I have 3 office employees. In their contract, it is specified that their working days are from Monday to Saturday and that their Monthly Basic Salary is P15,000. Because of this stipulation in their contract, THEY automatically identified themselves as Monthly-Paid employees. I have read the Labor Code and looked at other labor-related websites. The typical definition of Monthly-Paid Employees is: those paid every day of the month INCLUDING unworked rest days, special days and regular holidays. This definition honestly does not provide a lot of helpful information.

Because my staff considered themselves as monthly-paid employees, they used 365 as the divisor in getting the rate to be used for OT, absences, leave credits, holiday pay and premium pay computation.

I never really bothered to review their payroll computation because in a way I trusted that they knew what they were doing. I just ordered them to follow the basic requirements of the labor code. One time, I decided to check their computation for the period of June 16 – 30. As we all know, June 30 was declared a Special Non-Working Holiday.

I am well aware that employees who worked on this day are given an additional 30% PREMIUM (assuming it is not their rest day). One of my employees did not go to work on this special non-working day. She did not deduct P493.15 ((P15000 x 12 months)/365 days) from her pay for this payroll period claiming that as a monthly-paid employee, all her UNWORKED holidays (regular AND special) are PAID.

I did not agree with her on this stating that under the Labor Code “The no-work, no-pay principle applies during special days.” In addition, the Labor Code does not mention that monthly-paid employees are EXEMPT from this “no-work, no-pay” principle. The mere fact that the Labor Code does not specify the kind of pay that an employee should receive on an UNWORKED special day is already an indication that there is no pay to be received by an employee who does not go to work on a special day (as opposed to the pay an employee gets on an UNWORKED REGULAR holiday which is specifically called HOLIDAY PAY). This is just my own analysis.

Unfortunately, my employee does not want to agree with me by always pointing out the Labor Code’s definition of monthly-paid employees.

So who is correct in this case? (I hope it’s me.) If ever I prevail in this case, is the 365 factor still the correct divisor to use? My employees argue that if ever I am right, then their divisor should also be corrected. Using 365 as the divisor assumed that even the UNWORKED special days are paid. In my opinion, I would like to stick with the 365 divisor as this would also prevent us from always adjusting the divisor for new legal and special holidays that are proclaimed yearly. Is sticking with 365 as the factor legal? And kindly expound on what really is a monthly-paid employee. Avoid giving definitions already found in the labor code and other HR books because these definitions are not helpful at all. They are rather confusing. Kindly enlighten me. Thank you.