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Business Law Practice Atty.

Jose Cochingyan III


MODULE 1: HUMAN RESOURCE ISSUES ON COMPENSATION 1. LABOR STANDARDS 1.1 General Principles on Wages 1.1.1 Non-diminution of Benefits: LC ART. 100 Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code. LC ART. 127 Non-diminution of benefits. No wage order issued by any regional board shall provide for wage rates lower than the statutory minimum wage rates prescribed by Congress. x------------------------------------x 1.1.1.1 Company Practice or Oversight? Globe Mackay Cable & Radio Corp v NLRC Facts: Respondents are employees of Petitioner Wage Order # 6 was enacted October 1984 to increase the cost of living allowance (COLA) for non-agricultural private sector by P3.00/day. Petitioners computed this on the basis of 22 working days/month. Respondent countered that it should be 30 days/month as has been company practice; which, according to them should not be unilaterally withdrawn Labor Arbiter ruled in favor of Petitioner NLRC reversed LA decision Issue: W/N the previous 30days/month can be considered company practice & as such, cannot be unilaterally withdrawn? Held: No company practice. NLRC reversed.

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No proof was presented that there has been a long company practice of 30day/month computation of COLA. To be considered as such, there must be proof that aside from being practiced over a long period of time, it must also be consistent and deliberate. However, based on Wage Orders # 2, 3, 5 & 6, the COLA is computed based on the computation of the days they are paid their basic wage, even if unworked. According to their CBA, the basic wage is computed based on 22 days/month or 5 days/week. As the CBA is law between the parties, this must be followed. Should the respondents have felt that this was a diminution of benefits, they should have sought to renegotiate said CBA. In addition, the previous Wage Order # 4 lacked administrative guidelines. But when the implementing rules were released, the computation for the conversion of daily allowance was included, which specified a 22 day/month basis. Thus, since the company has been practicing an erroneous application of the law, and as it has been basis such errors on the absence of clear administrative guidelines for Wage Order # 6, it cannot be faulted for such. And as a past error is actually being corrected, respondents cannot be said to have a vested right on the benefits of an erroneous application of the law. Manila Electric Co v Quisumbing Facts: This is a petition for certiorari of MERALCO seeking to annul the orders of SOLE requiring MERALCO and its rank and file union (MEWA) to execute a collective bargaining agreement (CBA) for the remainder of the parties 1992-1997 CBA cycle, and to incorporate in this new CBA the Secretarys dispositions on the disputed economic and non-economic issues which includes: 1) Wage increases of P2,200.00 for 1996 and P2,200.00 for 1997; 2) The following economic benefits:

Business Law Practice Atty. Jose Cochingyan III


Two months Christmas bonus; Rice Subsidy and retirement benefits for retirees; Loan for the employees cooperative; Social benefits such as GHSIP and HMP for dependents, employees cooperative and housing equity assistance loan; e. Signing bonus; f. Integration of the Red Circle Rate Allowance g. Sick leave reserve of 15 days h. The 40-day union leave; i. High pole/high voltage and towing allowance; and j. Benefits for collectors 3) Exercising discretion in determining the retroactivity of the CBA; Issue: W/N the SOLE committed GADALEJ in his Orders? HELD: YES. The SC found that the SOLE committed GADALEJ in certain aspects of his Orders. The issue her related to Company Practice is on the XMAS BOUNUS. MERALCO argued that the SOLE erred when he recognized that there was an established practice of giving a twomonth Christmas bonus based on the fact that bonuses were given on or about Christmas time. It pointed out that the established practice attributed to MERALCO was neither for a considerable period of time nor identical in either amount or purpose. As a rule, a bonus is not a demandable and enforceable obligation; it may nevertheless be granted on equitable consideration as when the giving of such bonus has been the companys long and regular practice. To be considered a regular practice, the giving of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate. Thus we have ruled in National Sugar Refineries Corporation vs. NLRC: The test or rationale of this rule on long practice requires a. b. c. d.

