Are Commissions Part of Minimum Wage in the Philippines? Employee Compensation Rights Explained

The question of whether sales commissions count toward the minimum wage is one that affects thousands of Filipino workers in sales, distribution, and delivery jobs. The Supreme Court addressed this squarely in Iran v. National Labor Relations Commission (G.R. No. 121927, April 22, 1998), a case involving softdrinks company drivers and truck helpers in Cebu. The ruling clarifies how commissions are treated under the Labor Code, and it also sets out important rules on procedural due process when terminating employees.

The Case: Softdrinks Salesmen and Truck Helpers in Cebu

Antonio Iran operated a softdrinks merchandising and distribution business in Mandaue City. He employed drivers who doubled as salesmen, plus truck helpers. Their compensation included a fixed amount plus commissions: drivers/salesmen received P0.10 per case of regular softdrinks and P0.12 per case of family size; truck helpers received P0.08 and P0.10 per case, respectively.

In June 1991, Iran discovered cash shortages and irregularities. He ordered the employees to report for work daily but did not allow them to go on their usual routes. After a few days, the employees stopped reporting. Iran concluded they had abandoned their jobs and terminated them. He also filed estafa charges. The employees, in turn, filed complaints for illegal dismissal, underpayment of wages, and other money claims.

The Issue: Do Commissions Count Toward Minimum Wage?

The central legal question was whether commissions should be included when determining whether an employer has complied with the minimum wage law. The Labor Arbiter and the NLRC said no, reasoning that an employee should receive the minimum wage as mandated by law, and that reaching the minimum wage should not depend on commissions earned.

The Supreme Court disagreed. It cited Article 97(f) of the Labor Code, which defines "wage" as:

"the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same."

The Court held that this definition explicitly includes commissions as part of wages. While commissions serve as incentives, they are also direct remuneration for services rendered. The Court noted that some salesmen receive no basic salary at all and depend entirely on commissions, yet an employer-employee relationship still exists. In those cases, the commissions are the salary.

The Ruling: Commissions Count, But Minimum Wage Is the Floor

The Court ruled that commissions must be included in determining compliance with minimum wage requirements. It rejected the argument that commissions should only be paid after the minimum wage has been earned. The minimum wage, the Court explained, simply sets a floor below which an employee's total remuneration cannot fall. It does not exclude commissions from the computation.

The Court cited Philippine Agricultural Commercial and Industrial Workers Union v. NLRC (247 SCRA 256, 1995), where it acknowledged that drivers and conductors compensated purely on commission are automatically entitled to the minimum pay if their commissions fall short of the minimum wage for eight hours of work. The logical inference: if commissions equal or exceed the minimum wage, the employer need not pay additional amounts.

Due Process in Termination: The Twin Notice Rule

The case also addressed procedural due process. The Court reiterated the settled rule that before terminating an employee, the employer must furnish two written notices: (1) a notice apprising the employee of the particular acts or omissions for which dismissal is sought, and (2) a subsequent notice informing the employee of the decision to dismiss.

Iran argued that his instruction to the employees to report for work and settle their accountabilities served as the first notice. The Court rejected this. By Iran's own admission, his first concern was recovering the misappropriated funds, not dismissing the employees. The employees were never told that dismissal was being sought. The Court held that the termination was defective for failure to observe due process, and increased the nominal damages awarded to each employee from P1,000 to P5,000.

13th Month Pay: Credit for Amounts Actually Paid

On the 13th month pay issue, the Court held that employers who pay less than 1/12 of the employee's basic salary as 13th month pay are only required to pay the difference. The Court allowed the employer to present vouchers on appeal, noting that technical rules of evidence do not bind labor tribunals. However, the vouchers covered only one year, so the employer was credited only for that year, not for other years claimed by the employees.

Practical Takeaways

• Commissions are wages. Under Article 97(f) of the Labor Code, commissions form part of an employee's wage or salary. Employers may count commissions when computing whether total pay meets the minimum wage.
• Minimum wage is the floor. Total remuneration—including commissions—must not fall below the statutory minimum wage for eight hours of work. If commissions fall short, the employer must pay the difference.
• Two written notices are required for valid dismissal. The first notice must state the specific acts or omissions for which dismissal is sought; the second must inform the employee of the decision to dismiss. Both are essential elements of due process.
• Abandonment requires notice. Even in cases of alleged abandonment, the employer must send notice to the worker's last known address as required by the Omnibus Rules Implementing the Labor Code.
• 13th month pay shortfalls are creditable. An employer who pays less than 1/12 of the basic salary as 13th month pay must pay only the difference, and evidence of actual payments may be presented even on appeal.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.