Salaries, Wages, and Income Study Guide

Course Overview and Learning Objectives

Date: August 9, 2026
Presenters: Bartholomew & Diana
General Subject: Salaries, Wages, & Income
Primary Learning Targets:
- Calculate the weekly or monthly wage from an annual salary.
- Compute wages from an hourly rate, including overtime and allowances.
Decision Scenario (Help Mark Decide!):
- Office Administrator: Earns # $25,000$ per month (classified under Salary).
- Factory Worker: Earns $200$ per hour worked or ₱ $150$ per hour worked (classified under Wage).

Fundamentals of Compensation, Salary, and Wages

Compensation:
- Refers to salary, wages, pay, or benefits provided to an employee in return for work performed as required.
Salary:
- Definition: A regular payment by an employer to an employee, usually expressed as weekly, biweekly, monthly, semi-monthly, unit, or yearly.
- Common Job Examples: Clerks, teachers, supervisors, managers, and bank employees.
- Example Position: Office Administrator earning # $25,000$ per month.
- Common Pay Periods:
- Weekly: $52$ weeks per year
- Biweekly: $26$ weeks per year
- Monthly: $12$ months per year
- Semi-monthly: $24$ pay periods per year
- Unit: $4$ quarters per year
- Semi-annually: $2$ semi-annual periods per year
Wage:
- Definition: Refers to earnings received by an employee dependent on the number of hours rendered or in proportion to the quantity of work finished.
- Common Job Examples: Fast-food crews, professors, carpenters, masons, and factory workers.
- Example Position: Factory Worker earning ₱ $150$ per hour worked (or $200$ per hour worked).

Methods of Gross Pay Calculation

Gross Pay:
- Definition: The total earnings of a worker before any deductions are subtracted.
- Can be calculated using different methods depending on the specific wage plan.
1. Piece-Rate Wage Plan:
- Definition: Workers are paid based on the number of pieces of the item they finish.
- Straight-Piece Rate:
- Workers are paid the same fixed rate for all the items finished.
- Formula: $\text{Gross Pay} = \text{Quantity} \times \text{Rate}$
- Algebraic Equation: $GP = Q \times R$
- Graduated-Piece Rate:
- Workers are paid graduated (increasing) rates as the quantity of items produced increases.
- Formula: $GP = Q_1 R_1 + Q_2 R_2 + \dots + Q_n R_n$
- Variable Definitions: $Q_1, Q_2, \dots, Q_n$ are the quantities produced by interval, and $R_1, R_2, \dots, R_n$ are the corresponding rates of the graduated intervals.
2. Hourly Rate Wage Plan:
- Definition: Workers are paid based on the number of working hours rendered.
- Formula: $\text{Gross Pay} = \text{No. of Hours Worked} \times \text{Hourly Rate}$

Employee Benefits and Taxability

Taxable Benefits:
- Definition: Benefits that an employer must add to an employee's income to determine the total amount of income subject to tax deductions.
- Examples:
- Salary
- Wage
- Commission
- Dividends
- Investment income
- Royalties
- Honorarium
- Other similar earnings
Nontaxable Benefits:
- Definition: Benefits that are not subject to income tax.
- Specific Standard Rules and Limits:
- Monetized unused vacation leave credits of private employees not exceeding $10$ days during the year.
- Monetized value of vacation and sick leave credits paid to government employees.
- Uniform and clothing allowance not exceeding ₱ $4,000$ per annum.
- Gift during Christmas not exceeding ₱ $5,000$ per annum.
- Medical cash allowances not exceeding ₱ $750$ per employee.
Standard Employee Benefits:
- Vacation Leave: $15$ vacation days with an additional $1$ vacation day starting on the second year of service.
- Sick Leave: $12$ days of sick leave with pay for the first two years of service.
- 13th Month Pay:
- Computed as one-twelfth ( $\frac{1}{12}$ ) of the annual salary or wage.
- It is not taxable if it is below ₱ $80,000$ .
- Other Benefits: Bonuses, clothing allowances, housing allowances, medical insurance, and similar benefits.

