Introduction – It’s All About the Rate
When it comes to salary rates, there are 2 types: Monthly Rate and Daily Rate. Some companies do apply the Hourly Rate, but this follows the same principles applied to the Daily Rate.
In essence, daily-rate and monthly rate employees are the same. Both types of employees are paid for the amount of time they put in at work.
The main difference is that daily-rate employees are paid based on the actual # of days worked, while monthly-rate employees are paid a fixed amount per pay period, assuming that they had no absences.
If an employee’s daily-rate is P500.00 and the employee worked for 10 days, that equates to a pay of P5,000.00. Given this, the salary of a daily-rate employee may vary each pay period, depending on the actual # of working days included in that period.
Monthly-rate employees are paid a fixed amount per pay period, regardless of the # of actual working days included in the period.
So if an employee’s monthly rate is P15,000.00, the employee will be paid the same amount in February as well as in March, even if February is a much shorter month than March.
The monthly rate came about mainly for convenience’s sake, since it is easier to compute for and pay a fixed payroll amount per period.
For Daily-rate employees, the hourly rate is simply calculated as the daily rate divided by the standard # of working hours per day.
So if the daily rate is P500.00 and you have 8 working hours per day, the Hourly Rate is calculated as P500.00 / 8 = P62.50.
For monthly-rate employees, it gets a bit more complex, as the hourly-rate computation can be calculated 2 ways:
- Based on # of working days per month
In this method, the company will establish the average # of working days per month. This is typically a value from 22 to 26. This factor will then be divided by the standard # of working hours per day (8 hours).
So if the monthly rate is P15,000.00 and the average # of working days per month is set as 24, the hourly rate may be calculated as P15,000.00 / 24 / 8 = P78.12
- Based on # of working days per year
In this method, the company will establish the average # of working days per year. If the employee is considered paid for al ldays of the year, including holidays and restdays, this value can be 365. If restdays are not considered paid and there are 6 working days per week, this value can be 313 (365 – 52). If there are only 5 working days per week, this value can be 261.
Differences in Payroll Computation
Daily-rate employees are paid for the days that they worked.
Daily rate = 500.00
# of days worked = 10
Total pay = P500.00 x 10 = P5, 000.00.
Monthly-rate employees are paid a fixed amount per month.
If the payroll frequency is semi-monthly, the employee will receive half his/her monthly-rate per pay period.
If the employee incurred any absences, late or undertime, his / her salary will be deducted accordingly, based on the total # of absences, lates and undertime.
Monthly rate = P15, 000.00
Semi-monthly rate = P15, 000 / 2 = P7, 500.00 per pay period.
Hourly rate (based on 365 days per year factor) = P15, 000.00 x 12 / 365 / 8 = P61.64 per hour.
# of Absences = 16 hours
# of Undertime = 2 hours
# of Lates = 3 hours
Total deduction = (16hrs + 2hrs + 3hrs) x P61.64 = P1, 294.44
Payroll = P7, 500.00 – P1, 294.44 = P6, 205.56
A good Payroll System should be able to easily handle the differences between Daily-Rate and Monthly-Rate employees.