TOPIC: COMPENSATING HUMAN RESOURCES

COMPENSATION
Compensation refers to the remuneration that an employee receives in return for his/her
services to the organization.
Compensation Management is an integral part of human resource management and
helps in motivating the employees and improving organizational effectiveness.
Compensation Management is designing and implementing total compensation
package with a systematic approach to providing value to employees in exchange for work
performance.

IMPORTANCE OF COMPENSATION
Compensation is an integral part of human resource management which helps in
motivating the employees and improving organizational effectiveness.
Effectiveness in terms of:
 Attracting & Retaining Talent
 Motivating talent for better performance
 Cost effectiveness
Its importance effective compensation motivate & retain staff attract talent image
building administratively efficient reward valued behavior ensure equity institutional
effectiveness legal compliance employee management

TYPES OF COMPENSATION
1. Direct compensation
It refers to monetary benefits offered and provided to employees in return of the
services they provide to the organization. The monetary benefits like basic salary, house
rent allowance, conveyance, leave travel allowance, medical reimbursements, special
allowances, bonus, PF/Gratuity, etc. are given at a regular interval at a definite time. They
include Paid Leave, Car / transportation, Medical Aids and assistance, Insurance (for self
and family), Leave travel Assistance, Retirement Benefits, Holiday Homes.
2. Indirect compensation
It refers to non-monetary benefits offered and provided to employees in lieu of the
services provided by them to the organization. It includes any benefit that an employee
receives from an employer or a job that does not involve tangible value. Examples are
career development and advancement opportunities, opportunities for recognition, as well
as work environment and conditions.

CONSTITUENTS OF COMPENSATION
1. Wage and Salary: The most important component of compensation and these are
essential irrespective of the type of organization Administered individually Provides
employee stabile income and can plan chores of daily life, budget.
2. Incentives: Incentives are the additional payment to employees besides the payment
of wages and salaries. Often these are linked with productivity, either in terms of
higher production or cost saving or both. Can be administered individually and for
groups Additional compensation having immediate effect and no future liability.
3. Fringe Benefits: Fringe benefits include such benefits which are provided to the
employees either having long-term impact like provident fund, gratuity, pension; or
occurrence of certain events like medical benefits, accident relief, health and life
insurance; or facilitation in performance of job like uniforms, Canteens, recreation,
etc. Administered for a group mostly
4. Perquisites: These are normally provided to managerial personnel either to facilitate
their job performance or to retain them in the organization. Such perquisites include
company car, club membership, free residential accommodation, paid holiday trips,
stock options, etc. Administered individually mostly
 REWARD SYSTEM
Reward system in an organization is a set of procedures through which the
management control the behaviour of employees at work.
This system helps HR manager to determine the performance of the workers in context
of the current goals of the organization and also to attract the new employees that can join it in
future.

FOUR REWARD SYSTEMS

1. . Monetary Reward Systems
The most common type of monetary reward system is an annual or semi-annual
bonus. These mid-year and end-of-year incentives are great for encouraging healthy
competition between employees with respect to performance and productivity. Other
examples of monetary rewards include cash awards, profit sharing plans, and stock
options. In many industries, monetary incentives are enough to get maximum
productivity your of employees. This type of reward system works best with employees
who are motivated by cold, hard cash.
2. Non-Monetary Reward Systems
A non-monetary reward system could be something as simple as a "top
performer" or "employee of the month" certificate. This type of reward satisfies an
employee's psychological desire to be recognized for his or her efforts. Other types of
non-monetary rewards to consider are extra time off, flexible work hours, corporate
discounts (such as a gym membership), and free parking.
3. Employee Assistance Programs
Employee assistance programs are designed to help workers achieve greater
work-life balance by supporting employees' physical and psychological health. Some
employee programs offer health-related corporate discounts, such as fitness
memberships. Other employee assistance programs provide help to employees coping
with work stress, family problems, and grief. Employee assistance programs are a great
way to support your staff members with their home responsibilities so they'll give their
best performance at work.
4. Employee Recognition Programs
Research shows that employees who are recognized for their contributions and
accomplishments tend to work harder and have more positive workplace attitudes.
Employee recognition could be as simple as verbal praise or as formal as an award
ceremony. Depending on the type of employee recognition given rewards can be doled
out daily, weekly, or at the end of the month. As with the other types of reward systems,
employee recognition benefits both the employer and the employee by helping create a
more productive, positive work environment.

