LESSON 11: DEFINITION OF SALARY, WAGE AND INCOME

Salary and wages are important aspects in the life of a working individual. Through
the salary or wages that an individual receives, he or she is able to provide for his or her
needs and those of his or her family. It is important that employees are paid fairly and
accurately to keep them motivated to do their work. Your knowledge of salary and wages
will be vital for you in the future when you start to work and be paid, or when you put up
your own business and pay salaries and wages to your employees.

At the end of the lesson, the student will be able to:

 define salary, wage, income and benefits
 differentiate involving salary, wage, income and benefits; and
 cite examples involving salary, wage, income and benefits.

Salary - a fixed regular payment, typically paid on a monthly or biweekly basis but often
expressed as an annual sum, made by an employer to an employee, especially a
professional or white-collar worker.
Wage - is monetary compensation (or remuneration, personnel expenses, labor) paid by
an employer to an employee in exchange for work done.
Income - money received, especially on a regular basis, for work or through investments

Definition of Salary, Wage and Income

Many people use the terms salary, wage, and income interchangeably. However, these
three terms are different from each other and the necessary distinction will be provided in this
module.
Salary
Refers to the compensation paid based on a rate per hour worked. It is calculated by
multiplying the number of hours worked by the hourly rate of pay. It is the compensation for
employees doing manual work. If they work more than 40 hours per week, they are entitled to an
overtime pay.
Income,
Alternatively, earnings, refers to the amount of money received by an individual for the
work he or she has done. In this context, income may mean salary or wages.
Gross earnings
Refer to the amount an employee earns before any deductions for benefits or taxes.

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Example 1:
Megan has to decide whether to accept a job that offers her an annual salary of P250,000.
If she will be paid semimonthly, what will be her gross semimonthly pay or earnings?
Solution:
Gross Semimonthly
Pay or Earnings
Annual Salary
=
24
P 250,000
=
24
= P 10 416.67
Example 2:
If Enzo earns the same amount of annual salary of P250,000 but is being paid
biweekly, How much is his gross biweekly earnings or pay?
Solution
Annual Salary
Gross Biweekly Earnings =
26
P 250,000
=
26
= P 9 615.38
Example 3:
Ken’s time card shows that he has worked this week for these number of hours (hr): 7 hr
(Monday), 7.5 hr (Tuesday), 6 hr (Wednesday), and 8 hr (Friday). at a pay rate of 224 an hour,
how much will be his gross earnings?
Solution:
Total number of hours worked = 7 + 7.5 + 6 +8 = 28.5 hr
Gross Earnings = Hours Worked × Hourly rate
= 28.5 × P224 = P6,384
Example 4:
The labor code prescribes a maximum of 8 hours per day as the normal working hours of
employees for 40 hours per week. Hence, additional compensation in the form of overtime pay is
paid for worked hours beyond 8 hours. Sam receives a regular wage of P150 per hour. If he has
worked 52.50 hr last week, how much will be his gross earnings for the week if he is paid an
additional of 25% of his hourly wage for regular overtime work?
Solution:
Regular Pay = Hourly rate × Number of regular hours Worked
= P150 × 40 = P6,000
Number of overtime hours worked = Total Hours worked – Regular Hours worked
= 52.50 – 40 =12.50
(Note: The department of labor and employment mandated an additional of 25% of the hourly
rate as overtime rate for regular overtime or for overtime beyond regular working hours.)
Overtime Rate = Hourly rate + 0.25 Hourly rate
By factoring:
Overtime Rate = Hourly rate (1+0.25)
= Hourly rate × 1.25

