated
as part of the regular or basic salary of the employee at the time of the promulgation of the Decree on December 16, 1975
1
must be equivalent to one-twelfth (1/12) of the total earnings (fixed or guaranteed wage-cum-sales commissions) during
the calendar year.5

5. The general rule is that a BONUS is a gratuity or an act of liberality which the recipient has no right to demand as
a matter of right.8 A bonus, however, is a demandable or enforceable obligation when it is made part of the wage or salary
or compensation of the employee.9 Whether or not a bonus forms part of wages depends upon the circumstances and
conditions for its payment. If it is additional compensation which the employer promised and agreed to give without any
conditions imposed for its payment, such as success of business or greater production or output, then it is part of the
wage. But if it is paid only if profits are realized or if a certain level of productivity is achieved, it cannot be considered part
of the wage. Where it is not payable to all but only to some employees and only when their labor becomes more efficient
or more productive, it is only an inducement for efficiency, a prize therefor, not a part of the wage. 6

6. For FACILITIES to be considered part of wage, the following requirements must be shown:

a. Such facilities are customarily furnished by the trade;

b. The deductible facilities must be voluntarily accepted in writing by the employee; and
c. The facilities must be charged at fair and reasonable value.

One of the badges to show that a facility is customarily furnished by the trade is the existence of a company policy or
guideline showing that provisions for a facility were designated as part of the employees’ salaries. Apart from company
policy, the employer may also prove compliance with the first requirement by showing the existence of an industry-wide
practice of furnishing the benefits in question among enterprises engaged in the same line of business. If it were
customary among construction companies to provide board and lodging to their workers and treat their values as part of
their wages, we would have more reason to conclude that these benefits were really facilities. Lastly, even if a benefit is
customarily provided by the trade, it must still pass the purpose test set by jurisprudence. Under this test, if a benefit or
privilege granted to the employee is clearly for the employer’s convenience, it will not be considered as a facility but a
supplement. Here, careful consideration is given to the nature of the employer’s business in relation to the work
performed by the employee. This test is used to address inequitable situations wherein employers consider a benefit
deductible from the wages even if the factual circumstances show that it clearly redounds to the employers’ greater
advantage. Under the law, only the value of the facilities may be deducted from the employees’ wages but not the value
of supplements. Facilities include articles or services for the benefit of the employee or his family but exclude tools of the
trade or articles or services primarily for the benefit of the employer or necessary to the conduct of the employer’s
business. The law also prescribes that the computation of wages shall exclude whatever benefits, supplements or
allowances given to employees. Supplements are paid to employees on top of their basic pay and are free of charge.
Since it does not form part of the wage, a supplement’s value may not be included in the determination of whether an
employer complied with the prescribed minimum wage rates.7

7. The benefit or privilege given to the employee which constitutes an extra remuneration above and over his basic
or ordinary earning or wage is SUPPLEMENT; and when said benefit or privilege is part of the laborers' basic wages, it is
a facility. The distinction lies not so much in the kind of benefit or item (food, lodging, bonus or sick leave) given, but in the
purpose for which it is given. Ultimately, the real difference lies not on the kind of the benefit but on the purpose why it
was given by the employer. If it is primarily for the employee’s gain, then the benefit is a facility; if its provision is mainly for
the employer’s advantage, then it is a supplement. Under the PURPOSE TEST, substantial consideration must be given
to the nature of the employer’s business in relation to the character or type of work performed by the employees involved.
Our Haus is engaged in the construction business, a labor-intensive enterprise. The success of its projects is largely a
function of the physical strength, vitality and efficiency of its laborers. Its business will be jeopardized if its workers are
weak, sickly, and lack the required energy to perform strenuous physical activities. Thus, by ensuring that the workers are
adequately and well fed, the employer is actually investing on its business. Unlike in office enterprises where the work is
focused on desk jobs, the construction industry relies heavily and directly on the physical capacity and endurance of its
workers. This is not to say that desk jobs do not require muscle strength; we simply emphasize that in the construction
business, bulk of the work performed are strenuous physical activities. Moreover, in the construction business,
contractors are usually faced with the problem of meeting target deadlines. More often than not, work is performed
continuously, day and night, in order to finish the project on the designated turn-over date. Thus, it will be more
convenient to the employer if its workers are housed near the construction site to ensure their ready availability during
urgent or emergency circumstances. Also, productivity issues like tardiness and unexpected absences would be
minimized. Hence, under the purpose test, the subsidized meals and free lodging provided by the construction company
are actually supplements.8

