Republic of the Philippines

North Eastern Mindanao State University

Tagbina Campus
Tagbina, Surigao del Sur 8308
Email address: sdssutc2010@yahoo.com
Website: www.sdssu.edu.ph

MODULE
IN

Compensation
Administration
(HRM 5)
NAME: _____________________________________________

PROGRAM / YEAR LEVEL: _______Third Year________________

INSTRUCTOR: _____

SEMESTER: First Semester

SCHOOL YEAR: _________2022-2023_________

Compiled by:
JOHN ALBERT A. ALZATE
Faculty
BSBA Program

For internal purposes only

Module I – HRM 5 (Compensation Administration) 2
Lesson II

Working Conditions and Rest Periods

Learning objectives:

After this lesson, you should be able to:

1. determine the working hours of both government and private employees;

2. differentiate the regular pay, legal holiday pay, special holiday pay and night shift
differential;
3. discuss the working conditions of employees working in hospitals and clinics; and
4. compute for the overtime pay, legal holiday pay and special holiday pay.

Working Hours

The provisions of this title on working conditions and rest periods including hours of work
shall apply to employees in all establishments and undertaking whether for profit or not.

The same however do not apply to the following:

1. Government Employees

2. Field personnel

3. Managerial Employees

4. Members of the employees’ family who are dependent on him for support

5. Domestic Helpers

6. Persons in the personal service of another; and

7. Workers who are paid by result (Art. 82 Labor Code as amended)

Government Employees

Government employees whether employed in the national government or in any political

subdivision (LGU’s) including those employed in the Government Owned and Controlled
Corporations (GOCC) with original charter are governed by the Civil Service Law and its
implementing rules and regulations.

Government Owned and Controlled Corporations with original charters refers to those
GOCC which are directly created by law to perform a specific and public function.

The employees of the Government Owned and Controlled Corporations which were
organized under the Corporation Code even if performing a public functions are governed by the
Labor Code.

Managerial Employees

Managerial employees are those who meet the following conditions:

1) Their primary duties consist of the management of the establishment in which they are
employed in a department or subdivision thereof;

2) They customarily and regularly direct the work of two or more employees therein;

3) They have the authority to hire or fire other employees of lower rank; or their suggestion and
recommendations as to the hiring and firing; or as to their promotion, or any other change of status
of other employees are given particular weight;

Officers or Members of Managerial Staffs

Officers and members of managerial staffs are likewise exempted if they perform the
following functions:

Module I – HRM 5 (Compensation Administration) 3

1) The primary duty consists of the performance of work directly related to the management
policies of their employer;

2) Customarily and regularly exercise discretion and independent judgment;

3) Regularly and directly assist a proprietor or a managerial employee whose primary duty
consists of the management of the establishment in which he s employed or subdivision thereof
or subdivision thereof or execute under general supervisory work along specialized or technical
lines requiring special training, experience or knowledge (Sec. 2 Rule 1 Book III Omnibus Rules
Implementing Labor Code as amended) or execute under general supervision special assignment
and tasks; and

4) Who do not devote more than twenty percent (20%) of their hours worked in a week to activities
which are not directly and closely related to the performance of the work described in paragraph
1, 2 and 3 hereof;

Workers who are paid by result

Workers who are paid by result include those who are paid on piecework/rate known as
“takay” or “pakiao” or task basis, if their output rates are in accordance with the standards
prescribed in Section 8 Rule VII, Book III of these Regulations or where such rates have been
fixed by the Secretary of Labor in accordance with the aforesaid section.

Domestic Servants

Domestic servants and in person in the personal service of another if they perform such
services in the employer’s home which are usually necessary or desirable for the maintenance
and enjoyment thereof, or and minister to the personal comfort, convenience or safety of the
employer as well as the members of his employer’s household.

Non-Agricultural Field Personnel

Non-agricultural field personnel are those who are regularly perform their duties away from
principal or branch office or place of business of the employer and whose actual hours of work in
the field cannot be determined with reasonable certainty (Sec. 2, Rule I Book III Omnibus Rules
Implementing Labor Code as amended).

Hours Worked

Hours worked is the number of hours for which an employee is considered working even
if he did not actually rendered service and therefore compensable.

Hours worked shall include:

1) All time during which an employee is required to be on duty or to be at a prescribed worked

place;

2) All time during which an employee is suffered or permitted to work.