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 = P150 × 1.25 = P187.50
Overtime Pay = Overtime Pay × Number of Overtime hours worked
= P187.50 × 12.50 = P2 343.75
Gross earnings= Regular Pay + Overtime Pay
= P6 000 + P 2 343.75= P8 343.75
Example 5:
Your time record shows that you have worked 36 hr. on a regular hourly rate of P224 and have
worked overtime for 1.5hr on Monday, 2 hr. on Tuesday, 3hr on Wednesday, and 2.5 hr on
Friday. How much will be your gross earnings if you are paid an additional of 25% of your
hourly rate for overtime work?
Solution:
Regular Pay = Hourly Rate × Regular Hours worked
= P224 × 36 = P8 064
Overtime Rate = P224 × 1.25 = P280
Number of overtime hours worked = 1.5+2+3+2.5 = 9hr
Overtime Pay = Overtime rate × Overtime hours
= P280 × 9 = P2 520
Gross Earnings = Regular Pay + Overtime Pay
= P8 064 + P 2520 = P10 584
Example 6
A factory worker is paid on a piecework rate of P62. Piecework is a type of employment where
an employee is paid a fixed rate for each unit produced. What will be her gross earnings if she
will be able to finish 70 units of certain product this week?
Solution:
Gross Earnings = Output × Piecework rate
= 70 × P62 = P 4 340
Example 7
A garment factory pays its worker using the following differential piecework rate (differential
piecework rate is the fixed rate for different levels outputs).
Output Piecework
1-40 units P62
41-60 units P72
61 units or more P82
What will be the gross earnings of the factory worker who finished 70 units?
Solution:
For the 1st 40 units: 40 × P62 = P 2480
For the next 20 units: 20 × P72 = P 1440
For the last 10 units: 10 × P82 = P 820
Total Gross earnings P4 740
Example 8:
Bryan works as a sales manager and is paid a straight commission of 5% on his own sales and an
override commission of 1% on sales made by his sales agents. His sales total P225 000 while the
sales of his sales agents amounted to P725 000. How much is his gross earnings for the month?
Solution:
Gross earnings= Sales Commission + Override Commission
= (P225 000 × 0.05) + (P725 000 × 0.01)
= P11 250+ P7 250 = P18 500
Example 9:
Bea earns a daily wage of P980.84. Her regular working hours are from 7:00 AM to 4:00 PM
with one hour lunch break, and her rest day is Sunday. Her company allows flexitime (A system
where employees are allowed to choose when to begin their work (usually between 7:00 and
10:00 am) as long as they complete the required 8 hours of works per day, with a one-hour lunch

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break ). Compute her daily gross earnings based on her time record using the following overtime
rate formulas.
Rest Day, Regular 8 hours (plus 30%) = Hourly Rate × 1.30 × Number of Hours
Rest Day, beyond 8 hours (plus 30%) = Hourly Rate × 1.30 × 1.30 Number of hours
Special Holiday (plus 30%) = Hourly Rate × 1.30 Number of hours
Legal Holiday, Regulars 8 hours (200%) = Hourly Rate × 2.00 × Number of Hours
Legal Holidays, beyond 8 hours (200% plus 30%) = Hourly Rate × 2.00 × 1.30 × Number of
hours

Date Day Time In Time Out

16-Dec Tuesday 7:00 am 4:00 pm

17-Dec Wednesday 7:00 am 5:00 pm

18-Dec Thursday 7:30 am 5:00 pm

19-Dec Friday 7:00 am 4:00 pm

20-Dec Saturday 7:00 am 4:00 pm

21-Dec Sunday (Rest 7:00 am 5:00 pm

day)

22-Dec Monday 7:00 am 4:00 pm

23-Dec Tuesday 7:00 am 7:00 pm

24-Dec Wednesday 7:00 am 11:00 pm
(Special
Holiday)
Thurday
25-Dec NO NO
(Legal Holiday)
WORK WORK

26-Dec Friday 8:00 am 4:00 pm

27-Dec Saturday 7:00 am 4:00 pm

28-Dec Sunday NO NO
WORK WORK
(Rest day)

Monday
29-Dec 7:00 am 5:00 pm
(Legal Holiday)

30-Dec Tuesday 7:00 am 4:00 pm

Wednesday
31-Dec NO NO
(Special
WORK WORK
Holiday)