8. On whether the value of the FACILITIES should be included in the computation of the "wages" received by private
respondents, Section 1 of DOLE Memorandum Circular No. 2 provides that an employer may provide subsidized meals

5
Philippine Duplicators, Inc. vs. NLRC and Philippine Duplicators Employees Union-Tupas (G.R. No. 110068, 11 November 1993).
6
Metro Transit Organization, Inc. vs. NLRC, et al. (G.R. No. 116008, 11 July 1995).
7
Our Haus Realty Development Corporation vs. Parian, et al. (G.R. No. 204651, 6 August 2014).
8
Ibid.
2
and snacks to his employees provided that the subsidy shall not be less that 30% of the fair and reasonable value of such
facilities. In such cases, the employer may deduct from the wages of the employees not more than 70% of the value of the
meals and snacks enjoyed by the latter, provided that such deduction is with the written authorization of the employees
concerned. Moreover, before the value of facilities can be deducted from the employees’ wages, the following requisites
must all be attendant: first, proof must be shown that such facilities are customarily furnished by the trade; second, the
provision of deductible facilities must be voluntarily accepted in writing by the employee; and finally, facilities must be
charged at reasonable value. Mere availment is not sufficient to allow deductions from employees’ wages.9

B. MINIMUM WAGE

1. RA 6727 (Wage Rationalization Act), which took effect on July 1, 1989, declared it a policy of the State to
rationalize the fixing of minimum wages and to promote productivity-improvement and gain-sharing measures to ensure a
decent standard of living for the workers and their families; to guarantee the rights of labor to its just share in the fruits of
production; to enhance employment generation in the countryside through industrial dispersal; and to allow business and
industry reasonable returns on investment, expansion and growth. In line with its declared policy, RA 6727, created the
National Wages and Productivity Commission (NWPC), vested, inter alia, with the power to prescribe rules and guidelines
for the determination of appropriate minimum wage and productivity measures at the regional, provincial or industry
levels; and the Regional Tripartite Wages and Productivity Boards (RTWPB) which, among others, determine and fix the
minimum wage rates applicable in their respective region, provinces, or industries therein and issue the corresponding
wage orders, subject to the guidelines issued by the NWPC. MINIMUM WAGE is rate fixed by the Regional Tripartite
Wage and Productivity Board (RTWPB).

2. There are two methods of adjusting the minimum wage. In Employers Confederation of the Phils. v. National
Wages and Productivity Commission (201 SCRA 759, 24 September 1991),these were identified as the "floor wage" and
the "salary-ceiling" methods. The "floor wage" method involves the fixing of a determinate amount to be added to the
prevailing statutory minimum wage rates. On the other hand, in the "salary-ceiling" method, the wage adjustment was to
be applied to employees receiving a certain denominated salary ceiling. In other words, workers already being paid more
than the existing minimum wage (up to a certain amount stated in the Wage Order) are also to be given a wage
increase.10

3. To ensure the payment of fair and reasonable wage rates, Article 101of the Labor Code provides that "the
Secretary of Labor shall regulate the payment of wages by results, including pakyao, piecework and other non-time work."
The same statutory provision also states that the wage rates should be based, preferably, on time and motion studies, or
those arrived at in consultation with representatives of workers' and employers' organizations. It is then the responsibility
of workers employing piece-rate workers to inquire from the Secretary of Labor about their prescribed specific wage rates.
If there are no such prescribed rates, they should, after consultation with their workers, submit for the Secretary’s approval
time and motion studies as basis for the wage rates of the employees. In the absence of such prescribed wage rates for
piece-rate workers, the ordinary minimum wage rates prescribed by the RTWPBs should apply.11