Rest period of short duration during working hours shall be counted as hours worked (Art.
84 labor Code as amended).

Principles in Determining Hours Worked

The following general principles shall govern in determining whether the time spent by an
employee is considered hours worked:

1) All hours are hours worked where the employee is required to give to his employer regardless
of whether or not such hours are spent on productive labor or involved physical or mental exertion;

2) An employee need not to leave the premises of the work place in order that his rest period shall
not be counted, it being enough that he stops working, may rest completely, and may leave his
workplace to go elsewhere, whether within or outside the premises of the workplace.

3) If the work performed was necessary, or it benefited the employer, or the employee could not
abandon his work at the end of his normal working hours because he had no replacement, all

Module I – HRM 5 (Compensation Administration) 4

time spent for such work shall be considered as hours worked, if the work was with the knowledge
of his employer or immediate supervisor;

4) The time during which an employee is inactive by reason of interruption in his work beyond his
control shall be considered time worked either of the imminence of presumption of work requires
the employees’ presence at the place of work or if the interval is too short to be utilized effectively
and gainfully to the employees’ own interest ( Sec. 4 Rule I Book III Omnibus Rules Implementing
Labor Code as amended).

Waiting Time

1) Waiting time spent by an employee shall be considered as working time if waiting is an integral
part of his work or the employee is required or engaged by the employer to wait;

2) An employee who is required to remain on call in the employer’s premises or so close thereto
that he cannot use the time effectively and gainfully for his own purpose shall be considered as
working while on call.

An employee who is not required to leave words at his home or with company officials where he
may be reached is not working while on call. (Section 5 Rule I Book III Omnibus Rules
Implementing Labor Code as amended).

Attendance to Lectures, Meetings, Programs

Attendance to lectures, meetings, training programs and other similar activities are not
counted as working time if all of the following conditions are met:

1) Attendance is outside of the employees’ regular working hours;

2) Attendance is in fact voluntary; and

3) The employees do not perform any productive work during such attendance (Sec. 6 Rule I
Book III Omnibus Rules Implementing Labor Code as amended.

Meals/Rest Period

Every employer shall give his employees, regardless of gender not less than one (1) hour
time off for regular meals, except in the following cases: When a meal period of not less than
twenty (20) minutes may be given by the employer.

Provided that such shorter meal period is credited as compensable hour worked of the
employee and;

1) Where the work is non-manual

2) Where the establishment regularly operates not less than sixteen (16) hours a day

3) In cases of actual or impending emergencies or urgent work to be performed on machineries,

equipment or installation to avoid serious loss which the employer would otherwise suffer; and

4) When the work is necessary to prevent serious loss of perishable goods (Sec. 7 Rule I Book
III Omnibus Rules Implementing Labor Code as amended)

Coffee Breaks

Rest period of coffee breaks of five (5) to twenty (20) minutes shall be considered
compensable as working time.

Overtime Pay

Any employee who is permitted or required to work beyond eight (8) hours on ordinary
working days shall be paid an additional compensation for the overtime work in an amount
equivalent to his regular wage plus at least twenty-five percent (25%) thereof.

Thus, overtime pay is payment for the services rendered by the employees in excess of
eight (8) hours during ordinary working days and the rate for the said is the regular pay plus
twenty-five percent of the said regular pay.

Module I – HRM 5 (Compensation Administration) 5

Example:

X rendered overtime of five (5) hours in an ordinary working day where his regular pay is
Four Hundred and Twenty Pesos (Php 420.00) per day.

To solve:

1) Look for X’s rate per hour;

2) Add 25% to the per hour rate rendered as overtime

3) Add the overtime pay to the regular rate of the day to find his total income for the day.

The regular working hours as herein defined shall not be more than eight (8) hours per
day nor more than forty-eight (48) hours in one (1) week.

A day means twenty-four (24) consecutive hours, beginning at the same time each
calendar day.

A work week is 168 consecutive hours or seven consecutive 24-hours work days,
beginning at the same hour and on-the-same calendar day each calendar week (Sec. 5).

Regular Working Days

The regular working days shall not be more than six (6) days in a work week.

The week may begin at an hour, and on any day, including Saturday or Sunday,
designated by the employer.

The employers are not precluded from changing the time at which the work day or work
week begins, provided that the change is not intended to evade the requirement herein.

