ASG Law

Tag: commission-based employees

  • Understanding Employee Entitlements: The Right to 13th Month Pay for Commission-Based Workers in the Philippines

    Key Takeaway: Commission-Based Employees Are Entitled to 13th Month Pay

    Dynamiq Multi-Resources, Inc. v. Orlando D. Genon, G.R. No. 239349, June 28, 2021

    Imagine working tirelessly for a company, your income fluctuating with each job you complete, only to find out that you’re entitled to additional benefits you weren’t receiving. This was the reality for Orlando Genon, a truck driver for Dynamiq Multi-Resources, Inc., who discovered he was due his 13th month pay despite being paid on a commission basis. The Supreme Court of the Philippines’ ruling in this case sheds light on the rights of employees paid on commission, clarifying that such a payment structure does not negate their entitlement to statutory benefits.

    Orlando Genon worked as a truck driver for Dynamiq, a hauling company, from 2009 until his resignation in 2014. He claimed he was not paid his 13th month pay and sought to recover it. Dynamiq argued that Genon was an independent contractor paid on commission and thus not entitled to such benefits. The central legal question was whether an employee paid on a commission basis is entitled to 13th month pay.

    Legal Context: Understanding 13th Month Pay and Employment Status

    In the Philippines, the 13th month pay is mandated by Presidential Decree No. 851, which requires employers to pay all rank-and-file employees an additional month’s salary by December 24 each year. This benefit is designed to provide financial support during the holiday season. The law applies to all employees, regardless of their employment status or the method of wage calculation, as long as they have worked for at least one month during the calendar year.

    The key legal principle at play is the determination of an employee’s status. The Supreme Court uses the four-fold test to ascertain an employer-employee relationship: (1) selection and engagement of the employee, (2) payment of wages, (3) power of dismissal, and (4) power to control the employee’s conduct. The most significant determinant is the power of control, which focuses on the employer’s right to dictate the manner and means by which the employee performs their job.

    Consider a scenario where a salesperson is paid purely on commission. Despite the fluctuating income, they are still considered an employee if their employer has the authority to set their work schedule, assign tasks, and dictate how they should perform their duties. This principle was crucial in Genon’s case, as the Court had to determine if he was indeed an employee despite being paid on a commission basis.

    Case Breakdown: From Labor Arbiter to Supreme Court

    Orlando Genon’s journey for justice began when he filed an amended complaint against Dynamiq for non-payment of 13th month pay and other claims. The Labor Arbiter initially ruled in Genon’s favor, finding him to be a regular employee and ordering Dynamiq to pay him his due benefits. However, the National Labor Relations Commission (NLRC) reversed this decision, dismissing Genon’s complaint and siding with Dynamiq’s claim that he was an independent contractor.

    Undeterred, Genon appealed to the Court of Appeals (CA), which reinstated the Labor Arbiter’s decision with modifications. The CA found that Genon was indeed a regular employee, and thus entitled to 13th month pay. Dynamiq then escalated the case to the Supreme Court, which ultimately affirmed the CA’s ruling.

    The Supreme Court’s decision hinged on the application of the four-fold test. The Court noted, “Contrary to Dynamiq’s submission, the Court agrees with the CA and the LA that all four (4) elements are present in this case.” It highlighted that Genon was selected and engaged by Dynamiq, received wages from them, and was subject to their power of dismissal and control.

    The Court also emphasized the importance of regular employment status, stating, “Being a truck driver of a hauling business, Genon necessarily performed an activity connected with the usual course of business or trade of Dynamiq.” This regular status, combined with the fact that Genon was paid on commission, did not negate his entitlement to 13th month pay.

    Practical Implications: Impact on Employers and Employees

    This ruling has significant implications for both employers and employees in the Philippines. Employers must recognize that all employees, including those paid on a commission basis, are entitled to 13th month pay if they meet the criteria set by law. This decision underscores the need for employers to review their employment contracts and ensure compliance with labor laws.

    For employees, this case serves as a reminder to assert their rights and seek legal recourse if they believe they are being denied statutory benefits. It highlights the importance of understanding one’s employment status and the benefits that come with it.

