No holiday pay break

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GERARDO MAXIMO FRANCISCO

Many employees took time off work last Monday, April 9, to commemorate Araw ng Kagitingan (Day of Valor), a regular Philippine holiday. Many others, including those whose employers provide services to persons abroad, reported for work on the same day.

For those who were required to work on a regular holiday, Article 94(b) of the Labor Code of the Philippines (Presidential Decree 442, as amended) rewards those who are eligible to receive holiday pay by requiring the employers to pay “compensation equivalent to twice [the worker’s]regular rate.”

It has been asked whether an employer may, as a matter of practice, pay its employees who work on a regular holiday their regular daily wages for that day and, instead of paying them the 100 percent premium rate prescribed by law, grant them an additional paid leave day credit (“additional leave credit”) to be used by the employees in the future or, if unused, to be converted into cash, pursuant to company policy.

Some have taken the position that, since additional leave credits have value and are valuable consideration, there is no diminution of the employees’ right to holiday pay under Article 94(b) of the Labor Code and, therefore, the practice of granting them to employees is valid. The acceptability of this position is strengthened in cases where the employees expressly agree to be paid with additional leave credits because it then may be asserted that the contracts created are legally binding as between the parties.


Considering the other applicable provisions of law and the Labor Code, however, the said practice, even with the agreement of the employee, does not appear to be lawful.

Article 94(b), which states that an employee “shall be paid” compensation equivalent to twice his regular rate if he is required to work on a holiday, should be read together with Article 102 of the Labor Code, which prescribes the valid form of payment of wages in the Philippines:

“No employer shall pay the wages of an employee by means of promissory notes, vouchers, coupons, tokens, tickets, chits or any object other than legal tender, even when expressly requested by the employee.

“Payment of wages by check or money order shall be allowed when such manner of payment is customary on the date of effectivity of this Code or is necessary because of special circumstances as specified in appropriate regulations to be issued by the Secretary of Labor or as stipulated in a collective bargaining agreement.”

Section 102 of the Labor Code clearly requires that payment of an employee’s wages must be in the form of legal tender. Section 52 of the New Central Bank Act (Republic Act 7653) states: “[a]ll notes and coins issued by the Bangko Sentral ng Pilipinas] shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private.”

Article 1705 of the Civil Code of the Philippines (Republic Act No. 386, as amended), which states that “[t]he laborer’s wages shall be paid in legal currency” is consistent with Section 102 of the Labor Code.

The grant of additional paid leave credit as a form of payment of holiday pay violates Section 102 of the Labor Code and Article 1705 of the Civil Code because the employer pays the employee’s wages in the form of additional leave credits, a form that is not legal tender or legal currency.

The premium to be paid to employees on a holiday forms part of the wages of the employee and should, therefore, be paid in legal tender. This is mandatory. Payments by check or money order (discussed in the second paragraph of Article 102 of the Labor Code) are the only exceptions to the rule that payment of wages must be made in legal tender.

Article 102 of the Labor Code emphasizes that employers cannot pay the wages of their employees in a form other than legal tender “even when expressly requested by the employee.” Agreements between employer and employee regarding the form of wages are, therefore, unlawful.

Unless and until the law is amended, there is no break for employers as to the form of payment of the holiday pay of their employees.

Gerardo Maximo V. Francisco is a partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). He is a corporate, deal, litigation and labor lawyer. The contents of the above article are intended for general information purposes only and do not constitute legal advice. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF Counsel’s website at www.mtfcounsel.com.

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