Salary, Wage, and Income
Objectives:
At the end of this lesson, you should be able to:
• Define salary, wage, income, benefits
• Differentiate gross from net earnings
• Compute gross and net earnings
• Present graphical representation of the details or particulars of the salary
Wage
An employee who is paid by the hour is referred to as a wage earner. The employee is paid at a regular
rate for a stated minimum number of hours (regular hours) and at a higher rate for extra hours worked
(overtime hours). He is also usually paid more per hour when working on holidays, Sundays, evenings,
etc.
However, if he does not work, he does not get paid (for example, if he misses a day of work or he works
fewer hours). Wages are made on an hourly, daily, weekly, or fortnight (every two weeks) basis and are
calculated on the total hours worked or the items produced.
Minimum wage is the lowest amount of money you are allowed to be paid for one hour of work, as
defined by law. The minimum wage rates are based on the regular working hours of eight (8) hours a day.
Salary
Some employees are paid a salary, which is a fixed amount of money for each time period worked, such
as a day, week, month, or year. They are referred to as salaried employees. The amount is determined
usually in a contract which is signed before employment starts.
Salaried employees are paid the same amount every pay period, regardless of hours worked, holidays,
etc. They are not paid for any extra work they might do.
Gross pay is the total amount earned by an employee. It consists of one type or a combination of
different types of remuneration. Gross pay may also be called total earnings or total pay.
Net pay is the amount received by the employee after deductions are subtracted from the gross pay.
The gross pay earned by wage earners is found by multiplying the pay per hour by the number of hours
worked:
Gross Pay = Hourly Rate x Number of Hours Worked
To find the gross pay of salaried employees, multiply their pay for a time period by the number of time
periods worked:
Gross Pay = Pay per Time Period x Number of Time Periods Worked
Example 1 Kim is paid Php55 an hour. Last week Kim worked 8 hours a day for 5 days. Find her gross pay
for last week.
Gross Pay= 55x(8x5) = P2,200
Example 2 Jon earns Php18,400 a week. Jon is paid every two weeks. What gross pay does he receive
each payday?
Gross Pay= 18,400x2 = P36,800
Example 3 Amy is a part time worker with an insurance agency. For the month of July, she earned the
following: Php9,077 for basic salary, Php4,992.35 for transportation allowance, and Php3,367.72 for
commission. Calculate Amy’s gross pay.
Gross Pay= 9,077+4,992.35+3.367.72 = P17,437.07
Example 4 Ben’s monthly salary is Php32,500. His monthly deductions are as follows: Union Dues
Php1,300, Insurance Premium Php3,120, and Credit Cooperative Savings Php6,500. Income Tax is 20% of
gross pay. Calculate Ben’s net pay.
Net Pay=32,500-[1,300+3,120+6,500+(0.20x32,500)
= P15,080
Example 5 Don earned Php52 per hour and regularly worked 40 hours per week. He pays Php26, Php52,
and Php260 towards various deductions. He is deducted another amount at the rate of 20% after all
other deductions have been made. Calculate Don’s weekly net pay.
Pay slip
A pay statement is a form an employer will give you that shows earnings for a defined pay period (could
be weekly, biweekly, semi-monthly, monthly, etc.). It shows gross pay, less total deductions which
includes all statutory deductions along with other voluntary deduction. After this calculation, you will
see your net pay.
Work hours are tracked using devices like punch cards and daily time records (DTR).
1. Punch card. At the start and end of every shift, you insert a card into a machine that will record
the date and time.
2. Daily time record. You use this to manually record the time you start and end each shift.
Computing Premiums
If you have a service industry job (retail, restaurant, fast food, etc.) you will likely have to work on
holidays. A different rate applies for all hours worked on a holiday or on a special (non-working) day.
If an employee reported for work during holidays and rest days, he is entitled to an additional premium
on top of his daily/hourly rate.
• Rest Day: 130% x hourly rate; that is, if the employee works, he shall be paid an additional 30
percent of his hourly rate for the first eight hours of work.
• Special (Non-Working) Day: 130% x hourly rate
• Special (Non-Working) Day that is also a scheduled Rest Day: 150% x hourly rate
• Regular Holiday*: 200% x hourly rate
• Regular Holiday that is also a scheduled Rest Day: 260% x hourly rate
• Double Holiday**: 300% x hourly rate
* Regular holidays include New Year’s Day (January 1), Maundy Thursday (Movable Date), Good Friday
(Movable Date), Araw ng Kagitingan (April 9), Labor Day (May 1), Independence Day (June 12), National
Heroes Day (Last Sunday of August), Bonifacio Day (November 30), Christmas Day (December 25), and
Rizal Day (December 30).
