The Basics of Salary and Benefits Packages

Previously working as a compensation analyst, Danica has extensive knowledge in total rewards packages. She goes in depth with it in this article.


I recently put up a salary survey service here in our website and I’ve been getting a lot of questions about it. To my surprise, a lot of people still don’t know what salaries and benefits all are about.


I worked in an HR labor market intelligence firm as my first job. Despite my pretty short stint, it’s where I learned a lot about total rewards or compensation (salary) and benefits packages. I guess I didn’t realize how complex it really is for some people.


What are total rewards?

Total rewards is the package given to employees by employers to pay for the service employees render for the company. Now, total rewards packages vary from employer to employer even from nation to nation. But for simplicity’s sake, we’ll just be talking about the total rewards packages commonly being provided by employers in the Philippine market. I also need to mention that the following information only applies to private employees in the Philippines.


There are two parts of the total rewards package – the compensation (salary) and the benefits. Most people only know that they’ll be getting salaries and even if they do receive benefits, they don’t exactly see the very value of it.


In this article, we will be talking more about these parts and why it is valuable.





1. Compensation (Salary)

Compensation has two kinds – the “basic salary” and the “salary package”.

Let’s say you go into an interview and the hiring manager asks you for your asking pay. Pretend that you told him that you’re asking for PHP 35,000.00 a month. Expect that some hiring managers, in the hopes of making it very clear, will be probing you more with the following question:


“Is this basic or package?”

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The basic salary is the agreed upon salary between employer and employee before mandatory government deductions, non-taxable cash allowances, and incentives/commissions. If you say that you’re asking for PHP 35,000.00 as JUST your basic pay and if the employer provides non-taxable cash allowances and incentives/commissions, you will be getting more than the rate you gave in your monthly payroll.


But if you answer that you’re satisfied with it as a “package” the amount might not be a guarantee every month, depending on the parts of the salary package. The salary package is a total of the basic salary, the non-taxable cash allowances, and the incentives/commissions.


To illustrate why this is not a guarantee per month, allow me to show you the following equations:


SALARY PACKAGE (with provisions of non-taxable cash allowances and incentives/commissions)


= BASIC SALARY + NON-TAXABLE CASH ALLOWANCES + INCENTIVES/COMMISSIONS


The above is definitely NOT a guarantee. Even with mandatory deductions, you can’t really predict the amount of cash you’ll be getting upon payroll if incentives/commissions come to play. This is simply because incentives/commissions are performance-based and sometimes, depending on the incentive/commission scheme, you may not get any of it if external factors come to play (e.g. global recession resulting to decreased sales).

Consider this next equation:


SALARY PACKAGE (with provisions of non-taxable cash allowances ONLY) = BASIC SALARY + NON-TAXABLE CASH ALLOWANCES


For this package, I can firmly say that it’s much easier to predict the outcome every month even with mandatory deductions. Note, however, that allowances are non-taxable. So if, let’s say, you belong to the tax bracket that deducts 10% of your salary per month, make sure to ONLY deduct 10% of your basic salary BEFORE adding up the non-taxable allowances. This is so because, as implied, non-taxable allowances are not affected by tax.


Now let’s check out this last equation:

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SALARY PACKAGE (with provisions of incentives/commissions ONLY) = BASIC SALARY + INCENTIVES/COMMISSIONS


Given the logic of the explanations above, this salary package is also not a guarantee. You may or may not have a payroll higher than the basic salary. It will highly depend on external and internal factors for performance.


Now, non-taxable allowances and incentives/commissions are actually under the category of “benefits” despite being in the form of cash. The next section will be explaining more about this:


2. Benefits

Benefits have two kinds – mandatory government benefits and company-provided benefits. Mandatory government benefits are commonly seen in the monthly deductions on our payroll slip. They are SSS, PhilHealth, and PAGIBIG. Learn more about them in the following:


Mandatory Government Benefits

1. SSS – is the social security benefit that provides benefits like maternity/paternity leave, death benefit, disability benefits, sickness benefits, and pension.

2. PhilHealth – is the supposedly universal health care system in our country that provides inpatient and outpatient services to employees who have contributed to a specific extent.

3. PAGIBIG – is the benefit for housing loans as well as short-term loans and provident funds.


Philippine employees are also entitled to the service incentive leave which is the required 5-day straight paid leave given after 1 year of tenure. Besides this, every employee is also entitled to the 13th month pay which is more or less equal to the basic pay given before December 24 of every year.


Company-provided benefits

There are A LOT of company-provided benefits an employer can give an employee. I’m not very much familiar with all of it because employers have the freedom to be creative about it to motivate employees. But here are the following ones I’m knowledgeable about:


Non-taxable cash allowances

They are described in many forms such as rice allowance, laundry allowance, and clothing allowance but generally they are just given in sum during payroll in the form of cash.


Cash Reimbursements

Cash reimbursements are different compared to non-taxable cash allowances. This is because, an employee can only claim this benefit if he presents a receipt proving that they spent something for that particular purpose. Example would be if they spent money on medicine, then their medical reimbursement benefit can provide either a subsidy or full reimbursement for that expense.

Incentives/Commissions


As mentioned, they are performance-based and are not a guarantee. I’ve observed two kinds of incentives – 1) the one that grants 0-X months worth of basic salary depending on performance; and 2) the one that grants a specific percentage of the basic salary every time good performance is done.


For commissions, this is mostly sales driven and they have targets. If an employee reaches a sales target whether monthly, quarterly, or yearly, a percentage of the collected sales will be given to the employee depending on agreed upon schedule.

Health Maintenance Organization (HMO) or Health Card.


HMOs are a big help for health emergencies. What if you need to get hospitalized? What if you don't have enough money to go see a particular doctor? This benefit enables the employee to have a certain limit per year for inpatient and outpatient medical expenses. It varies per plan like for example Maxicare has a PHP 60,000.00 limit per year for their silver plan and it can go as high as PHP 150,000.00 limit per year, if I remember correctly.


Paid leaves

The most common paid leaves are the vacation leave and the sick leave. However, there are also other leaves that can be provided such as the bereavement leave, the emergency leave, and the family leave.


Vacation Leave – can be used to just simply chill and literally have a “vacation”.

Sick Leave – can be used whenever you’re sick. In my observation, most employers ask employees to give a medical certificate if the employee did a 3-day straight sick leave due to fever or for whatever health reasons.

Bereavement Leave – can be used when somebody dies in the family so that the employee can have time to grieve or prepare for the funeral.

Emergency Leave – can be used for whatever “emergency” there may be that cannot be scheduled beforehand.

Family Leave – I haven’t seen much of this but from employers who provide this, they gran