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an indubitable showing that the employer agreed to continue giving the benefits knowing fully well that said employees are not covered by the law requiring payment thereof. The record shows that MERALCO, aside from complying with the regular 13th month bonus, has further been giving its employees an additional Christmas bonus at the tail-end of the year since 1988. While the special bonuses differed in amount and bore different titles, it cannot be denied that these were given voluntarily and continuously on or about Christmas time. The considerable length of time MERALCO has been giving the special grants to its employees indicates a unilateral and voluntary act on its part, to continue giving said benefits knowing that such act was not required by law. A company practice favorable to the employees has been established and the payments made by MERALCO pursuant thereto ripened into benefits enjoyed by the employees. Consequently, the giving of the special bonus can no longer be withdrawn by the company as this would amount to a diminution of the employees existing benefits. SC, however, denied the SOLEs award of a two-month special Christmas bonus since there was no recognized company practice of giving a two-month special grant. Twomonth special bonus was given only in 1995 in recognition of the employees prompt and efficient response during the calamities (Anlabo!). National Federation of Labor v CA Facts: Respondent ARCI is the owner of a rubber plantation Respondent entered into a Farm Management Agreement (FMA) with SDPI Petitioner NFL is the bargaining agent of SDPI employees in the Latuan Plant CBA states that in case of permanent and temporary lay-off, the employees are entitled to separation pay Comprehensive Agrarian Reform Law (CARL) took effect in 1988 stating that all lands of public domain leased or possessed by non-government entities, devoted to

Business Law Practice Atty. Jose Cochingyan III


agricultural industries must be acquired and distributed after 10 years from the effectivity of the CARL, or upon the expiration of the contract, whichever is sooner. SDPI did not renew the FMA with ARCI Petitioners received separation pay equivalent to month/year of service, despite SDPI paying the equivalent of 1 month salary/year of service to employees that were laid off in the past. Petitioners benefits were also lumped into one check, despite its previous request to segregate the regular benefits from the separation pay Petitioners were also required to sign a Release and Quitclaim upon receipt of the checks Labor Arbiter ruled that the termination was proper - Closure of SDPI was due to CARL - CBA stated that separation pay would be based on a month/year of service - Petitioners already signed the quitclaim, which was equivalent to a waiver of future complaints regarding the separation pay NLRC affirmed LA

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granting separation pay of 1 month/year of service to retrenched employees before the closure of the business because: 1. No provision in the CBA fixing the separation pay of those terminated for authorized causes 2. Employees who were terminated prior to the closure of the business were due to redundancy, and as such, were actually entitled to separation pay of 1 month salary/year of service pursuant to the Labor Code. Sevilla Trading Co v Semana Facts: Petitioner is Sevilla Trading Co Respondent is the union for employees of Petitioner For 2-3 years prior to 1999, petitioner has been computing 13th month salary based on the basic pay PLUS other benefits, such as overtime, maternity & paternity leave, holiday pay, vacation & sick leave, etc. Petitioner left the computation of the 13th month pay to its payroll employees. However, after changing the person in charge of payroll and upon audit, they discovered the error of including non-basic pay in the figures it used for the computation of the 13th month pay. Based on the 13th month pay law, it shall be computed using the net basic pay as base, excluding other benefits. Respondents questioned the recalculation of the 13th month pay as being violative of the non-diminution of benefits pursuant to the Labor Code. Voluntary Arbitrator ruled in favor of respondents Issue: W/N there was a violation of the non-diminution provision in the recalculation of the 13th month pay? Held: Yes. Petitioner must revert back to the old computation of the 13th month pay and include other benefits in the base. Although petitioner claims that it is merely correcting a mistake, this is not sufficient to justify the diminution of benefits it previously provided. Petitioner failed to explain why mistakes were made in the computation despite clarity in