4. Section 4(c) of RA 6727 provides for exemption from the coverage of minimum wage “retail/service
establishments regularly employing not more than ten (10) workers.” But they are to apply for such exemption with the
appropriate Regional Board. Otherwise, they are not exempted. 12

C. WAGE DISTORTION

1. The statutory definition of wage distortion is found in Article 124 of the Labor Code, as amended by Republic Act
No. 6727, which reads:

“. . . a wage distortion shall mean a situation where an increase in prescribed wage results in the
elimination of severe contraction of intentional quantitative differences in wage or salary rates between
and among employee groups in an establishment as to effectively obliterate the distinctions embodied in
such wage structure based on skills, length of service, or other logical bases of differentiation.”

2. Wage distortion presupposes a classification of positions and ranking of these positions at various levels. One
visualizes a hierarchy of positions with corresponding ranks basically in terms of wages and other emoluments. Where a
significant change occurs at the lowest level of positions in terms of basic wage without a corresponding change in the
other level in the hierarchy of positions, negating as a result thereof the distinction between one level of position from the
next higher level, and resulting in a parity between the lowest level and the next higher level or rank, between new

9
SLL International Cables Specialist and Lagon vs. NLRC, et al. (G.R. No. 172161, 2 March 2011).
10
Norkis Free and Independent Workers Union vs. Norkis Trading Company, Inc. (G.R. No. 157098, 30 June 2005).
11
Pulp and Paper, Inc. vs. NLRC and Antonio (G.R. No. 116593, 24 September 1997).
12
C. Planas Commercial and Cohu vs. NLRC, et al. (G.R. No. 144619, 11 November 2005).
3
entrants and old hires, there exists a wage distortion. The concept of a wage distortion assumes an existing grouping or
classification of employees which establishes distinctions among such employees on some relevant or legitimate basis.
This classification is reflected in a differing wage rate for each of the existing classes of employees. Wage distortion
involves four elements:

A. An existing hierarchy of positions with corresponding salary rates

B. A significant change in the salary rate of a lower pay class without a concomitant increase in the
salary rate of a higher one

C. The elimination of the distinction between the two levels

D. The existence of the distortion in the same region of the country

A disparity in wages between employees holding similar positions but in different regions does not constitute wage
distortion as contemplated by law. Wage distortion involves a parity in the salary rates of different pay classes which, as a
result, eliminates the distinction between the different ranks in the same region. 13

3. Article 124 of the Labor Code, as amended by RA 6727, states:

“Where the application of any prescribed wage increase by virtue of a law or Wage Order issued by
any Regional Board results in distortions of the wage structure within an establishment, the employer
and the union shall negotiate to correct the distortions. Any dispute arising from the wage distortions shall
be resolved through the grievance procedure under their collective bargaining agreement and, if it
remains unresolved, through voluntary arbitration.”

Wage distortion is a factual and economic condition that may be brought about by different causes. However, the mere
factual existence of wage distortion does not, however, ipso facto result to an obligation to rectify it, absent a law or other
source of obligation which requires its rectification. If a wage distortion is not the result of wage increase by virtue of law
or wage order issued by a Regional Board, then there is no legal obligation to correct it. 14

4. The Regional Tripartite Wages and Productivity Commission issued in 1991 the following formula to correct wage
distortions:

Minimum Wage x Prescribed Increase = Distortion Adjustment

--------------------
Actual Salary

This formula suggested then by Commissioner Bonto-Perez, which has also been the standard considered by the regional
Tripartite Wages and Productivity Commission for the correction of pay scale structures in cases of wage distortion,
appears to just and equitable.15