BENEFITS AND SERVICES

Benefits and Services are called indirect compensation and are also known as “fringe
benefits” and “Perks”.
Perks (services) are something in addition to the payment like car fuel and free
parking, clothing, and educational supports. Whereas fringe benefit means something extra
(such as vacation time) that is given by an employer to workers in addition to their regular
pay.
Such benefits and services are used to persuade, to motivate, and/or to retain
employees and are not linked with the employee’s performance (e.g. stimulating them to
greater effort and higher performance).

EMPLOYEE BENEFITS
In general, indirect and non-cash (or sometimes in cash) compensation paid by an
employer to employees in addition to their regular pay. Benefits tends to be necessities for
many people.
 Some benefits are mandated by law (such as SSS, Pag-IBIG, and PhilHealth), others
vary from firm to firm or industry to industry.

OBJECTIVES OF BENEFIT PROGRAMS

• To Improve Morale
• To Meet Health and Safety Needs
• To Attract Good Employees
• To Reduce Turnover
• To Maintain a Competitive Position
• To Enhance the Organization's Image

The main objective is to attract (recruit) and to retain employees.

TYPES OF BENEFITS
• Insurance benefits
• Health benefits (and services)
• Security benefits
• Time-off benefits
• Work scheduling benefits
• Retirement benefits
• Disability benefits

MANDATORY GOVERNMENT BENEFITS AND CONTRIBUTIONS COVERED BY THE

PHILIPPINE LABOR CODE

1. Social Security System (SSS) Contributions Republic Act No. 8282 or otherwise known as
the Social Security Act of 1997
AIM TO PROVIDE:
sickness, disability, maternity, old age and death, or other such contingencies not
stated but resulted in loss of income or results to financial burden.

The employee and his/her employer(s) are to contribute for the social security benefits
of the said employee in accordance to a given schedule by the

Fund (Personal Equity and Savings Option) is a voluntary provident fund offered
exclusively to SSS members in addition to the regular SSS program. Through this program,
members who have the capacity to contribute more are given the opportunity to save more in
order to receive additional benefits in the future.
240 months in total of payment
20 years

2. Contribution to National Health Insurance Program (NHIP)

The employee and his/her employer(s) are to contribute to the medical insurance of the
said employee in accordance to the Republic Act 7835 on Medicare Program which is
administered by the Philippine Health Corporation (PhilHealth). Monthly employee
contribution depends on the employee’s monthly salary.
THOSE with monthly basic salary of P10,000 and below will pay a fixed rate of P350
per month while those with monthly basic salary of P70,000 and above will pay a fixed rate of
P2,450 per month. Further, the premium rate will be increased to 3.5 percent- P&A Grant
Thornton
P350/2= 175 Employer; 175 Employee
3. Contribution to Home Development and Mutual Fund (HDMF/Pag-IBIG) Home
Development Fund Law of 200.
Employer(s) is required to contribute per month not less than ₱ 100.00 to the employees
Home Development and Mutual Fund.
In accordance to the periodic remittance schedule provided by HDMF, employers will
remit this contribution, in addition to that of the employees, which is to be deducted from
his/her payroll.
P200 / month
Below 1500 Employee: 50
Employer: 150
Above 1500 Employee: 100
Employer: 100
4. The 13th Month Pay
What is 13th month pay in the Philippines?
The law dictates that you should receive a monetary benefit before every year ends.
Presidential Decree No. 851 Section 1 states that:
“All employers are hereby required to pay all their employees receiving a basic salary of
more than P1,000 a month, regardless of the nature of their employment, a 13th month
pay not later than December 24 of every year.”
All rank-and-file employees who have worked for at least one month in a company are
entitled to a 13th month, regardless of the nature of their employment and irrespective how
they receive their wage.
As mandated by the Presidential Decree No. 851, the employee shall receive a bonus
salary equivalent to one (1) month, regardless the nature of his/her employment, not later
December 24 of every year.