Normal Hours of Work in Hospital/Clinic

The normal working hours of any employee shall not exceed eight (8) hours a day and six
(6) days a week.

However, health personnel in cities and municipalities with a population of at least one
million (1, 000, 000) or in hospitals and clinics with a bed capacity of at least one hundred (100)
beds shall hold regular office hours for eight (8) hours a day, for five (5) days a week, exclusive
of time for meals, except where the exigencies of the service requires that such personnel work
for six (6) days or forty-eight (48) hours per week in which case they shall be entitled to an
additional compensation of at least thirty percent (30%) of their regular wage for work done on
the sixth (6th) day.

Personnel Covered

All persons employed by any private or public hospital or clinic shall include but not limited
to resident physicians, nurses, nutritionists, dieticians, pharmacists, social workers, laboratory
technicians, paramedical technicians, psychologists, midwives and attendants

Moreover, all personnel in said hospital or medical clinic such as janitors, maintenance
are entitled to the same privilege of an overtime pay for the sixth (6 th).

Simply put, the regular number or working hours per day is eight (8) hours for six (6) days
a week, or a total forty-eight (48) hours every week.

Except in hospital or clinic located in cities or municipalities with at least one million (1,
000, 000) populations, or in hospitals or medical clinic with at least one hundred (100) beds
capacity where the regular number of working days is only five (5) days per week or a total of forty
(40) hours per week.

Hence, when the employees in the said hospitals or medical clinics work for six (6) days
a week, the sixth (6th) day shall be considered an overtime.

Therefore said employees are entitled for an additional overtime pay of thirty percent
(30%) of the regular pay for the same day.

Module I – HRM 5 (Compensation Administration) 6

Additional Compensation

Hospital and clinics covered by this rule with the exception of those employed by the
government shall be entitled to an additional compensation for work performed on regular and
special holidays and rest days (Book III of the Omnibus Rules Implementing Labor Code as
amended).

Such employees shall also be entitled to overtime pay for services rendered in excess of
forty (40) hours a week or in excess of eight (8) hours a day, whichever yield the higher additional
compensation to the employee in the work week (Sec. 9).

Overtime Work when required in Hospital

Where the exigencies of the service so requires as determined by the employer, any
employee may be scheduled to work for more than five (5) days or forty (40) hours a week,
provided that an employee is paid for the overtime work and an additional compensation
equivalent to his regular wage plus at least thirty percent (30%) thereof for work performed on
special holidays and rest days.

Hospitals and Clinics Defined

Hospitals and clinics shall mean a place devoted primarily to the maintenance and
operation of facilities for the diagnosis, treatment and care of individuals suffering from illness,
disease, injury or deformity or in need of obstetrical or other medical and nursing care.

Either term shall also be construed, as any institution, building or place where there are
installed beds or cribs or business for twenty-four (24) hours use or longer by patients in the
treatment of disease, injuries, deformities or abnormal physical and mental states, maternity
cases or sanitarial care or infirmaries, nurseries, dispensaries and such other similar names by
which they may be designated (Sec. 2 Rule 1-a Omnibus Rules Implementing Labor Code as
amended).

Determination of Bed Capacity and Population

The actual bed capacity of the hospital or clinic at the time of such determination shall be
considered regardless of the actual or bed occupancy.

The bed capacity of the hospital or clinics as determined by the Bureau of Medical
Services pursuant to Medical Licensure Act (RA 4226) shall be considered prima facie actual bed
capacity thereof (Sec. 3).

Determination of Population

The size of the population of the city or municipality shall be determined from the latest
National Office Census issued by the Bureau of Census and Statistics (now Public Survey
Authority).

Night Shift Differential

Night Shift Differential

Every employee shall be paid a night shift differential of not less than ten percent (10%)
of his regular wage for each hour of worked performed between ten o’clock in the evening and
six o’clock in the following morning (10:00PM – 6:00AM) (Art. 86 Labor Code as amended).

Under Sec. I Rule II, Book III of the Omnibus Rules Implementing Labor Code as
amended, relevant provisions to this effect state:

Coverage

The rule on night shift differential does not apply on the following:

1) Those employed in the government and any of its political subdivision including the GOCC with
original charter;

Module I – HRM 5 (Compensation Administration) 7

2) Those employed in retail and service establishments regularly employing not more than five
(5);

3) Domestic persons and persons in the personal service of another;

4) Managerial employees

5) Field personnel

Additional Compensation

Where an employee is required or suffered to work on the period covered after his work
schedule, he shall be entitled to his regular wage plus at least twenty-five percent (25%) and an
additional amount of ten percent (10%) of such overtime rate for each hour of work performed
between 10:00PM to 6:00AM (Sec. 3).