5. "Wage" is defined in letter (f) as the remuneration or earnings, however designated, capable of being expressed
in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable
value, as determined by the Secretary of Labor, of board, lodging, or other facilities CUSTOMARILY FURNISHED by the
employer to the employee. When an employer customarily furnishes his employee board, lodging or other facilities, the
fair and reasonable value thereof, as determined by the Secretary of Labor and Employment, is included in "wage."
Customary" is founded on long-established and constant practice – connoting regularity. The receipt of an allowance on a
monthly basis does not ipso facto characterize it as regular and forming part of salary –because the nature of the grant is
a factor worth considering. The following allowances are temporary:

A. In the case of the HOUSING ALLOWANCE, once a vacancy occurs in the company-provided
housing accommodations, the employee concerned transfers to the company premises and his
housing allowance is discontinued;

13
Prubankers Association vs. Prudential Bank & Trust Company (G.R. No. 131247, 25 January 1999).
14
Bankard Employees Union-Workers Alliance Trade Unions vs. NLRC and Bankard, Inc. (G.R. No. 140689, 17 February 2004).
15
Metropolitan Bank & Trust Company Employees Union-ALU-TUCP and Balinag vs. NLRC and Metrobank (G.R. No. 102636, 10
September 1993).
4
 B. The TRANSPORTATION ALLOWANCE is in the form of advances for actual transportation
expenses subject to liquidation and given only to employees who have personal cars used in the
performance of their duties.

C. BISLIG ALLOWANCE is given to Division Managers and corporate officers assigned in Bislig,
Surigao del Norte. Once the officer is transferred outside Bislig, the allowance stops. 16

D. USE OF DIVISOR

1. Whether or not holiday pay is included in the monthly salary of an employee, may be gleaned from the divisors
used by the company in the computation of overtime pay and employees’ absences. To illustrate, if all nonworking days
are paid, the divisor of the monthly salary to obtain daily rate should be 365. If nonworking days are not paid, the divisor is
251, which is a result of subtracting all Saturdays, Sundays, and the ten legal holidays. Hence, if the petitioner’s base pay
does not yet include holiday pay, it must be added to his monetary award.17

2. The daily rate, assuming there are no intervening salary increases, is a constant figure for purpose of computing
overtime and night differential pay and commutation of sick and vacation leave credits. Necessarily, the daily rate should
also be the same basis for computing the 10 unpaid holidays. The respondent arbitrator's order to change the divisor
from 251 to 261 days would result in a lower daily rate which is violative of the prohibition on non-diminution of benefits
found in Article 100 of the Labor Code. To maintain the same daily rate if the divisor is adjusted to 261 days, then the
dividend, which represents the employee's annual salary, should correspondingly be increased to incorporate the holiday
pay. To illustrate, if prior to the grant of holiday pay, the employee's annual salary is P25,100, then dividing such figure by
251 days, his daily rate is P100.00 After the payment of 10 days' holiday pay, his annual salary already includes holiday
pay and totals P26,100 (P25,100 + 1,000). Dividing this by 261 days, the daily rate is still P100.00. There is thus no merit
in the company’s claim of overpayment of overtime and night differential pay and sick and vacation leave benefits, the
computation of which are all based on the daily rate, since the daily rate is still the same before and after the grant of
holiday pay.18

3. A company made its workers work only from Monday to Friday and half of Saturday. As the workers were paid on
monthly basis, the company used 304 as the divisor to determine the workers’ daily rates. The appropriate divisor is 287
days, which is the result of 365 days, less 52 Sundays and less 26 Saturdays (or 52 half Saturdays). Any divisor below
287 days means that the company’s workers are deprived of their holiday pay for some or all of the ten legal holidays.
With the use of 304 days divisor, the company is clearly above the minimum of 287 days.19

4. A company used 314 as divisor in arriving at its employees’ daily rate for purpose of computing salary-related
benefits. This divisor considered unpaid the employees’ 52.14 Sundays per year. But with said divisor, it considered the
10 regular holidays already included in the monthly salaries paid to the employees. Later, the company changed its
divisor to 303 by an inter-office memo for the sole expressed purpose of increasing the overtime pay of its rank-and-file
employees. The change in divisor does not change the fact that the 10 regular holidays were already paid with the use of
314 as divisor for said purpose.20

