Published — August 3, 2017
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Related Topic: Employer’s Guide on the Minimum Terms and Conditions of Employment
One way or another, people will find a way to be excited about the Christmas season, whether it be parties, gift giving, vacations, family bonding, bonuses and whatnot. Speaking of bonuses, employees look forward to receiving additional cash to spend during the season. Thus, payment and receipt of 13th month pay has become among the things that are highly anticipated both by employers and employees alike.
The 13th month pay is a mandatory benefit provided by law, which is 1/12 of the basic salary of an employee within a calendar year [Sec. 1(a), P.D. No. 851]. Considering that the computation of 13th month pay is based on an employee’s basic salary, then how do we determine what exactly the basic salary includes?
What constitutes “basic salary”
Basic salary shall include all compensation or earnings paid by an employer to an employee for services rendered. Basic salary, however, does not include cost-of-living allowances, profit-sharing payments, cash equivalent of unused vacation and sick leave credits, overtime pay, premium pay, night shift differential, holiday pay and all allowances and monetary benefits which are not considered or integrated as part of the regular salary of an employee [Sec. 2, P.D. No. 851].
Is commission treated as part of basic salary?
What if an employee is paid on purely commission basis, will he be entitled to 13th month pay? Despite the mandatory nature of 13th month pay, the law provides that employees paid on a purely commission basis are not entitled to 13th month pay, because they are expressly excluded from the law’s coverage. However, those employees who are only partly paid on commission basis, i.e., those guaranteed with a fixed wage aside from the commission, are entitled to 13th month pay, but only insofar as their basic salary is concerned.
The computation of what constitutes basic salary varies depending on whether:
- Commission is paid as an incentive or encouragement to ensure productivity, i.e., productivity bonus; or
- Commission is paid as a direct remuneration for service rendered.
Commission paid as incentive
Commission that takes the form of an incentive or encouragement to ensure productivity does not form part of the basic salary. As such, it may be excluded from the computation of 13th month pay. Only the fixed or guaranteed wage is required to be included in the computation.
In compensation schemes consisting of a fixed or guaranteed wage plus commission, the fixed or guaranteed wage is clearly the “basic salary” for this is what the employee receives for a standard work period. Commissions are given for extra efforts exerted in consummating sales or other related transactions. They are, as such, additional pay, which this Court has made clear do not form part of the ‘basic salary’ [See: G.R. No. L-92174].
Thus, computation of 13th month pay shall be:
Basic salary = Fixed wage (commission is excluded).
Commission paid as direct remuneration
On the other hand, commission that takes the form of a direct remuneration for services rendered should be included in the computation of the basic salary. That is, it should be added to the guaranteed wage of the employee in computing his “basic salary.”
In the first place, Article 97(f) of the Labor Code defines the term “wage” as 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 it, 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.
In some companies, the sales commissions earned by salesmen who make or close a sale constitute part of the compensation or remuneration paid to them for serving as salesmen, and hence part of their “wage” or “salary”.
This is especially true if it appears that an employer 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 they were able to close. This particular salary structure was intended for the benefit of the employer, based on the apparent assumption that 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 [See: G.R. No. 110068].
Thus, computation of 13th month pay shall be:
Basic salary = Fixed wage + Commission.
That being said, it is clear that commissions are generally not subject to the computation of 13th month pay, though in certain instances, may be treated as part of basic salary when it is paid as a direct remuneration for services the employee rendered. This is something payroll managers ought to know, in order to ensure that the company will continue having a peaceful conduct of personnel affairs, and its employees a merry bonus season!
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding labor standards, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
All rights reserved.
Hello Attorney!
Meron po kasi kaming spa business and yung mga nail technicians and massage therapists namin are paid on purely commission basis. Meron po bang related law regarding sa purely commission basis? Para na rin po sana maging knowledgeable po ako on how to pay them properly and just in case po, pwede po ba kami gumawa ng contract kahit ayun po ang mode of wage payment namin? Medyo nagwoworry rin po kasi kami baka umalis sila. Thank you!
Good day!
Ma’am. I sent you an email regarding your inquiry.
Thank you.
Hello Atty.
I am employed to an online teaching business. I’ve been teaching there for almost 8 months. Our salary is based on how many student we have a month, in short it is a comission based. Am I entitled to have a 13th month pay?