Additional Compensation scheduled on Rest Day/Special Holiday

An employee who is required or permitted to work on the period covered during rest days
and/or special holidays not falling on regular holidays, shall be paid a compensation equivalent to
his regular wage plus at least thirty percent (30%) and additional amount of not less than ten
percent (10%) of such premium pay rate for each hour of work performed at night between
10:00PM-6:00AM (Sec. 4).

Additional Compensation on Regular Holidays/No Diminution of Agreed Benefits

For work done on the period covered during regular holidays, an employee shall be
entitled to his regular wage during these days which is 200% plus an additional compensation of
not less than ten percent (10%) of such premium rate for each hour of work performed from
10:00PM – 6:00AM the following morning (Sec. 5).

Nothing in this Rule (Rule 1-A Book III, Omnibus Rules Implementing Labor Code as
amended) shall justify an employer in withdrawing or reducing any benefits, supplements or
payments as provided in existing individual or collective agreements or employer’s practice or
policy (Sec. 6).

Example 1:

X with salary of Php 420.00/day worked for 16 hours started from 2:00PM of Saturday to
6:00AM of Sunday which is regular working schedule.

How much is X’s income for the day?

To solve:

1) For the 8 hours from 2:00 to 10:00PM of Saturdays his income is Php 420 which is his regular
wage;

2) For the last 8 hours from 10:00PM to 6:00AM of Sunday his income is as follows:

a) Php 420.00/8 = Php 52.50/hour

b) Php 52.50 (regular rate) + Php 18.125 (OT rate)

= 65.625/hour x 8 = Php 525.00

= 525.00 x 10% (night differential)

c) = 577.50 (income from 10:00PM to 6:00AM)

d) = 577.50 + 420.00

= 997.50 X’s income for the day

Example 2:

Module I – HRM 5 (Compensation Administration) 8

 X with the salary of Php 420.00/ day worked from 2:00PM of Saturday to 6:00AM of
Sunday where Saturday is his Rest day.

To solve:

1) X’s income for the first 8 hours which is Saturday is his rest day.

a) Php 420.00 x 30% = Php 126.00

= Php 420.00 + 126.00

= Php 546.00

2) X’s income from 10:00PM to 6:00AM is as follows:

a) Php 420.00 x 25% = Php 105.00

b) 420.00 + 105 = 525.00

c) 525.00 x 10% = 52.50

d) 525.00 + 52.50= 577.50

e) 546.00 + 577.50 = 1, 123.50

= Php 1, 123.50 X’s income for the day

Weekly Rest Day

Every employer shall give his employees a rest period of not less than twenty-four (24)
consecutive hours after every six (6) consecutive normal work days (Sec. 3 Rule III Book III
Omnibus Rules Implementing Labor Code).

Coverage

The Rule on Rest Day applies to all employers whether operating for profit or not, including
public utilities operated by private persons (Sec. 1).

Employees’ Preference to choose his Rest Day

The preference of the employee as to his weekly rest day shall be respected by the
employer if the same is based on religious grounds.

The employee shall make known his preference to the employer in writing at least seven
(7) days before the desired effectivity of the initial rest day so preferred.

When however, the choice of the employees as to their rest day based on religious
grounds will inevitably result in serious prejudice, or obstruction to the operations of the
undertaking and the employer cannot normally be expected to resort to other remedial measures,
the employer may so schedule the weekly rest day period of their choice for at least two (2) days
in a month (Sec. 4).

When Work on Rest Day be Authorized

An employer may require any of his employees to work on his scheduled rest day for the
duration of the following emergency and exceptional circumstances:

1) in case of actual or impending emergencies caused by serious accident, fire, flood, typhoon,
earthquake, epidemic or other disaster or calamity to prevent loss of life or property, or in cases
of force majeure or imminent danger to public safety;

2) In case of urgent work to be performed on machineries, equipment or installations, to avoid

serious loss which the employer would otherwise suffer;

3) in the event of an abnormal pressures of work due to special circumstances, where the
employer cannot ordinarily be expected to resort to other measures;

Module I – HRM 5 (Compensation Administration) 9

4) To prevent serious loss of perishable goods;

5) Where the nature of the work is such that the employees have to work continuously for seven
(7) days in a work or more, as in the case of the crew members of a vessel to complete a voyage;
and

6) When the work is necessary to avail of favorable weather or environmental conditions where
performance or quality of work is dependent thereon (Sec. 6 Rule III, Book III Omnibus Rules
Implementing Labor Code as amended).