5. A company cannot use 365 as divisor. The divisor in computing an employee's basic daily rate should be the
actual working days in a year. The number of off-days are not to be counted precisely because on such off-days, an
employee is not required to work. Simple commonsense dictates that should an employee opt not to work - which he can
legally do - on an off-day, and for such he gets no pay, he would be unduly robbed of a portion of his legitimate pay if and
when in computing his basic daily and hourly rate, such off-day is deemed subsumed by the divisor. For it is elementary
in the fundamental process of division that with a constant dividend, the bigger your divisor is, the smaller our quotient will
be.21
6. The company practice to use a divisor of 26 days in determining the deductions from the monthly salary of an
employee when he incurs absences during the period does not mean that the same procedure should also be followed in
determining the monthly cost of living allowance due the employee. In the absence of any provision in any collective
bargaining agreement of the parties, the presumption that a monthly paid employee is considered paid even on rest days
must prevail.22

7. Trans-Asia's inclusion of holiday pay in the workers’ monthly salary is clearly established by its consistent use of
the divisor of "286" days in the computation of its employees' benefits and deductions. A simple application of

16
Millares, et al. vs. NLRC and PICOP (G.R. No. 122827, 29 March 19999).
17
Lim vs. HMR Philippines, Inc. (G.R. No. 201483, 4 August 2014).
18
Union of Filipino Employees vs. Vivar Jr. (G.R. No. 78255, 20 January 1992).
19
Odango vs. NLRC and Antique Electric Cooperative, Inc. (G.R. No. 147420, 10 June 2004).
20
Producers Bank of the Philippines vs. NLRC and Producers Bank Employees Association (G.R. No. 100701, 28 March 2001).
21
PALEA and PALSA vs. PAL (G.R. No. L-31341, 31 March 1976).
22
Terminal Facilities and Services Corporation vs. NLRC and ALU (G.R. No. 91787, 16 July 1991).
5
mathematics would reveal that the ten (10) legal holidays in a year are already accounted for with the use of the said
divisor. If one is to deduct the unworked 52 Sundays and 26 Saturdays (derived by dividing 52 Saturdays in half since
petitioners are required to work half-day on Saturdays) from the 365 calendar days in a year, the resulting divisor would
be 286 days (should actually be 287 days). Since the ten (10) legal holidays were never included in subtracting the
unworked and unpaid days in a calendar year, the only logical conclusion would be that the payment for holiday pay is
already incorporated into the said divisor. 23

8. Issue: if two holidays fall on Sundays, should the “314” divisor be adjusted to “316”? No. The monthly salary in a
company - which is based on the so-called "314 factor" accounts for all 365 days of a year; i.e., the "314 factor" leaves no
day unaccounted for. The company is paying for all the days of a year with the exception only of 51 Sundays. There is
no provision of law requiring any employer to make such adjustments in the monthly salary rate set by him to take account
of legal holidays falling on Sundays in a given year, or, contrary to the legal provisions bearing on the point, otherwise to
reckon a year at more than 365 days. What the law requires of employers opting to pay by the month is to assure that
"the monthly minimum wage shall not be less than the statutory minimum wage multiplied by 365 days divided by twelve,"
and to pay that salary "for all days in the month whether worked or not," and "irrespective of the number of working days
therein." That salary is due and payable regardless of the declaration of any special holiday in the entire country or a
particular place therein, or any fortuitous cause precluding work on any particular day or days (such as transportation
strikes, riots, or typhoons or other natural calamities), or cause not imputable to the worker. The legal provisions
governing monthly compensation are evidently intended precisely to avoid re-computations and alterations in salary on
account of the contingencies just mentioned, which, by the way, are routinely made between employer and employees
when the wages are paid on daily basis.24

23
Trans-Asia Phils. Employees Association (TAPIA) and Galvez vs. NLRC
24
Wellington Investment and Manufacturing Corporation vs. Trajano, et al. (G.R. No. 114698, 3 July 1995).
6