Issue: W/N there was a diminution of benefits based on alleged company practice of paying the equivalent of 1 month salary/year of service? Held: No diminution of benefits. month salary/year computation upheld. Art. 283 of the Labor Code provides that employees who were dismissed not due to closure of the business, but not due to insolvency should receive the equivalent of 1 month salary or month salary/year of service, with 6 months being counted as 1 year. As the closure of the business was done in good faith due to the effectivity of the CARL, and because of the silence of the CBA as to the method of computing the separation pay, the Labor Code provision shall govern. There was also no company practice violated despite SDPI

Business Law Practice Atty. Jose Cochingyan III


statute & jurisprudence. Petitioners contention that this is the same case as Globe Mackay, wherein the Court ruled in favor of correcting the mistake of the company, is wrong. In Glboe Mackays case, they were not guilty of unilaterally withdrawing what was allegedly considered as long company practice, because it was actually not long company practice. Globe Mackay thought that they were supposed to compute the COLA based on a 30day/month basis due to an absence in implementing rules. In this case, however, the Petitioners knew fully well that they were computing the 13th month pay by including other benefits in its base. Despite the presence of clarificatory jurisprudence and implementing rules, Petitioner still included other benefits in computing the 13 th month pay. In addition, it can also be considered long company practice that cannot be unilaterally withdrawn because this has been the practice of the company for at least 2 years. Thus, petitioner must revert back to its old computation of 13 th month pay by including other benefits in computing its base. TSPIC Corp v TSPIC Employees Union Facts: Petitioner designs, manufactures & markets integrative circuits for data processing industries Respondent is the bargaining agent of r&f employees of Petitioner CBA for 2000-2004 included a provision on yearly salary increase from Jan 2000-Jan 2002. (10% in 2000, 12% in 2001, 11% in 2002) And any subsequent Wage Salary Increase Order (after Wage Order # 7) shall be deemed included in the 12% & 11% salary increase granted for the 2001 & 2002, respectively. CBA also provided that a proportionate increase shall be granted to those who attain regular employment status in the middle of the year and after the effectivity of the increase. (100% for 1st Q, 75% for 2nd Q, 50% for 3rd Q, 25% for 4th Q) Wage Order # 8 was implemented on October 2000, raising

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the daily minimum wage from P223.5 to P250, effective November 2000. In 2001, some employees were informed that they were overpaid & that their overpayment will be deducted from their salaries in a staggered basis. Respondents averred that this was a violation of the nondiminution of benefits provision of the LC Voluntary Arbitrator ruled in favor of Respondents CA affirmed VAs ruling

Issue: W/N Petitioners decision to deduct overpayment from the salaries constituted a violation of the non-diminution of benefits provided in the LC? Held: No. There was no violation of the non-diminution provision. Pursuant to the CBA, which is law between the parties, Petitioner granted the salary increase for 2001 & 2002. This was the general provision in the CBA. However, there was a special provision following such, which stated that any subsequent increase mandated by a Wage Order subsequent to Wage Order # 7 shall be deemed credited or included in the salary increase for said years. Thus, the wage increase granted by Wage Order # 8 should be credited against or subtracted from the 12% salary increase supposedly granted in 2001. The difference is the one, which should rightly be considered as the increase in 2001. Diminution of benefits is defined as: 1. The grant is founded on a policy that has ripened into practice for a long period of time 2. Practice is consistent and deliberate 3. Practice is not due to error in interpretation of doubtful question of law 4. Diminution is done unilaterally by employer Petitioner proved that the overpayment was done as a result of an error, which was immediately rectified by Petitioner. Since it is a past error that was committed, there can be no vested right nor any diminution in benefit.