How to compute your 13th month pay?

Total Basic Salary x Employment Length / 12 months

Note: It is an obligation of every employer to give the 13th month pay not later than December 24.
As employee who resigned within the year shall be entitled to 13 th month pay, provided he or she has
worked at least one month.
5. Service Incentive Leave (SIL)
Book III, Chapter III of the Labor Code of the Philippines covers the employee
benefits for Incentive Leaves. According to Article 95, an employee who has rendered at
least one year of service is entitled to a yearly five days service incentive leave with
pay.

What’s the difference between a 13th month pay and a bonus?

Unlike your 13th month pay, a Christmas bonus is NOT GOVERNMENT MANDATED.
This means that a bonus should come from your company’s generosity. If they decide to give
everyone a bonus, then great!
But they can also choose not to give you one.

6. Meal and Rest Periods

Under Article 83, the employee is provided one-hour employee benefit for regular meals,
when working on an eight-hour (8-hours) stretch.
Employees are also provided adequate rest periods in the morning and afternoon which
shall be counted as hours worked. All these provisions apply in addition to every new
employee benefits furnished that are in excess of what is stipulated by the Philippine Labor
Code. There are other Philippine employee benefits furnished by the employer(s) and are
also covered by the Philippine Labor Code.

7. Retirement pay
Legal Basis is Presidential Decree No. 442 (P.D. 442), otherwise known as “Labor Code
of the Philippines”
Retirement Pay is an additional pay given to employees who are retired from the service.
Covered and excluded:
The benefit applies to all employees except:
1. Government Employees; and
2. Employees of retail, service and agricultural establishments/operations
regularly employing not more than ten (10) employees.

Retirement by those in the Government service are covered by Civil Service Laws and
Regulations.
SSS Retirement Benefits are separate and different from the retirement pay required to
be given by the employer.

SUMMARY:
 The ½ month pay in retirement pay is equivalent to 22.5 days.
 COLA is excluded from the computation of retirement pay.
 Retirement pay requires at least five (5) years of service.
 Retirement is optional at sixty (60) years old, while mandatory at sixty-five (65)
years old
  Retirement pay is exempt from income tax

EXAMPLE
You work in the ABC Manufacturing company for 15 years earning P 550.00 per day.

Minimum Retirement Pay= Daily Rate x 22.5 days x no. years in service
= P550.00 x 22.5 days x 15 years
MRP= P 185,625
Piolo Pascual is owning a bakeshop near his house. He has 2 bakers, 1 cashier and 3
crews. One of his bakers is about to retire. How much would be his retirement pay if he
works for the company for 5 years with a daily rate of P600.00 per day?
Glen Acosta is about to retire next year. He served Nestle Corp. for 30 years with a
salary day rate of P2,500.00. If you are the HR, compute for his retirement pay.
Retirement Pay= Daily rate*22.5 days*No. of years in service
=P2,500*22.5days*30 years
=P 1,687,500

COST OF LIVING ALLOWANCE (COLA)

Extra money that some people receive from their employer, for example, because they
work in an area that is very expensive, or because prices have increased: A cost of living
allowance is paid to cover the additional living costs incurred by employees who are living
away from home
Upon effectivity of this Wage Order, all minimum wage earners in Region III shall
receive an additional Cost of Living Allowance (COLA) in the amount of Twenty Pesos (P20.
00) per day.
 COMPENSATING AND BENEFITS (PART 2)
SALARY STRUCTURES AND WAGES IN THE PHILIPPINES