Standard Personal Income Deductions

Classification of Deductions:
- Personal income deductions fall into two major categories: Mandated by Law and Voluntary Deductions.
1. Mandated by Law:
- Social Security System (SSS) Premium for private employees
- Government Service Insurance System (GSIS) Premium for government employees
- PhilHealth contributions
- Pag-IBIG Fund contributions
- Withholding Tax
2. Voluntary Deductions:
- Payment for salary loans
- Insurance premiums
- Union dues
- Cooperative dues
Net Pay:
- Definition: The amount an employee receives after all deductions have been subtracted.
- Formula: $\text{Net Pay} = \text{Gross Pay} - \text{Deductions}$
- Algebraic Equation: $NP = GP - D$

Government-Mandated Social Security, Health, and Housing Programs

Social Security System (SSS):
- Definition: The amount regularly paid by private employees and employers to the Social Security System, which provides financial protection and benefits to members.
- Key Benefits Provided:
- Retirement benefits for members after they stop working.
- Sickness and disability benefits during times of illness or injury.
- Maternity benefits to qualified members.
- Death and funeral benefits to beneficiaries of deceased members.
- Serves as a form of social insurance and financial security.
Government Service Insurance System (GSIS):
- Definition: Government insurance program providing retirement and social security benefits to government employees.
- Types of Insurance Coverage:
- 1. Regular: Compulsory payment of premium on life insurance and life benefits.
- 2. Employees Compensation Fund: Premium payments paid by the GSIS members' government agency for full coverage in case of work-related accidents.
PhilHealth Premium Contribution:
- Definition: Health insurance contribution providing financial support for healthcare expenses.
- Benefits Provided: Financial assistance for hospitalization and accident-related expenses; helps cover hospital bills and doctors' professional fees.
- Premium Contribution Sharing: The monthly PhilHealth premium is equally shared between the employer and employee. Employee contribution can be determined using the PhilHealth Premium Contribution Table.
Pag-IBIG Fund Contribution:
- Definition: Mandatory savings and loan contribution program.
- Computation Basis: Based on the employee's monthly compensation ( $\text{Basic Pay} + \text{COLA}$ , where COLA means Cost of Living Adjustment). Contribution amounts are determined according to the employee's salary level.
- Key Benefits Provided:
- Provides savings that earn dividends.
- Grants access to housing, multi-purpose, and calamity loans.
- Helps members achieve long-term financial security.
Withholding Tax:
- Definition: The portion of an employee's salary that is deducted by the employer and remitted to the government as an advance payment of income tax.
- Exemption Threshold: Employees earning ₱ $20,833$ or less per month are exempt from withholding tax.