Business Law Practice Atty. Jose Cochingyan III


ARCO Metal v Samahan ng mga Manggagawa Facts: In December 2003, petitioner paid 3 employees a prorated equivalent for 13th month pay, bonus & leave benefits, as said employees have not rendered service for a full year. Respondents contend that several times in the past, petitioner did not prorate the benefits given to employees who were also not able to serve for a full year by December. Voluntary arbitrator found in favor of petitioner, stating that the past giving of full benefits were mere errors. CBA also stated that in order to be entitled to full benefits, the employee must have rendered one year of service. CA ruled in favor of respondents saying that the past errors already constituted voluntary practice of the company in paying the full benefits regardless of whether or not the employee rendered a full year of service. Issue: W/N the payment of full benefits by Petitioner in the past regardless of actual service rendered constitutes voluntary employer practice? Held: Yes. Payment of full benefits in the past shall be considered voluntary employer practice. Petitioner was correct in stating that the CBA clearly provides that in order for the employee to be entitled to full benefits, he must first have rendered at least one year in service. However, it faltered in stating that the errors committed in paying out the full benefits in the past were merely clear oversight[s]. For several years, petitioner voluntarily and freely paid out full benefits regardless of the length of service rendered. Although jurisprudence is replete in determining the number of years it must be exercised to constitute long employer practice, petitioner can no longer claim that it was an error, as this practice has been done at least 7 times in the past. Petitioner should have presented evidence showing that full benefits were not granted in the past to those who did not render a full year of service, insteadof just showing an

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affidavit from the head of the manufacturing department. x------------------------------------x 1.1.1.2 Transfer to Another Position Norkis Trading v Gnilo Facts: Respondent was an employee of Petitioner, but was subsequently assigned to its sister company as Credit and Collection Manager in Legaspi. When an audit was conducted, it was found that the collection reports were padded by showing a more favorable collection efficiency than what it actually was. Respondent was charged with negligence of duties, as he failed to check the reports before submitting the same to top management. Petitioner suspended respondent without pay and benefits for 15 days. Respondent appealed his suspension and requested that he be assigned as Sales Engineer or to any position commensurate to his qualifications. However, petitioners SVP appointed him as Marketing Assistant, which respondent agreed to. But respondent filed a complaint for illegal suspension, constructive dismissal & non-payment of benefits. LA ruled in favor of Petitioner NLRC reversed Issue: W/N respondents transfer of position constitutes constructive dismissal? Held: Yes. Respondents transfer of position was equivalent to a constructive dismissal. Constructive dismissal is defined as quitting because continued employment is rendered impossible or unreasonable, as when there is a demotion in rank or diminution in pay or benefits. Although respondents salary was not reduced, there was a reduction in duties and responsibilities, which amounted to

Business Law Practice Atty. Jose Cochingyan III


demotion tantamount to constructive dismissal. In addition, his benefits were reduced when the service car was no longer available to him as a Marketing Assistant. Rural Bank of Cantilan v Julve Facts: Petitioner appointed respondent as Planning and Marketing Officer. Petitioners president subsequently issued a memorandum abolishing the position of planning and marketing officer, pursuant to its Personnel Streamlining Program. Petitioner transferred respondent to a bookkeeper position with no diminution in salary. Respondent withdrew his agreement to the new appointment. Petitioner then also assigned him as Assistant branch head, which respondent still failed to accept. Respondent filed a complaint for constructive dismissal. Labor Arbiter ruled in favor of respondent NLRC reversed LA CA reversed NLRC and reinstated LA ruling Issue: W/N respondent was constructively dismissed? Held: No. Respondent was not constructively dismissed. Respondents new position as bookkeeper and assistant branch head entailed great responsibilities, as this is equivalent to being the head of the accounting department of a branch. In addition, he did not receive a diminution in pay. The transfer of respondent was pursuant to a valid Personnel Streamlining Program, which not only affected him alone, but also others in his position. Also, despite respondents refusal to accept the new appointment, petitioners did not dismiss him, as it was respondent who, himself, opted to terminate his own employment when he purposely failed to report for work. Philippine American Life v Gramaje