No Employee shall be compelled to Work on Rest Day

No employee shall be required against his will, to work on his scheduled rest day except
under the circumstances aforementioned.

Provided, however that where an employee volunteered to work on his scheduled rest day
he shall express such desire in writing, subject to the payment of an additional compensation.

Compensation on Rest Day/Sunday/Holiday

1) Except those employees who are not covered by the Labor Code, an employee who is made
or permitted to work on his scheduled rest day shall be paid with an additional compensation for
work performed on a Sunday only when it is his established rest day;

2) Where the nature of the work of the employee is such that he has no regular work days and no
regular rest days can be scheduled, he shall be paid an additional compensation of at least 30%
of the regular wage of work performed on Sundays and Holidays;

3) Work performed on any special holiday shall be paid with an additional compensation of at
least 30% of the regular wage;

Where such holiday work falls on the employees’ scheduled rest day, he shall be entitled to an
additional compensation of at least fifty percent (50%) of his regular wage;

4) Where the collective bargaining agreement or other applicable employment contract stipulates
the payment of a higher premium pay than that herein prescribed, the employer shall pay such
higher rate (Sec. 7 Rule III Book III Omnibus Rules Implementing Labor Code as amended).

Paid Off Days

Nothing in this Rule (supra) shall justify an employer in reducing the compensation of his
employees for the unworked Sundays, holidays or other rest day which are considered paid-off
days by agreement or practice subsisting upon the effectivity of this Code (sec. 8)

Employer-employee are not prohibited to agree for more favorable terms

Employers and employees are not prevented from entering into an agreement for more
favorable terms than herein provided.

Likewise, employer shall not diminish any benefit already granted to the employees under
existing laws, CBA or employer’s voluntary practice (Sec. 9).

Holidays with Pay

Coverage

The following are not covered with the payment of Holidays under the Labor Code as
amended:

1) Government employees

2) Those employed in GOCC with original charter

3) Those employed in retail and service establishment with less than 10 employees

4) Domestic helpers and persons in the personal service of another

Module I – HRM 5 (Compensation Administration) 10

5) Managerial employees

6) Field personnel

Other Employees not Covered with Holiday Pays

Other employees whose time and performance is unsupervised by the employer including
those who are engaged on task or contract basis, purely commission basis, or those who are paid
with fixed amount for performing work irrespective of the time consumed in the performed thereof.

Said employees are not covered by the rule requiring payment for holidays.

Therefore, said employees are not paid for the works perform on regular or special
holidays.

Status of Employees paid by the Month

Employees who are uniformly paid by the month, irrespective of the number of the working
days therein, with a salary of not less than the statutory or established minimum wage shall be
presumed to be paid for all days in the month whether worked or not.

For this purpose, the monthly minimum shall not be less than the statutory or minimum
wage multiplied by 365 days divided twelve (Sec. 2).

Holiday Pay

Every employer shall pay his employees their regular daily wage for any unworked regular
holidays (Sec. 3).

Based on Executive Order No. 203 issued on June 30, 1987, the following are the regular
and special holidays as amended by RA 9492 approved on July 25, 2007.

Regular Holidays:

1) New Year’s Day - January 1

2) Maundy Thursday - Movable date

3) Good Friday - Movable date

4) Araw ng Kagitingan - April 9

5) Labor Day - May 1

6) Independence Day - June 12

7) National Heroes Day - Last Sunday of August

8) Bonifacio Day - November 30

9) Christmas Day - December 25

10) Rizal Day - December 30

National Special Holidays:

1) All Saint’s Day - November 1

2) Last Day of the Year - December 31

Muslim Holidays

1) Eid’l Fitr - Movable date

2) Eid’l Adha - Movable date

Double Pay for Work on Holidays

Module I – HRM 5 (Compensation Administration) 11

 Any employee who is permitted or suffered to work on any regular holiday, not exceeding
eight (8) hours, shall be paid at least 200% of his regular daily wage.