Detailed Step-by-Step Mathematical Examples and Seatwork

Example 1 (Salary Conversions):
- Given: Mr. Cruz's annual basic salary is ₱ $356,500.00$ .
- a. Weekly Salary Calculation:
- Formula: $\text{Weekly Salary} = \frac{\text{Annual Salary}}{52}$
- Calculation: $\frac{\text{₱}356,500.00}{52} = \text{₱}6,855.77$
- b. Monthly Salary Calculation:
- Formula: $\text{Monthly Salary} = \frac{\text{Annual Salary}}{12}$
- Calculation: $\frac{\text{₱}356,500.00}{12} = \text{₱}29,708.33$
- c. Semi-monthly Salary Calculation:
- Formula: $\text{Semi-monthly Salary} = \frac{\text{Annual Salary}}{24}$
- Calculation: $\frac{\text{₱}356,500.00}{24} = \text{₱}14,854.17$
Seatwork 1 (Salary Conversions):
- Problem Statement: An employee receives ₱ $5,200$ a week. Find the gross amount the employee earns if he/she is paid:
- a. Annually: $\text{₱}5,200 \times 52 = \text{₱}270,400.00$
- b. Monthly: $\frac{\text{₱}270,400.00}{12} = \text{₱}22,533.33$
- c. Unit (Quarterly): $\frac{\text{₱}270,400.00}{4} = \text{₱}67,600.00$
Example 2 (Straight-Piece Rate):
- Problem Statement: Roman works in a garment company where he is paid on a per-piece basis at the rate of ₱ $3.25$ per piece. Last week, Roman finished: Monday: $110$ ; Tuesday: $105$ ; Wednesday: $100$ ; Thursday: $120$ ; Friday: $140$ . Calculate his gross pay for the week.
- Step 1: Calculate total quantity produced: $110 + 105 + 100 + 120 + 140 = 575$
- Step 2: Apply formula $GP = Q \times R$ : $575 \times \text{₱}3.25 = \text{₱}1,868.75$
Example 3 (Graduated-Piece Rate):
- Problem Statement: A worker is paid for each chair he assembles at the rate:
- Quantity $1 - 30$ : ₱ $30$
- Quantity $31 - 50$ : ₱ $60$
- Quantity $51$ and above: ₱ $65$
- Scenario: Mang Pedro assembled $65$ chairs last week. Find Mang Pedro's gross pay last week.
- Step-by-Step Interval Calculation:
- Interval 1 ( $1 - 30$ chairs): $30 \times \text{₱}30 = \text{₱}900.00$
- Interval 2 ( $31 - 50$ chairs): $20 \times \text{₱}60 = \text{₱}1,200.00$
- Interval 3 ( $51 - 65$ chairs): $15 \times \text{₱}65 = \text{₱}975.00$
- Total Gross Pay: $\text{₱}900.00 + \text{₱}1,200.00 + \text{₱}975.00 = \text{₱}3,075.00$
Seatwork 2:
- Problem 1: A carpenter earns ₱ $5.25$ for every cabinet knob he installs. In one week, he finished: Monday: $80$ ; Tuesday: $85$ ; Wednesday: $100$ ; Thursday: $95$ ; Friday: $110$ . How much is his gross pay for the week?
- Total Knobs Installed: $80 + 85 + 100 + 95 + 110 = 470$
- Gross Pay Calculation: $470 \times \text{₱}5.25 = \text{₱}2,467.50$
- Problem 2: A craftsman earns at graduated rates:
- Quantity $1 - 25$ : ₱ $40$
- Quantity $26 - 50$ : ₱ $45$
- Quantity $51$ and above: ₱ $55$
- If he produced $60$ items in a week, how much was his gross pay?
- Interval 1 ( $1 - 25$ items): $25 \times \text{₱}40 = \text{₱}1,000.00$
- Interval 2 ( $26 - 50$ items): $25 \times \text{₱}45 = \text{₱}1,125.00$
- Interval 3 ( $51 - 60$ items): $10 \times \text{₱}55 = \text{₱}550.00$
- Total Gross Pay Calculation: $\text{₱}1,000.00 + \text{₱}1,125.00 + \text{₱}550.00 = \text{₱}2,675.00$

Review Questions and Answer Key

Activity 1 Multiple Choice Questions:
- 1. This government insurance program provides retirement, sickness, disability, and funeral benefits for private sector employees.
- A. GSIS
- B. SSS
- C. PhilHealth
- D. Pag-IBIG
- 2. This savings program helps members earn dividends and access housing, multipurpose, and calamity loan.
- A. GSIS
- B. Pag-IBIG
- C. PhilHealth
- D. SSS
- 3. This is the total amount of money earned by an employee before any deductions have been made.
- A. Gross Pay
- B. Net Pay
- C. Salary
- D. Wage
- 4. This is the total amount of money that an employee receives after all required deductions have been made.
- A. Net Pay
- B. Gross Pay
- C. Salary
- D. Wage
- 5. This is an advance payment of income tax that is deducted and remitted to the government by the employer.
- A. GSIS
- B. Withholding Tax
- C. PhilHealth
- D. Pag-IBIG
- 6. This insurance program helps cover hospitalization expenses, medications, and doctors' professional fees.
- A. GSIS
- B. Pag-IBIG
- C. SSS
- D. PhilHealth
- 7. This is the path and amount of money earned by an employee for work completed.
- A. Salary
- B. Wage
- C. Gross Pay
- D. Net Pay
- 8. This is a regular fixed payment given by an employer to an employee, usually on a weekly, biweekly, or annual basis.
- A. Salary
- B. Wage
- C. Piece Rate
- D. Gross Pay
- 9. This benefit to government employees provides retirement and other social security benefits.
- A. GSIS
- B. SSS
- C. PhilHealth
- D. Pag-IBIG
1. These are payments that depend on the number of hours worked or the quantity of work completed.
- A. Salary
- B. Wage
- C. Piece Rate
- D. Net Pay
Key to Correction:
- 1. B
- 2. B
- 3. A
- 4. A
- 5. B
- 6. D
- 7. B
- 8. A
- 9. A
1. B