    Key Lessons:

    • Employees paid on a commission basis are entitled to 13th month pay if they are regular employees.
    • The four-fold test is crucial in determining the existence of an employer-employee relationship.
    • Employers must ensure compliance with labor laws, regardless of how employees are compensated.

    Frequently Asked Questions

    What is the 13th month pay?

    The 13th month pay is a mandatory benefit in the Philippines, equivalent to one-twelfth of an employee’s total basic salary earned within a calendar year, paid by December 24.

    Are commission-based employees entitled to 13th month pay?

    Yes, as long as they are considered regular employees under the law, commission-based employees are entitled to 13th month pay.

    How is the four-fold test used to determine employment status?

    The four-fold test assesses the existence of an employer-employee relationship based on selection and engagement, payment of wages, power of dismissal, and the power of control over the employee’s conduct.

    What should employees do if they believe they are being denied their 13th month pay?

    Employees should file a complaint with the Department of Labor and Employment (DOLE) or seek legal assistance to assert their rights.

    Can an employer classify an employee as an independent contractor to avoid paying benefits?

    No, the Supreme Court has ruled that the nature of the work and the control exerted by the employer determine the employment status, not the label given by the employer.

    ASG Law specializes in labor and employment law. Contact us or email hello@asglawpartners.com to schedule a consultation.

  • Retirement Benefits: Clarifying Inclusion of Service Incentive Leave and 13th Month Pay for Commission-Based Employees

    In Rodolfo J. Serrano v. Severino Santos Transit, the Supreme Court ruled that employees paid on commission basis are entitled to the cash equivalent of the 5-day Service Incentive Leave (SIL) and 1/12 of the 13th month pay in the computation of their retirement benefits under Republic Act No. 7641. This decision clarifies that the exclusion from SIL coverage applies only to field personnel paid on commission, ensuring broader protection for employees upon retirement.

    Beyond the Boundary: Ensuring Fair Retirement for Commission-Based Workers

    The case revolves around Rodolfo J. Serrano, a bus conductor for Severino Santos Transit, who upon optional retirement, contested the computation of his retirement pay. Serrano argued that his retirement pay should have included the cash equivalent of the 5-day SIL and 1/12 of the 13th-month pay, which the company omitted. The company countered that Serrano, being paid on commission, was not entitled to these benefits, and that he had signed a quitclaim releasing them from further liability.

    The Labor Arbiter initially ruled in favor of Serrano, but the National Labor Relations Commission (NLRC) reversed this decision, citing R & E Transport, Inc. v. Latag, which held that employees paid purely on commission basis are excluded from the coverage of 13th-month pay and SIL pay laws. The Court of Appeals affirmed the NLRC’s ruling, leading Serrano to elevate the case to the Supreme Court. The central legal question before the Supreme Court was whether commission-based employees are entitled to the inclusion of SIL and 13th-month pay in their retirement benefits calculation.

    The Supreme Court addressed the applicability of Republic Act No. 7641, which amended Article 287 of the Labor Code, providing retirement benefits to qualified private-sector employees lacking a retirement plan. The law stipulates that, in the absence of a retirement plan, an employee who has served at least five years and is between 60 and 65 years old is entitled to retirement pay equivalent to at least one-half month’s salary for every year of service. The Court emphasized the law’s specific inclusion:

    Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of service incentive leaves.

    The Implementing Rules of R.A. 7641 further clarify that the law applies to all private-sector employees, regardless of their position, designation, or status, and irrespective of the method by which their wages are paid, except for specific exemptions. These exemptions include employees of the National Government, domestic helpers, and employees of retail, service, and agricultural establishments employing not more than ten employees. The Supreme Court underscored that even though Serrano was paid on commission, he was covered by R.A. 7641 and its implementing rules.

    The Court distinguished Serrano’s situation from the taxi driver in R & E Transport, Inc., who was paid under the “boundary system.” Taxi drivers retain only the sums exceeding the fee they pay to the vehicle owners or operators. The Court pointed out a crucial distinction between drivers paid under the boundary system and conductors paid on commission. Conductors, like Serrano, are typically paid a percentage of the bus’s earnings for the day, and this difference is significant in determining their entitlement to SIL and 13th-month pay.