Hello! I have fully read the article and comments section. I was able to have take-aways but I may be enlightened if I receive either a yes or no if I were able to get it correctly.
My sister has a start up business – travel and tours. She has four (4) so-called “commission-based agents” who have no basic pay but are being paid based on number of bookings (considered as their sales or deals) they receive from guests who booked a tour on a specific travel dates with the said travel agency. Leaning towards to the definition of terms and 13th month pay, are these agents considered as piece-workers and are entitled for 13th month pay? Since their “commission” is not being shared on the total sales made by the business per day or per week.
Looking forward for your reply. Thank you!
1. For your agents not to be considered as an employee of the company:
– They must sign an Independent Contractor Agreement.
– They don’t sign any payslip with your sister’s company on it. Petty cash voucher/check voucher will do.
– No compensation withholding tax but 8% withholding tax on professionals
-Bottomline, even if they only receive commission, but these agents are subject to “CONTROL” they may be considered as employees of the company and must be paid 13th month pay.
-There are other concerns/issues/matters that are better addressed via personal consultation.
2. These agents are not considered as piece-workers. Literally, piece workers are paid based on the number of items they produce in a day and is commonly used in manufacturing industries. These agents are labelled as INDEPENDENT CONTRACTORS; however, please take note that there must be legal documents that they must sign in order to be considered as such. Otherwise, there is a risk that they may file a case to DOLE and file for regularization for as long as they can show that they are NOT agents per se but employees of the company.
Implications of being any employee:
– salary must not be below minimum wage
-must be paid for holiday pay, overtime pay, night shift differential pay and other labor standards.
3. As agent/independent contractors, they are NOT entitled to 13th month pay. Independent Contractors are NOT considered as employees of the company; hence no 13th month pay.
Hi po.
I do have a friend working in a bmbe company. She is a piece rate worker, bale naghuhugas siya nang
second-hand empty gallons. Walang quota. Siya lang bahala kung ilan huhugasan niya and may pagkakataon na hindi siya papasok kapag ubos na yung huhugasan na empty gal.
Is she entitled for 13th month pay? And if yes, how to compute? Thanks!
Hi attorney, curious lang, medyo malayo po sa tanong pero about sa computation din po. Paano po ba kino-compute yung absences and lates sa backpay?
Good morning! Attorney, I’m currently working under a government agency and it’s my third time to sign a contract. I think this kind of employment falls under fixed term employment pls correct me if I’m wrong. I’m a licensed professional and in the contract, disappointing clauses can be read such as “no employee-employer relationship”, ” not qualified to receive benefits just like bonuses or 13th month pay” and the most disappointing one is that” the service rendered will not be considered as government service”. the signing of contract is every after five months, they’ve been doing this for a long time so I guess they’re not violating any law but still I want to hear your opinion as a lawyer. pls note that my tasked job is the same as that of a regular employee. It sucks that even the DOLE has job orders on their list. Hint: I am an engineer and my agency is named as one of the most corrupt agencies of the government.thank you and I hope to hear from you the soonest.
Good morning! Attorney, I’m currently working under a government agency and it’s my third time to sign a contract. I think this kind of employment falls under fixed term employment pls correct me if I’m wrong. I’m a licensed professional and in the contract, disappointing clauses can be read such as “no employee-employer relationship”, ” not qualified to receive benefits just like bonuses or 13th month pay” and the most disappointing one is that” the service rendered will not be considered as government service”. the signing of contract is every after five months, they’ve been doing this for a long time so I guess they’re not violating any law but still I want to hear your opinion as a lawyer. pls note that my tasked job is the same as that of a regular employee. It sucks that even the DOLE has job orders on their list. Hint: I am an engineer and my agency is named as one of the most corrupt agencies of the government.thank you and I hope to hear from you the soonest.
Hello atty. May frnd po ako na nag wowork sa isang fitness gym. Commission basis po sya. 50% sa amo 50% sakanya per head po na tinitrain nya. May employer to employee relationship po, entitled po ba sya makaresib nang 13th month pay? Kasi nung nakaraang xmas walang bingay na bonus ung amo nya saknya. Makatarungan po ba yun?
Hello po atty
May salon is 4 months pa at lage ako abunado.. I have 7 workers which paid basic non minimum but paid also 20-30% every gawa nila… Do they entitled a 13th month since tapal pa ako? Please reply and thanks atty for enlighten me..