Aside from professional experience and academic credentials, salary structures and
wages in the Philippines are determined by factors such as nature of work, workplace
location, working hours, type of industry/sector, and others. The salaries of those working in
major cities and business districts are relatively higher compared to those employed in
second-tier cities and provincial areas around the country.
The Department of Labor and Employment (DOLE) and its affiliate agency, the National
Wages and Productivity Commission (NWPC), are mandated to enforce the provisions of the
Labor Code of the Philippines – which prescribes employment regulations and labor laws for
companies operating in the Philippines.
Minimum wage rates in the Philippines vary in every region, with a Regional Tripartite
Wages and Productivity Board (RTWPB) in each of them to monitor economic activities and
adjust minimum wages based on the region’s growth rate, unemployment rate, and other
factors.
NCR-23 on 13 May 2022 that granted a wage increase of PhP33 bringing the new
minimum wage rate to PhP570 and PhP533 for workers in the non-agriculture and agriculture
sectors, respectively. It is expected to protect around one million minimum wage earners in
private establishments in the region from undue low pay.
SALARY COMPUTATION

Computing Pay for Work Done on

A Regular Day (basic daily rate = monthly rate x number of months in a year (12) / total
working days in a year)
A Special Day (130% x basic daily rate)
A Special Day, which is also a scheduled Rest Day (150% x basic daily rate)
A Regular Holiday (200% x basic daily rate)
A Regular Holiday, which is also a scheduled Rest Day (260% x basic daily rate)

Computing Night Shift Premium where Night Shift is a Regular Work

Ordinary Day (110% x basic hourly rate)
Rest Day, Special Day or Regular Holiday (110% of regular hourly rate)
Computing Overtime
On Ordinary Days
Number of hours in excess of 8 hours (125% x hourly rate)
On a Rest Day, Special Day, or Regular Day
Number of hours in excess of 8 hours (130% x hourly rate)
On a Night Shift
Ordinary Day (110% x basic hourly rate)
Rest Day, Special Day or Regular Holiday (110% x overtime hourly rate)

Computing Pay for Work Done on

A Regular Day (basic daily rate = monthly rate x number of months in a year (12) / total
working days in a year)
Ordinary day: Daily Rate X no. of days of work
P500.00 X 10 days= P5,000
Special Day: Daily Rate x 130% ex. All Souls Day=P500 X 130% = P650
Rest Day: Daily Rate X150%
=P500 X 150% Rest Day = P750
Non Working (Special) Holiday
P500x150%= P750

Regular Holiday= Double Pay or

Daily Rate X 200% or (2)
P500x2 = P1,000
Regular holiday during Rest Day
Daily Rate x 260% (or 2.6)
P500 x 2.6 =P1,300

Daily Rate P500

Hourly Rate (DR/8hours)
(P500/8hrs)
=P62.50/hour
Regular Day: Night Shift : original hourly rate x 110%
P62.50 x 110%
=P 68.75/hour
New Night Rate will be P550 (68.75x8hours)
Rest Day New Daily Rate is (2nd Step) P750/8hours
=93.75x 130% or 1.3
=121.88/hr or 975.04/night
Regular Holiday P500x200%= 1000 next, 1000/8 hrs= 125; 125*130%; new hourly rate is
162.50 or P1,300/night
Overtime pay P500+156.25= P656.25
DAY SHIFT Overtime: 2 hours overtime
Ordinary or regular day: P62.50X125% (1.25)
 = P78.125
P78.125 x 2hrs
TOTAL OT: 156.25
Night Shift Overtime
1st Step hourly rate of night shift P68.75
2nd step answer must be multiplied to 125% (8.75X125%= 85.94/HOUR OT IF NIGHT
SHIFT)

HOLIDAY PAY

Legal Basis
The legal basis is Presidential Decree No. 442 (P.D. 442), otherwise known as the
Labor Code of the Philippines.

