Commission vs Basic Salary: Defining Retirement and 13th Month Pay in the Philippines

The distinction between "basic salary" and includes 15 days' salary based on the latest salary rate, the cash equivalent of not more than five days of service incentive leave, and one-twelfth of the 13th month pay.

Crucially, the implementing rules exclude from the definition of salary: cost-of-living allowances, profit-sharing payments, and other monetary benefits not considered part of or integrated into the regular salary of employees. The same exclusions apply to the computation of 13th month pay under Presidential Decree 851 and its implementing rules, as cited by the Court in San Miguel Corporation v. Inciong (G.R. No. L-49774, February 24, 1981).

Practical Takeaways

• Commissions are not automatically part of basic salary. Whether a commission counts as basic salary depends on the circumstances of its payment—specifically, whether it is an integral part of the salary structure or merely a profit-sharing arrangement.
• Actual sales matter. Sales commissions earned directly from an employee's own sales transactions are more likely to be considered part of basic salary. Overriding commissions from sales made by subordinates may be treated as profit-sharing.
• Regularity is a key indicator. Commissions that are regularly received as part of the compensation package are more likely to be included in basic salary than those that depend on fluctuating business conditions.
• Supervisory roles face stricter scrutiny. Managers and supervisors who do not directly effect sales but receive commissions based on their team's performance may find those commissions excluded from retirement pay and 13th month pay computations.
• Check the employment contract. The parties may agree on broader inclusions in the computation of retirement benefits, but in the absence of such agreement, the statutory exclusions apply.

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