Republic of the Philippines

CAMARINES NORTE STATE COLLEGE

F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

College of Business and Public Administration

BA 105 – Human Resource Management
2nd Semester, AY 2022 - 2023
HANDOUT

CHAPTER 7
COMPENSATION AND BENEFITS

Compensation and benefits are important aspects of an employee’s satisfaction at a workplace,

as they directly impact an employee’s performance and motivation to work. It is, therefore,
imperative that an HR department ensure the compensation and benefits offered to their employees
are attractive enough to keep morale high. Doing so will ensure that employees know that the
company values them and wants to acknowledge the work they do.

A. What is Compensation and Benefits?

Compensation is the remuneration awarded to an employee in exchange for their

services or individual contributions to your business. The contributions can be their time,
knowledge, skills, abilities and commitment to your company or a project.

Compensation may be used to:

o recruit and retain qualified employees.

o increase or maintain morale/satisfaction.
o reward and encourage peak performance.
o achieve internal and external equity.
o reduce turnover and encourage company loyalty.
o modify (through negotiations) practices of unions.

There are two main types of compensation:

1. Direct compensation (financial) - is a financial (or monetary) form of compensation

a. Hourly/Daily wages are often provided to unskilled, semi-skilled, temporary, part-
time, or contract workers in exchange for their time and labor. Employees who
receive hourly wages are usually able to earn overtime pay. This pay consists of any
additional hours worked outside of their set contract. (Example: retail, hospitality, and
construction industries)
b. Salary is typically provided to most full-time employees or skilled employees and
those who fill management positions. A salary often indicates that the organization
has invested in this employee for the long-term future. (Example: teachers,
accountants, doctors, and retail and hospitality managers.)

Incentive Pay:
c. Commission is a common form of compensation provided to employees in sales
roles. It will usually be based on a predetermined quota or target. The higher the
quota reached, the higher the commission will be. Some employees will work on
commission only or obtain a salary with commission.
d. Companies often offer bonuses to employees based on year-end business results or
the individual meeting their set goals. However, bonuses can also be paid without an
employee meeting a particular target. For example, if the business has had a great
year and decides to reward everybody. In this case, the bonus would be classified as
variable pay.

i. Tips are also a common form of compensation in people-based industries,

particularly hospitality.
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

College of Business and Public Administration

BA 105 – Human Resource Management
2nd Semester, AY 2022 - 2023
HANDOUT
ii. Another umbrella of direct compensation is deferred pay which includes
saving plans and annuity.
iii. Merit pay is often given to an employee who meets their targets or performs
well in their role.

2. Indirect compensation (financial & non-financial) - is still a financial form of

compensation since it has a financial value. However, employees do not directly receive it
in cash form. Indirect compensation is often known as employee benefits or perks of the
job.
a. Equity as part of a compensation package essentially means the employee is offered
equity (ownership) in the company, either through shares of stock or the option to buy
such shares.
b. Stock options is a form of compensation entitles employees to purchase a set
number of shares at a fixed price after a certain period. This is different from an
equity package because the employee will not have any ownership in the company.
Require employees to work between three to five years before they can access this
compensation.
c. Benefits, on the other hand, refer to a non-financial reward given to an employee as
a token of appreciation for their work. Non-monetary compensation includes benefits
like:
i. paid or non-paid time off
ii. flexi-time
iii. learning and development opportunities
iv. parental leave
v. childcare
vi. company cars
vii. phones or laptops,
viii. and meals.

There are three main types of employee benefits:

1. Employee benefits that are required by law
2. Employee benefits that aren’t required by law but considered an industry
standard
3. Employee benefits that are offered as an added perk or fringe benefit

B. Statutory Benefits in the Philippines

Statutory benefits, also known as mandatory benefits, are entitlements that employers are
obligated by law to provide to their employees. Common examples include benefits like paid
annual leave, parental leave, worker's compensation insurance, and paid sick leave. In the
Philippines, employers must pay a monthly contribution to the following funds:

Mandatory Contributions:

1. Social Security System (SSS)

This state-run insurance program offers benefits under the Social Security and
Employees' Compensation (EC) Programs. The Social Security Commission administers
the program. It is a body made of representatives from the government, employers, and
employees. Social insurance covers private-sector employees, self-employed workers, as
well as household workers (the counterpart for government employees is GSIS). The
benefits include:
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

College of Business and Public Administration

BA 105 – Human Resource Management
2nd Semester, AY 2022 - 2023
HANDOUT
 Maternity pay
 Sickness pay
 Pensions
 Disability benefits
 Salary loans
 Life insurance
 Funeral grants
 Death
2. Home Development Mutual Fund (HDMF):

The HDMF, also known as the Pag-IBIG Fund, is a provident savings system
supplying housing loans to private and Philippine government employees, and to self-
employed persons who elect to join the Fund. Pag-IBIG lets you have the following
benefits: housing loan, multi-purpose loan, calamity loan, secured savings.

3. Philippine Health Insurance Corporation (PhilHealth):

PhilHealth is administered by the Philippine Health Insurance Corporation and

provides employees with a practical means of paying for adequate medical care in the
Philippines. The PhilHealth benefits include:

 Inpatient benefits (hospitalization, facility fees, and physician/surgeon fees)

 Outpatient benefits (day surgeries, radiotherapy, hemodialysis, outpatient
blood transfusion, primary care benefits)
 Z benefits (financial/medical aid for the patients with cancer and in need of
surgeries)
 SDG related (Malaria package, HIV-AIDS package, anti-Tuberculosis
treatment, voluntary surgical contraception procedures, and animal bites
treatment)

Wage and Compensation Benefits:

4. Employee minimum wage:

ART. 99. Regional Minimum Wages. 84 – The minimum wage rates for agricultural
and non-agricultural employees and workers in each and every region of the country shall
be those prescribed by the Regional Tripartite Wages and Productivity Boards.