Concept
Holiday pay is an additional pay of 100% of the basic wage of a covered employee on a
regular holiday even if that employee does not work. If the covered employee renders work
on a regular holiday, he/she receives his holiday pay plus his day’s wage. If the covered
employee renders work on double holiday, he/she receives his two holiday pay plus his day’s
wage.
The days wage is subject to his actual hours of work rendered on that day. If he/she
only renders work for six hours, then he/she is entitled to pay for the equivalent of the time
worked.

COVERED AND EXCLUDED

The benefit applies to all employees except:
1. Government employees, whether employed by the National Government or any of
its political subdivisions, including those employed in government-owned and/ or
controlled corporations with original charters or created under special laws;
2. Those of retail and service establishment regularly employing not more than five (5)
workers;
3. Kasambahay and persons in the personal service of another;
4. Managerial employees, if they meet all of the following conditions;
4.1 Their primary duty is to manage the establishment in which they are employed or
of a department or subdivision thereof;
4.2 They customarily and regularly direct the work of two or more employees therein;
and
4.3 They have the authority to hire or fire other employees of lower rank; or their
suggestions and recommendations as to hiring, firing and promotion, or any other
change of status of other employees are given particular weight.
5. Officers or members of a managerial staff, if they perform the following duties and
responsibilities;
5.1 Primarily perform work directly related to management policies of their employer;
5.2 Customarily and regularly exercise discretion and independent judgment;
5.3 (a) Regularly and directly assist a proprietor or managerial employee in the
management of the establishment or subdivision thereof in which he or she is
employed; or (b) execute, under general supervision, work along specialized or
technical training experience, or knowledge; or (c) execute under general
supervision, special assignments and tasks; and
5.4 Do not devote more than twenty percent (20%) of their hours worked in a
workweek to activities which are not directly and closely related to the
performance of the work described in paragraph 5.1, 5.2 and 5.3 above;
6. Field personnel and 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 a fixed amount for performing work
irrespective of the time consumed in the performance thereof.

REGULAR HOLIDAYS
There are currently 12 regular holidays in the Philippines, namely:
1.) January 1- New Year’s Day
2.) Maundy Thursday- movable date
3.) Good Friday- movable date
4.) April 9- Araw ng Kagitingan
5.) May 1- Labor Day
6.) June 12- Independence Day
7.) National Heroes Day- Last Monday of August
8.) Eid’l Fitr-movable date
9.) Eid’l Adha- movable date
10.)Bonifacio Day- November 30
11.)Christmas Day- December 25
12.)Rizal Day- December 30

2023 PHILIPPINE HOLIDAYS

1. January 1- New Year’s Day
2. January 22- Chinese New Year
3. February 25- EDSA People Power Anniversary
4. April 6- Maundy Thurday
5. April 7- Good Friday
6. April 8- Black Saturday
7. April 8- Easter Sunday
8. April 21- Eid’l Fitr
9. May 1- Labor Day
10. June 12- Independence Day
11. June 28- Eid’l Adha
12. August 21- Ninoy Aquino Day
13. August 28- National Heroes Day
14. November 1- All Saint’s Day
15. November 30- Bonifacio Day
16. December 8- Immaculate Conception of Mary
17. December 25-Christmas Day
18. December 30- Rizal Day

DOUBLE HOLIDAY

Maundy Thursday + April 9 (Araw ng Kagitingan)

₱500 daily rate
P500x 200%= 1000
P1000 + daily rate
P1000+500 =P1,500

VACATION AND SICK LEAVE IN THE PHILIPPINES

A total of 15 days vacation leave and 15 days sick leave annually with full pay.
CALCULATING HOW MUCH A PERSON SHOULD RECEIVE AS NIGHT-SHIFT
DIFFERENTIAL RATE

The night-shift differential rate is 10% of a person’s regular pay for every hour they work during
the designated hours.
To illustrate, please refer to below examples of a Regular hourly rate of ₱ 120 with Night-Shift
differential pay:

