b. Built-in Overtime

Composite or package pay is not per se illegal

Composite or “package pay” or “all-inclusive salary” is an arrangement where the employee’s salary includes the overtime pay. The overtime pay is “builtin” (Trans-Asia Phils. Employees Association v. NLRC, G.R. No. 118289, 1999)

Two conditions for validity of such arrangement:

• There is a clear written arrangement knowingly and freely entered by the employee; and
• The mathematical result shows that the agreed legal wage rate and the overtime pay, computed separately, are equal to or higher than the separate amounts legally due (Damasco v. NLRC, G.R. No. 115755, 2000)