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Net earnings refer to the amount that an employee actually receives after all the
deductions have been made. It is the take-home pay of an employee. The standard
deductions are those mandated by law or by the government such as the withholding
tax; and Social Security System (SSS), Philhealth, and Pag-Ibig contributions.
Standard Deduction from Salaries and Wages
Withholding Tax
Withholding Tax – is the amount deducted by the employer from the
employee’s salary or wages, which the former uses to pay in advance the income tax
imposed by the government.
Example 10: An employee is receiving regular salary of P15,000 a month.
The mode of payment of the employer is every 15th and 30th or 31st day of the
month, The following are the earnings of the employee last 2nd half May.
Gross: P 7,500
Deductions:
SSS Premium 318.00
Pag-ibig 250.00
Canteen 415.00
Coop Loan 1,300.00
Net Earnings 5,217.00
The difference of Gross Earnings from Net earnings
a. Gross Earnings – the contracted amount of salaries and wages without
deductions.
Note:
For salaries and wages, when the deductions are greater than the gross
income, the result os overdraft. For the banks, they will declare
barkruptcy.
Example 11: Melissa receives a monthly basic salary of P21 333.33,
transportation allowance of P1 750, and rice allowance of P1500
(nontaxable or NT benefit), Her overtime pay for the month amounted
toP6 982.64. Her monthly contributions to Pag-IBIG Fund, Philhealth,
and SSS are P100, P262.50, and P581.30, respectively. Her withholding
tax for the month amounted to P5 686.46. How much are her gross and
net earnings?
Solution:
Gross Earnings
Basic Salary P21 333.33
Overtime Pay 6 982.64
Transport Allowance 1 750.00
Rice Allowance (NT) 1 500.00
Total Gross Earnings P31 565.97

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Deductions
Pag-IBIG Fund contribution (100.00)
Philhealth Contribution (262.50)
SSS Contribution (581.30)
Withholding Tax (5 686.46)
Total Deductions (6 630.26)
Net earnings
(24 935.71)

I. Instruction: Solve the problem by applying the concepts learned. Show your
solution. (NOTE: Attached your answer at the back of your module)
Problem: A worker earns a minimum wage of P481. His regular work hours are from
6:00 am to 3:00 pm with one hour lunch break and his rest day is Monday.
Compute her daily gross earnings based on her time record using the following overtime rate
formulas.
Rest Day, Regular 8 hours (plus 30%) = Hourly Rate × 1.30 × Number of Hours
Rest Day, beyond 8 hours (plus 30%) = Hourly Rate × 1.30 × 1.30 Number of hours
Special Holiday (plus 30%) = Hourly Rate × 1.30 Number of hours
Legal Holiday, Regulars 8 hours (200%) = Hourly Rate × 2.00 × Number of Hours
Legal Holidays, beyond 8 hours (200% plus 30%) = Hourly Rate × 2.00 × 1.30 × Number of
hours
Date Day Time In Time
Out
16-Dec Wednesday 7:00 am 4:00 pm
17-Dec Thursday 7:00 am 5:00 pm
18-Dec Friday 7:00 am 5:00 pm
19-Dec Saturday 7:00 am 4:00 pm
20-Dec Sunday 7:00 am 4:00 pm
21-Dec Monday 7:00 am 5:00 pm
(Rest day)
22-Dec Tuesday 7:00 am 4:00 pm
23-Dec Wednesday 7:00 am 7:00 pm
24-Dec Thursday 7:00 am 11:00
(Special pm
Holiday)
Friday
25-Dec NO NO
(Legal
WORK WORK
Holiday)

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 26-Dec Saturday 8:00 am 4:00 pm
27-Dec Sunday 7:00 am 4:00 pm
28-Dec Monday NO NO
WORK WORK
(Rest day,
Legal
Holiday)
Tuesday
29-Dec 7:00 am 5:00 pm

30-Dec Wednesday 7:00 am 4:00 pm

Thursday
31-Dec NO NO
(Special
WORK WORK
holiday)

I. Differentiate gross earning from net earnings.

Solve the following problems and show your solutions.
1. An employee receives a semi-monthly basic salary of P10 666.66
including a transportation allowance of P875, and rice allowance of
P750. His Overtime pay for the pay period amounted to P 6 829.38.
His Pag-IBIG Fund, SSS, and Philhealth contributions were P100,
P381.50 and P125, respectively, How much are his net earnings if his
withholding tax amounted to P 3 844.64?