If the holiday worked falls on the scheduled rest day of the employee, he shall be entitled
to an additional premium pay of at least 30% of his regular holiday rate of 200% based on his
regular wage (Sec. 4). Hence, the employee is paid 230% for the day.

Overtime Pay for Holiday Work

For work performed in excess of 8 hours on a regular holiday, an employee shall be paid
an additional compensation for the overtime work equivalent to his rate for the first 8 hours on
such holiday work plus at least 30% thereof (Sec. 5).

Where the regular holiday work exceeding 8 hours falls on the scheduled rest day of the
employee, he shall be paid an additional compensation for the overtime work equivalent to his
regular holiday-rest day rate for the first 8 hours plus 30% thereof.

The regular holiday-rest day rate of an employee is 200% of the regular daily wage rate
plus 30% thereof (Sec 5).

Absences

All covered employees shall be entitled to the benefits provided herein when they are on
leave of absence with pay.

Employees who are on leave of absence without pay on the immediately preceding a
regular holiday may not be paid the required holiday pay if he had not worked on such regular
holiday (Sec. 6)

Where the Day Immediately Preceding the Holiday is Non-working Day

Where the immediately preceding the holiday is a non-working holiday in the

establishment or the scheduled rest day of the employee, he shall not be deemed to be on leave
of absence on that day, in which case he shall be entitled to the holiday pay if he worked on the
day immediately preceding the non-working day or rest day.

Employees Who are not Reporting for Work on Holidays

Employees shall be granted the same benefit provided herein in terms of percentage in
the form of employees’ compensation or social security payment whichever is higher if they are
not reporting for work while availing such benefit.

Temporary or Periodic Shut Down

In cases of temporary or periodic shut down and temporary cessation of work of an

establishment as when a yearly inventory, or when the repair or cleaning of the machineries and
equipment is undertaken, the regular holidays falling within the period shall be compensated as
herein provided (Sec. 7).

Cessation of operation due to Business Reverses

The regular holiday during the cessation of operation due to business reverses as
authorized by the Secretary of Labor may not be paid by the employer.

Holiday Pay of certain Employees

Private school teachers, including faculty members of colleges and universities, may not
be paid for the regular holidays during semestral vacations. They shall, however, be paid for the
regular holidays during Christmas vacation (Sec. 8).

Workers Paid by Result Also Entitled to Holiday Pay

Where an employee is paid by result, or output, such as payment on a piece of work, his
holiday pay shall not be less than average daily earnings for the last 7 actual working days
preceding the regular holiday.

Module I – HRM 5 (Compensation Administration) 12

 Provided, however that in no case shall the holiday pay be less than the applicable
statutory minimum wage rate (Sec. 8).

Seasonal Worker not Entitled to Holiday Pay

Seasonal workers may not be paid the required holiday pay during off-season when they
are not at work (Sec. 8).

Regular Holiday Falling on Rest Day/Sunday

A regular holiday falling on the employees’ rest day shall be compensated accordingly.

Where a regular holiday falls on Sunday, the following day shall be considered a special
holiday for purposes of the Labor Code unless said day is also a regular holiday.

Successive Regular Holidays

Where there are 2 successive regular holidays, like Holy Thursday and Good Friday, an
employee may not be paid for both holidays if he absented himself from work on the day
immediately preceding the first holiday, unless he works on the first holiday in which case he is
entitled to his holiday pay on the second holiday (Sec. 10).

Thus, X who was absent on Wednesday, shall not be paid on Holy Thursday and Good
Friday, unless he works on Holy Thursday in which case he shall be paid on Good Friday.

Service Incentive Leave

Every employee who has rendered at least 1 year shall be entitle to a yearly service
incentive leave of 5 days with pay (Sec. 2 Rule V Book III Omnibus Rules Implementing Labor
Code as amended).

Incentive Leave Pay Commutable to Cash

The service incentive leave pay shall be commutable to its money equivalent if not used
or exhausted at the end of the year. (Sec.15).

One Year Service as Used in This Context

The term “at least one year service” shall mean service within 12 months, whether
continuous or broken reckoned from the date the employee started working, including authorized
absences and paid regular holidays unless the working days in the establishment, as a matter of
practice or policy, or that provided in the employment contract is less than 12 months, in which
case said period shall be considered as one year (Sec. 3).