    The Supreme Court emphasized that under Presidential Decree No. 851, the exclusion from SIL coverage for workers paid on a purely commission basis applies only to field personnel. This is crucial as the Court clarified in Auto Bus Transport Systems, Inc., v. Bautista, that not all employees paid on commission are automatically excluded from SIL. The exclusion is specifically limited to those who are also considered field personnel. To further elaborate on this point, the Court referenced the definition of field personnel under Article 82 of the Labor Code:

    “Field personnel” shall refer to non-agricultural employees who regularly perform their duties away from the principal place of business or branch office of the employer and whose actual hours of work in the field cannot be determined with reasonable certainty.

    The Court further cited the Bureau of Working Conditions (BWC), Advisory Opinion to Philippine Technical-Clerical Commercial Employees Association, which provided additional clarification on the definition of field personnel. This advisory opinion stated that if employees, including drivers, are required to be at specific places at specific times, they cannot be considered field personnel, even if they perform work away from the principal office of the employer. Therefore, employees paid on commission are not automatically exempted from SIL unless they fall under the classification of field personnel. This distinction is critical for understanding the scope of the SIL entitlement.

    Building on this principle, the Supreme Court determined that Serrano, as a bus conductor, did not qualify as field personnel. His work was supervised, and his hours could be determined with reasonable certainty. Thus, he was entitled to the cash equivalent of the 5-day SIL and 1/12 of the 13th-month pay in the computation of his retirement benefits. This ruling underscores the importance of distinguishing between different types of commission-based employees and the specific conditions of their employment.

    The practical implications of this decision are significant for commission-based employees in the Philippines. It ensures that they receive fair retirement benefits that include components previously denied to them based on a misinterpretation of the law. Employers must now ensure that their retirement pay computations for commission-based employees include the cash equivalent of SIL and 13th-month pay, unless the employees are classified as field personnel. This decision also serves as a reminder for employees to scrutinize their retirement pay computations and to seek legal advice if they believe they are not receiving the full benefits they are entitled to under the law.

    FAQs

    What was the key issue in this case? The key issue was whether a bus conductor paid on commission basis is entitled to the inclusion of Service Incentive Leave (SIL) and 13th-month pay in the computation of his retirement benefits.
    What did the Supreme Court rule? The Supreme Court ruled that commission-based employees, who are not field personnel, are entitled to the cash equivalent of SIL and 1/12 of the 13th-month pay in their retirement benefits calculation.
    Who is considered a “field personnel”? “Field personnel” refers to non-agricultural employees who regularly perform their duties away from the principal place of business, and whose actual hours of work cannot be determined with reasonable certainty.
    What is Republic Act No. 7641? Republic Act No. 7641 is the Retirement Pay Law, which amended Article 287 of the Labor Code and provides for retirement benefits to qualified private-sector employees in the absence of a retirement plan.
    How is retirement pay computed under R.A. 7641? Retirement pay is equivalent to at least one-half month’s salary for every year of service, which includes 15 days salary, 1/12 of the 13th-month pay, and the cash equivalent of not more than 5 days of SIL.
    What was the basis of the company’s initial denial of benefits? The company initially denied the inclusion of SIL and 13th-month pay, claiming that Serrano was paid purely on commission and had signed a quitclaim releasing them from further liability.
    Why was the NLRC’s decision reversed? The NLRC’s decision was reversed because it erroneously relied on a case involving a taxi driver paid under the boundary system, failing to distinguish between different types of commission-based employees and the conditions of their employment.
    What is the significance of this ruling for employers? Employers must ensure that their retirement pay computations for commission-based employees include the cash equivalent of SIL and 13th-month pay, unless the employees are classified as field personnel.
    What should employees do if they believe their retirement pay is miscalculated? Employees should scrutinize their retirement pay computations and seek legal advice if they believe they are not receiving the full benefits they are entitled to under the law.

    In conclusion, the Supreme Court’s decision in Serrano v. Severino Santos Transit clarifies the rights of commission-based employees to receive fair and complete retirement benefits, reinforcing the protections afforded by R.A. 7641. This ruling ensures that employers correctly compute retirement pay, including the necessary components of SIL and 13th-month pay for eligible employees.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Rodolfo J. Serrano v. Severino Santos Transit, G.R. No. 187698, August 09, 2010