Ordinary day Night Differential Pay

Night Differential Pay per hour= Hourly rate x 110%
=₱ 120 x 110%
= ₱ 132

Ordinary day Night Differential Overtime Pay

Night Differential Overtime Pay per hour= Hourly rate x 125% x 110%
=₱ 120 x 125% x 110%
= ₱ 165

Rest day Night Differential Pay

Night Differential Pay per Rest day hour= Hourly rate x 130% x 110%
=₱ 120 x 130% x 110%
= ₱ 171.60

Special Non- Working Holiday Night Differential Pay

ND Pay per Special Non-working Holiday hour= Hourly rate x 130% x 110%
=₱ 120 x 130% x 110%
= ₱ 171.60

Special Non- Working Holiday and at the same time Rest day Night Differential Pay
ND Pay per Special Non-working Holiday Rest day hour= Hourly rate x 150% x 110%
=₱ 120 x 150% x 110%
= ₱ 198

Regular Holiday Night Differential Pay

Night Differential Pay per Regular Holiday hour= Hourly rate x 200% x 110%
=₱ 120 x 200% x 110%
= ₱ 264

Regular Holiday and at the same time Rest day Night Differential Pay
ND Pay per Regular Holiday Rest day hour= Hourly rate x 260% x 110%
=₱ 120 x 260% x 110%
= ₱ 343.20

Double Holiday Night Differential Pay

Night Differential Pay per Double Holiday hour= Hourly rate x 330% x 110%
=₱ 120 x 330% x 110%
= ₱ 435.60

Double Holiday and at the same time Rest day Night Differential Pay
ND Pay per Double Holiday Rest day hour= Hourly rate x 390% x 110%
=₱ 120 x 390% x 110%
= ₱ 514.80
Again, if your rest day falls on the same day as special non-working holiday, you can
calculate the overtime hourly rate for instance, if you work for three hours:
Hourly rate x 110% x 150% x 130% x number of hours worked
= ₱ 150 x 110% x 150% x 130% x 3= ₱ 965.25

Overtime hourly rate + basic pay rate= total wage

= ₱ 965.25 + ₱ 1,200 = ₱ 2,165.25

Regular holidays on a night shift

Hourly rate x 110% x 200% x 130% x number of hours worked
= ₱ 150 x 110% x 200% x 130% x 3= ₱ 1,287.25

Overtime hourly rate + basic pay rate= total wage on regular holidays
= ₱ 1,287 + ₱ 1,200 = ₱ 2,487

Regular holidays falling on your rest day, on a night shift

Hourly rate x 110% x 200% x 130% x 130% x number of hours worked
= ₱ 150 x 110% x 200% x 130% x 130% x 3= ₱ 1,673

Overtime hourly rate + basic pay rate= total wage on regular holidays
= ₱ 1,673 + ₱ 1,200 = ₱ 2,873

4.Night shift differential/OVERTIME

If you’re required to perform overtime work on a night shift, assuming you rendered three hours
of overtime work, you can calculate the overtime pay using the formula below:

Hourly rate x 110% - Daily hourly rate on a night shift

₱ 150 x 110%= ₱ 165

Total overtime pay for night shift differential pay plus overtime
Hourly rate x 110% x 125% x number of hours rendered on regular work day
₱ 150 x 110% x 125% x 3= ₱ 618.75

Overtime hourly rate + basic pay rate= total wage

₱ 618.75 + ₱ 1,200= ₱ 1,818.75

Rest day and special holidays on a night shift

Use the formula below to get overtime pay from rest days and non-working holidays done on a
night shift. You can calculate the overtime hourly rate for instance, if you work for three hours:
Hourly rate x 110% x 130% X 130% x number of overtime hours
₱ 150 x 110% x 130% x 130% x 3= ₱ 836.50

Overtime hourly rate + basic pay rate= total wage

₱ 836.50 + ₱ 1,200= ₱ 2,036.50