5. Overtime Pay:

ART. 87. Overtime Work. – Work may be performed beyond eight (8) hours a day
provided that the employee is paid for the overtime work, an additional compensation
equivalent to his regular wage plus at least twenty-five percent (25%) thereof. Work
performed beyond eight hours on a holiday or rest day shall be paid an additional
compensation equivalent to the rate of the first eight hours on a holiday or rest day plus at
least thirty percent (30%) thereof. There are three types:
a. Regular Holidays – these refer to fixed dates like Christmas Day, Independence Day,
or New Year’s Day. However, National Heroes Day and Holy Week are considered
regular holidays despite changing dates.
b. Special Holidays – also known as Special Non-Working Holidays, they fall on flexible
dates, depending on the circumstance. Examples are ASEAN Summit or regional
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

College of Business and Public Administration

BA 105 – Human Resource Management
2nd Semester, AY 2022 - 2023
HANDOUT
events like festivals or class suspensions. A day becomes a special holiday if:
proclaimed by the President, enacted by the Congress, or 3) declared by LGUs in the
specific regions.
c. Double Holidays – this is a rare occurrence wherein a regular holiday and a special
holiday fall on the same day. Example: President Rodrigo Duterte declared August
21, 2018 as special non-working (Eid’l Adha) and regular holiday (Ninoy Aquino Day)
at the same time.

6. Night Shift Differential

ART. 86. 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 work
performed between ten o’clock in the evening and six o’clock in the morning

7. 13th Month Pay

It’s a monetary bonus mandated by law. According to the law, the 13 th month pay
is given either in 2 installments (May and December) or in full before December 24. You
can receive this pay if you are any private employee with fixed or guaranteed salary who
have worked for at least one month. Resigned or terminated employees who left their
employers before the release of the 13th month bonuses can also receive this. (The
Christmas bonus is only a voluntary gesture from the employers.)

8. Separation pay

Separation pay is also part of the Labor Code and is given to employees
terminated from the company. The only exception is those terminated because of
misconduct or crime involvement. There are two types:

 1/2 Month Pay per Year of Service – an employee is eligible for separation
pay with the value of one-half (1/2) month pay for every year of service if the
separation from the service is because of retrenchment to save the company
from pitfalls, closure or termination of the operations due to bankruptcy and
other bad instances, and grave illness incurable within 6 months or harmful
for co-workers.
 One-Month Pay per Year of Service – an employee is eligible for a
separation pay worth of one month per year of service if the termination of
the contract is because of: installation of devices or machines that reduce the
number of labors, redundancy, or when there is excessive manpower,
impossible reinstatement to the former position because of significant
reasons.

9. Retirement pay

Upon the age of 60 years or more, an employee who has served at the
establishment for at least five years may be granted a retirement pay equivalent to at
least one-half month of salary for every year of service. A fraction of at least six months is
considered as one whole year.

Leave Benefits:

1. Service Incentive Leave:

 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

College of Business and Public Administration

BA 105 – Human Resource Management
2nd Semester, AY 2022 - 2023
HANDOUT
ART. 95. Right to Service Incentive Leave. 80 – (a) Every employee who has
rendered at least one year of service shall be entitled to a yearly service incentive leave
of five days with pay.

2. Parental Leaves: There are 3 types of parental leaves:

a. Maternal - any pregnant woman employee who has worked with the company for at
least six months will be granted a maternity leave. As of February 21, 2019, the
Expanded Maternity Leave (EML) Bill has been signed into law. This law grants 105
days of paid maternity leave credits. The law also allows new mothers to extend this
leave for an additional 30 days, but this will be unpaid.
b. Paternal - the R.A No. 8187, or Paternity Leave Act of 1996, grants seven (7) days of
fully paid leave to married fathers. This is effective up to the first four deliveries of the
legitimate spouse. Under the EML, seven days of a woman’s paid maternity leave
credits can be transferred to fathers, extending the allowed seven-day paternity to be
extended to 14
c. Solo Parent - Section 8. Parental Leave. - In addition to leave privileges under
existing laws, parental leave of not more than seven (7) working days every year shall
be granted to any solo parent employee who has rendered service of at least one (1)
year. (R.A. No. 8972 Solo Parents' Welfare Act of 2000)

3. Special Leave Benefits for Women: There are two types:

a. Magna Carta for Women – this entitles women who underwent surgery due to
gynecological disorders to two months’ leave with full pay, as stipulated in R.A. 9710
or the Magna Carta of Women. This applies to employees who have rendered at least
six months of service with the company.
b. Leave for women and their children who are victims of violence – victims of
violence against women, as stipulated in R.A. 9262 or the Anti-Violence Against
Women and Their Children Act of 2004, are entitled to 10 days leave with full pay.

4. Bereavement Leave

This is a 3 days additional time off from work to mourn for the death of immediate
family members such as mother, father, siblings, and children. It must be noted that this is
not a paid leave.

5. De Minimis Benefits

These are either relatively small amounts of money or leave credits that are optional
for employers to grant. Examples are calamity leave, rice subsidy,
transportation/clothing/laundry allowance, daily meal allowance, other goods that are not
monetary.

References:

Employee Benefits in the Philippines: Complete List, Guide, and FAQs.

https://www.ecomparemo.com/info/heres-a-full-list-of-mandatory-benefits-for-regular-
employees-in-the-philippines

Labor Code of the Philippines 2017.

https://www.dole.gov.ph/php_assets/uploads/2017/11/LaborCodeofthePhilippines20171.pdf