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.
Is commission based work/employee legal here in the Philippines? Looking forward for your advice. Thank you.
Good morning, i have a friend who worked at spa and gain 25% every services rendered, tanong ko po may allowance sila every day na 50.00 kung sila po ay on duty. Ang allowance po ba matatawag na “basic salary”??? Isa pa po pwede po bang wala silang sss, philheath and pag.ibig contribution???
Hello Atty. Ask ko lng if we are receiving a monthly salary and monthly commission, then suddenly the employer decided to hold the commission. Is it legal?
Also, just in case po magresign, pede ba nila hindi irelease ung mga due commssions sa empleyado?
Thanks, Ara
Good Day po.
I just need some help. I have an outstanding loan with home credit. I was not able to pay for 3 months. They have inform me that I need to pay 34000. I ask them if they can give me more time since nahospital po ako nung may at almost 2months na hindi nka work kasi po na operahan ako sa galstones. last month september they texted me that they have terminated my account and nasa collector na po and was advs. to contact the number given until now. I have also sent emails and chats to home credit but no reply. Gusto ko po ma settle yung loan ko ayaw ko po umabot pa sa court.
i have a friend po who works at a salon & earns purely on commision basis (30% for services rendered such as haircut, hairdye, massage and the likes) are they exempted from receiving 13th mo. pay ? he has served his employer for 7yrs, your advice will be most appreciated
Dear ramil inciong,
Those who are paid on a PURELY commission basis are excluded by law from the coverage of 13th month pay. Sad to say, but your friend is not entitled to 13th month pay.
-Atty. Arjay
Hello po,
How about if commission base plus 150 daily allowance? can we deduct the lates sa daily allowance?
Kung nakakakuha ka po ba ng 10% of comission every last day of the month, kasama po ba yun sa computation ng 13th month??
Dear Dred,
Laging tatandaan na ayon sa batas, “basic salary” lang ang included sa computation ng 13th month pay. Therefore, maisasama lang ang 10% end-of-month commission mo sa computation ng 13th month pay kung ang nasabing commission ay direktang bayad sa mga serbisyong ibinibigay mo sa employer mo. Kung ikaw ay sinu-sweldohan sa ibang paraan bilang bayad sa mga serbisyo mo, at ang commission ay incentive lang to encourage better performance, hindi ito kasama sa pag-compute ng 13th month pay mo.
-Atty. Arjay
Hello, Im asking for a friend’s case.
Ang friend ko po is Salon owner who started his business just Jan. 2015. Meron siyang mga salon worker na purely commission based employee, 30% of the total sales ng salon yun ang kanilang salary for the day. Yung dalawa sa empleyado niya nagpa DOLE dahil under paid daw sila and nag claim sila na wala silang 13th month, and overtime pay and other backwages ang kiniclaim nila sa friend ko. Sana po matulungan ninyo siya thru your professional advise.
Dear Edz,
Hindi ako makakapag-comment regarding the issue on underpayment of salary, overtime and other money claims ng mga empleyado ng kaibigan mo, dahil wala akong access sa financial and payroll records ng salon nya. Besides, your stated concern is quite out of topic in this article’s message thread.
-Atty. Arjay
Hello po. I have a friend po who’s working in a an establishment which is considered and is a member of a small, medium business enterprises. My friend only receives a commission of 5 pesos in every bottle of distilled water that he will be able to sell every single day. Now I am confused whether or not he shall be entitled of a 13th month pay.
Dear Joy Verayo,
It seems that your friend’s commission per bottle constitutes his salary, and he appears to be a piece rate worker. Under the law, even piece rate workers are entitled to 13th month pay. So, yes, your friend is entitled to 13th month pay.
-Atty. Arjay
Hi po tanung ko Lang po kasi nagtatarabaho po ko sa call center around 21-24 nag approve po Yung supervisor ko na pwede dw po ko mag leave then sinet ko n po un para say bakasyon Ng buong pamilya ko then nung 21 nag txt Yung supervisor ko na cancel daw…eh kaso po sinabi ko sa kanya na the same day Yun Yung alis namin pa baler at Hindi ko na pwede icancel then started sending txt messages that offended me, then nung 29 hinold nila Yung 13 month ko Ni Hindi Naman po ko inadvise na terminated na ko at hnd dn po ko naka receive man Lang Ng letter Mula s hr namin .. tanung ko Lang po kung Tama Yung ginawa nila
Dear Karla,
In terminating an employee, dapat:
1. Meron just cause for termination
2. Meron due process sa pagte-terminate
Dapat meron parehong just cause and due process, dahil kung may isang wala, illegal dismissal.
Basahin mo ito https://www.alburovillanueva.com/authorized-causes-termination-employment.
-Atty Arjay
is 13 and 14 month taxable?
Hello, Bing. Your 13th and 14th month pay may not be taxable if it does NOT exceed P82,000.00. This is based on Republic Act 10653 which increased to P82,000 the tax exemption allowance for other benefits given to employees such as the Christmas bonus and productivity incentives.
-Atty. Rizzle