Service Charges

Coverage

The rule on service charged covers only to establishments collecting service charges such
as hotels, restaurants, lodging houses, night clubs, cocktail lounge, massage clinics, bars,
casinos, gambling houses and similar enterprises, including those entities operating primarily as
private subsidiaries of the government (Sec. I Rule VI Book III Omnibus Rules Implementing
Labor Code as amended).

Coverage Employees

This rule applies to all employees regardless of their positions, designations or

employment status and irrespective of the method by which their wages are paid except the
managerial employees (Sec. 2).

Distribution of Service Charges

All service charges collected by covered employees shall be distributed at the rate of 85%
for the employees and 15% for the management.

Module I – HRM 5 (Compensation Administration) 13

 The 85% shall be distributed equally among the covered employees. The 15% shall be for
the disposition of the management to answer for the losses and breakages and the distribution of
the managerial employees at the discretion of the management in the latter case (Sec. 3).

Frequency of Distribution

The shared referred to herein shall be distributed and paid to the employees not less than
every 2 weeks or twice a month at the interval of not exceeding 16 days (Sec. 4).

Permanency of Service Charges

In case the service charge is abolished, the shares of the covered employees shall be
considered integrated in their wages. The basis of the amount to be integrated shall be the
average monthly share of each employee for the past 12 months immediately preceding the
abolition or withdrawal of such service charge (Sec. 5).

Facilities

The term facilities includes articles or services for the benefits of the employee or his family
but shall not include tools of the trade or articles or service primarily for the benefit of the employer
or necessary to the conduct of the employer’s business.

Values of the Facilities

The fair reasonable value of facilities is the cost of operation and maintenance including
adequate depreciation plus reasonable allowance (but not more than 5.5% interest on the
depreciated amount of capital invested by the employer: provided that if the total so computed is
more than the fair rental value or fair price of the commodities or facilities offered for sale) shall
be reasonable cost of the operation and maintenance.

The rate of the depreciation and depreciated amount computed by the employer shall be
those arrived at under “good accounting principles”.

Good Accounting Principles means those which are acceptable to the BIR for income tax
principle.

Depreciated includes obsolescence (Sec. 6: Memorandum Circular 2, Nov. 4, 1992).

Acceptance of Facilities

In order that the cost of facilities furnished by employer may be charged against the
employee, his acceptance of such facilities must be voluntary (Sec. 5).

Payment by Result

Payment by result is based on such determination as follows:

1) On petition of any party, upon its initiative, the Department of Labor shall use all available
devices, including the use of time and motion studies and consultation with the representative if
both employers and employees, to determine whether the employees are being compensated in
accordance with the minimum wage as herein prescribed;

2) The basis for the establishment of rates per piece output or contract work shall be the
performance of an ordinary worker or minimum skills or ability;

3) An ordinary worker of minimum skill or ability is the average of the lowest producing group
representing 50% of the total member of the employees engaged in similar employment in a
particular establishment, excluding learners, apprentices and handicapped workers employed
therein;

4) Where the output rated established by the employer do not conform with the standards
prescribed herein, or with the rates prescribed by the Department of Labor in an appropriate order,
the employee shall be entitled to the difference between the amount to which they are entitled to
receive under such prescribed standards or rates and that actually paid them y the employer (Sec.
8).

Module I – HRM 5 (Compensation Administration) 14

Compressed Work Week (CWW)

This scheme is an alternative arrangement whereby the normal work week is reduced to
less than 6 days but the total number of hours per week remains at 48 hours.

The normal workday is increased to more than 8 hours without corresponding overtime
pay.

For a valid CWW, the following condition must be complied with:

1) It is expressly and voluntarily supported by majority of the employees affected;

2) If work is hazardous, a certification is needed form an accredited safety committee that work
beyond 8 hours is within the limits or levels of exposure set by DOLE, occupational safety and
health standard; and

3) The DOLE is clearly notified (DOLE Advisory No. 02 series of 2004).

Travel when considered Working Time

1) Travel from home to work –

Travel from home to work is not compensable since it is a normal incident of employment.

The following however are the exceptions to the rule:

a) Where the worker is made to work on emergency call and travel is necessary in
proceeding to the work place;

b) Travel done through a conveyance provided by the employer;

c) Travel is done under the control and supervision of the employer; and

d) Travel is done under vexing and dangerous circumstances.