There are five (5) recognized Muslim holidays, namely, Amun Jadid (New Year), Maulid-un-Nabi (Birthday
of the Prophet Muhammad), Lailatul Isra Wal Mi Raj (Nocturnal Journey and Ascension of the Prophet
Muhammad), Id-ul-Fitr (Hari Raya Pausa), and Id-ul-Adha (Hari Raha Haji). If you are working in areas
where these are observed, you get holiday pay.
** The “Double Holiday”, while rare, can occur when two or more holidays happen to land on the same
day such as when Araw ng Kagitingan falls on the same day as Maundy Thursday or Good Friday.
Every employee is entitled to a night differential of not less than 10% of his regular wage for each hour
of work performed between 10 PM and 6 AM.
• Ordinary Day: 110% x hourly rate
• Rest Day/Special Day/Regular Holiday: 110% x hourly rate for Rest Day, Special (Non-Working)
Day, Regular Holiday
Piecework is work in which the employee is paid for each piece of quality item that he completes. The
wages are paid on a piece-rate basis. Piece rate is mainly used in factories. To calculate the gross pay, use
the equation
Gross Pay = Number of Pieces Produced x Piece Rate
If employees are paid only for usable pieces produced, they get no pay for the pieces that are rejected.
Example 7 Mich is a craftsperson who specializes in decorative arts. She makes pottery bowls. She sells
large bowls for Php450 and medium bowls for Php350 each. One weekend, at a farmers market, she sells
9 medium and 6 large bowls. How much does she make?
Gross Pay = (450 x 6) +(350 x 9)
= P5,850
Commission is an amount earned by an individual based on the sales he makes. Companies set their
own rates and schemes for commissions so set ups vary (for example, a higher commission may be
earned for goods that are harder to sell). Commission becomes part of the employee's income;
sometimes it is their only income.
Example 9 Rico earns Php3,200 per week plus 4.2% commission. He sold Php325,120 in a two-week
period. What is his gross pay for the period?
Gross Pay = (3,200x2) +(0.042x325,120)
= P20, 055.04
Example 10 Vilma sells surplus items to stores. She is paid a weekly commission of P28 each on the first
50 units she sells, P32 each on the next 100 units, and P36 on any unit she sells over 150. What was her
gross pay last week if she sold 225 items?
Gross Pay = (28x50)+(32x100)+[36x(225-150)]
= P7,300
An employee who works for a service establishment (hotels, restaurants, night clubs, etc.) which charge
an additional 10% to the customer’s bill is entitled to an equal share in the 85% of the total of such
charges. Not included are managerial employees. The establishment may retain the remaining 15% to
answer for losses and breakages.
If the establishment does not collect service charges but instead pools tips given voluntarily by
customers to the employees, the tips must be pooled and distributed in the same manner as the service
charges.
Example 11 Ken works at a restaurant where he makes Php78 per hour and he gets to keep 75% of his
tips. If one week he works 36 hours and makes Php7,200 in tips, what will his gross earnings be for that
week?
Gross Pay = (78x36)+(0.75x7,200)
= P8,208
Employment Conditions under the Philippine Labor Laws
• Normal working hours not exceeding 8 hours a day
– Rest periods of short duration during work hours shall be counted as hours worked
– One-hour time-off for regular meals
– Weekly rest period of not less than 24 consecutive hours after every 6 consecutive
normal work days
• Minimum wage rates for agricultural and non-agricultural workers in every region determined by
the Regional Tripartite Wages and Productivity Board
• A minimum age for employment
• Night-shift employees must be paid a differential of not less than 10% of the regular wage for
each hour of work performed between 10 PM and 6 AM.
• Provision of holiday pay
• Payment of overtime
• Yearly service incentive of five days with pay for every employee who has rendered at least one
year of service
• Paternity and maternity leave benefits
• Employees compensation and insurance fund (SSS and GSIS)
• Provision of medical or health insurance
• Fringe benefits (refers to goods, services, or other benefits furnished by an employer in cash or
kind, in addition to basic salaries; examples include housing, expense account, vehicle, etc.)
Form, Time, and Place of Payment
• Payment of wages must be by legal tender (cash). Payment by checks is only allowed under
certain conditions.
• Wages shall be paid at least once every two weeks or twice a month. If on account of force
majeure (circumstances beyond the employer’s control) payment of wages cannot be made, the
employer shall pay the wages immediately after such circumstances have ceased. No employer
shall make payment with less frequency than once a month.
• As a general rule, the place of payment shall be or at near the place where the employee works.