LESSON 12: BENEFITS OF A WAGE EARNER

A wage earner has benefits that are government mandated and considered nontaxable.
These benefits include those provided by SSS, Philhealth, and Pag-IBIG fund. In addition to
these, wage earners are entitled to a service incentive leave of 5 days with pay, maternity leave
60 days (for normal delivery) or 78 days (for caesarian delivery) for married or unmarried female
employees, paternity leave of 7 days for married male employees, parental leave of 7 days for
solo parent employees, paid leave of 10 days for victims of violence against women and
children, and a special paid leave of 2months for women who have undrgone surgery due to
gynecological disorders. Lastly, wage earners are also entitled to a 13th month pay to be given not
later than 24 December, separation pay of one-half month pay for every year of service when
terminated for authorized cause, and retirement pay equivalent to one-half month salary for every
year of service upon reaching the retirement age of 60 or 65 years and at least 5 years of service
in the company.
Fringe Benefits
Fringe benefit refers to a special benefit in cash or in kind provided by the employer in
addition to salaries and wages. Provision of such benefit is based on the company policy or
contract with the employee. It is usually a business-related expense on the part of the company
that personally benefits an employee in relation to his or her employment. Fringe benefits
include company car, use of company driver, housing provision, membership fees in

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organization, travel expenses, educational assistance, insurance premiums, and many more.
These benefits, which are provided to managerial and supervisory employees, are subject to
fringe benefits tax of 32% which must be withheld and paid the same by the employer. If the
employee receiving the benefit(s) is a rank and file, withholding tax on compensation will be
applied.
Fringe benefits provided by an employer to managerial and supervisory employees that
are not taxable include those authorized and exempted under special laws, contributions of
employers for the retirement, insurance and hospitalization plans of the employees, collective
bargaining agreement benefits, and de minimis benefits.

De minimis benefits are benefits provided on top of the employee’s basic compensation
for his or her general welfare. These benefits are relatively of small value and are not considered
as part of the taxable compensation of the employee. The amount of these benefits is a deductible
salaries expense of the employer. De minimis benefits include monetized value of unused leaves
not exceeding 10 days leave credits, monetized value of vacation and sick leave crdeits for
government officials and employees, medical cash allowance not exceeding P5 000 per year,
actual medical assistance per year not exceeding P10 000, laundry allowance not to exceed P300
per month, employee achievement monetary value or gifts not to exceed P10 000 per year,
Christmas and major anniversary gifts not exceeding P5 000 per year, daily meal allowance for
overtime and night/graveyard shift not exceeding 25% of the basic minimum wage, and
collective bargaining agreement benefits not to exceed P10 000 per year. All other benefits given
by employers not mentioned above shall not be considered de minimis benefits and, therefore,
shall be subject to income tax as well as withholding tax on compensation income.
Salary
Is an amount of money paid to the employee or a fixed compensation paid for regular
service (with contract once hired by the employer)
Example:
P12,000 regular monthy salary
P150/hour for regular services rendered
Wage
Is a payment for labor or services usually according to contract and on an hourly, daily or
piecework basis.
Example:
P350.00 – a day for janitorial job
P80.00 – per chair (piece work)
P25,000 – payment as project-based on one project like construction
Income
Money that is earned from work, investment, business, etc.
Example:
Salaries and wages
Profits from business

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 Earned commisions/deals/transactions
Benefits
are good or helpful result or effect, money paid such as insurance, something extra or
additional pay given by employer to workers in addition to their regular pay or basic pay.
Example:
Christmas Bonus
13th month pay
Pensions
Vacations/sick leaves

Describe the following terms and give one example to each item.
1. Income

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_________________________________________________________________________________
_________________________________________________________________________________

2. Benefits

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

3. Salary

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

4. Taxes

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

5. Benefits
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

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 6. Earnings

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

7. Overtime pay

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

8. Value-added Tax

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

9. Income Tax

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

10. Real Estate Tax

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

REFERENCE:
Agcaoli, Zenaida A., et Al. Business Operations: Mathematics of investments.
Philippines: Mutya Publishing House, 2001
Picar, J . Worktext in General Mathematics for Grade 11: A Comprehensive Approach:
Dioscesan Printing Press and Publishing Inc.

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