2) Travel that is All in a Day’s Work –

The time spent by an employee in travel as part of his principal activity, like travel from job
site to job site during the work day is considered counted as hours worked and therefore
compensable.

3) Travel Away from Home –

Travel that keeps an employee away from home overnight is considered as worked tie
when it cuts across an employees’ work day because it substitutes for the hours that the employee
should have been in the office.

Thirty Minutes Assembly Time Practice by Employees

The 30 minutes assembly time practiced by employees is not considered working time
and therefore not compensable since it cannot be deemed a “waiting time” as they are not subject
to the absolute control by the employer. Otherwise, failure to attend shall subject the concerned
employee to disciplinary action by the company.

Power Interruptions

In case of power interruption the following Rules apply:

1) First twenty minutes is compensable;

2) Succeeding number of minutes is no longer compensable;

3) If after the lapse of the first twenty (20) minutes the employees are required to stay in the
workplace such time is considered working time and therefore compensable.

Criterion for the Overtime of Seaman

Module I – HRM 5 (Compensation Administration) 15

 The correct criterion in determining whether or not sailors/seamen are entitled to overtime
is the actual service rendered in excess of regular work for the day (National Shipyards and Steel
Corp. vs. CIR, 3 SCRA 890).

Overtime Summative Formula

1) Regular Day -

Daily Wage + 25% (OT rate)

2) Legal or Regular Holidays –

Daily Wage (200%) + 30% (OT rate)

3) Rest Day or Special Holiday –

Regular Rate of 130% + 30% (OT rate)

4) Scheduled Rest Day which is also Special Holiday –

Regular Rate of 150% + 30% (OT rate)

5) Double Holiday –

Regular Rate of 400% + 30% (OT rate)

6) Rest Day which also Legal or Regular Holiday –

Regular Rate of 200% + 30% for Rest Day rate + 30% (OT rate)

Undertime not Offset by Overtime on Another Day

Offsetting of undertime work by overtime work whether rendered on the same or another
day is prohibited by law.

Permission given by the employer for the employee to on leave does not exempt him from
being paid with overtime rendered on another day.

For the undertime work represent only the hour rate while an overtime pay represent both
the hour rate plus the corresponding overtime pay.

Offsetting therefore of the undertime with the overtime would result on undue deprivation
of the employees’ overtime premium.

The proper method therefore is to deduct the corresponding undertime and to pay and the
overtime as accrued.

Waiver of Overtime

An overtime pay cannot be waived expressly or impliedly. Such waiver would be null and
void as against the Public Policy.

The exception however, is when such waiver is made in consideration of benefits and
privileges higher than the accrued overtime pay, and the agreed Compressed Work Week
(CWW).

Meal Period Not Compensable and May Be Taken Outside the Workplace

The eight-hour work does not include the meal break. Nowhere in the law may be inferred
that employees must take their meals within the company premises as long as they return to their
post on time.

Shortened Meal Break Upon Employees’ Request

The employees may request that their meal period be shortened so that they can leave
work earlier than the previously established schedule. Such shortened meal time is not
compensable subject to the following conditions:

Module I – HRM 5 (Compensation Administration) 16

1) Employees voluntarily agree in writing and waived the overtime pay;

2) No diminution in the salary and other fringe benefits already enjoyed by the employees;

3) Work is not physically strenuous and employees are provided with adequate coffee break in
the morning and in the afternoon;

4) The value of benefits is equal to the compensation due them;

5) Overtime pay will become due and demandable even if they are permitted or made to work
beyond 4:30PM; and

6) The arrangement is temporary duration.

Compulsory Overtime

Employees cannot be compelled to render overtime work against the will.

The exception however are the circumstances enumerated below whereby the employees
can be compelled to render overtime:

1) In time of war or any national or local emergency declared by the Congress or the Chief
Executive;

2) To prevent loss or damage to life or property due to emergencies and force majeure;

3) When there is urgent to work needed on machines and equipment;

4) When work is necessary to preserve perishable goods;

5) To prevent serious obstruction or prejudice to the business or operations of the employer; and

6) When it is necessary to avail of favorable weather or environmental conditions where

performance or quality of work is dependent thereon (Sec. 10 Rule I Boom III Rules Implementing
Labor Code as amended).

Module I – HRM 5 (Compensation Administration) 17

Module I – HRM 5 (Compensation Administration) 18