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Facts: Respondent was hired as Assistant VP & Head of Pensions Dept, and concurrently as Trust Officer of Philam Savings Bank. Respondents employees in her department were subsequently transferred and were not replaced prompting respondent to run the entire department on her own. Respondent availed of car and housing benefits in 1998. Petitioners, however, offered her P250,000 to vacate her office instead, which respondent refused, as there was no valid reason for her to leave. In December 1998, Petitioners chairman of the board met with respondent reiterating their request for her to vacate her office, which respondent still denied. Petitioners transferred her to the Legal Department a few days after. Petitioners immediately appointed a replacement for her previous position as head of pensions department. During Christmas season, respondent sought the annual gifts from Philam to its employees, but she realized that she was not even on the companys list of employees. Respondent then filed a complaint for illegal or constructive dismissal. LA ruled in favor of Petitioners. NLRC affirmed LA CA reversed NLRC Issue: W/N respondent was constructively dismissed? Held: Yes. Respondent was constructively dismissed. Although the transfer of positions may be a management prerogative, this should still be done in accordance with the limits set by law. The transfer of respondent was actually met with bad faith or discrimination, as it was shown that the position was already advertised as vacant way before petitioner transferred her to the Legal Department. Also, despite respondent meeting the standards for her department set

Business Law Practice Atty. Jose Cochingyan III


by Petitioner, petitioner still chose to transfer her to the Legal Department, which negates petitioners reasoning that the transfer was due to respondents failure to meet the companys standards. Plus, her transfer was unreasonable and inconvenient, as she has not adequate exposure in the field of litigation. In addition, respondent was left to run the entire Pensions Department on her own, as petitioners failed to field employees after transferring them to other departments. Lastly, petitioners failed to reply to respondents rejection letter in response to their P250,000 offer for her to vacate the position as head of the Pensions Department. There being an obvious case of discrimination, respondent had no choice but to forego her continued employment with the company, as being equivalent to constructive dismissal. Mendoza v Rural Bank of Lucban Facts: Respondent Board of Directors released a resolution stating that there will be a reshuffling of the banks employees to familiarize them with various phases of bank operations & to strengthen the internal control system. Pursuant to said reshuffling, petitioner was transferred from Appraiser to Clerk-Meralco Collection. Petitioner sent a letter to respondent, stating his disdain in the transfer, further averring that his transfer was due to intrigues caused by the malicious machinations of respondents Chairmans good friend. Respondent merely reminded Petitioner that the transfer was done in order to strengthen the internal control system of the bank Petitioner requested for a leave of absence, which he used to file a complaint for illegal dismissal and underpayment. LA ruled in favor of petitioner NLRC reversed CA affirmed NLRC Issue: W/N petitioner was constructively dismissed? Held: No. Petitioner was not constructively dismissed.

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Constructive dismissal is an involuntary resignation resorted to when continued employment us rendered unreasonable or impossible, when there is diminution in rank or pay, or when clear discrimination becomes unbearable to the employee. None of these were present in petitioners case. There was a valid reason for petitioners transfer, as was reiterated by respondent. Respondent was then able to overcome the burden that petitioners dismissal was unlawful. x------------------------------------x 1.1.1.3 Demotion Leonardo v NLRC Facts: Petitioner Fuerte was hired by Private respondent Reynaldo Marketing Corp as a muffler specialist, and was subsequently promoted to supervisor. Petitioner Leonardo was also hired by respondent as mechanic. Fuerte alleged that respondent eventually transferred him to the Sucat plant for failure to meet the sales quota, while Leonardo was dismissed by respondent. Both filed a complaint for illegal termination LA ruled in favor of petitioners NLRC reversed LA Issue: W/N petitioners were illegally dismissed? Held: No. They were not illegally dismissed. Fuertes demotion was not equivalent to a dismissal. His demotion was due to a valid cause to promote competition among the employees of respondent. As he was unable to meet the monthly sales quota, he was rightly demoted and allowance withheld. Leonardo was also not illegally dismissed, as it was he who voluntarily left his post after an investigation was initiated to

Business Law Practice Atty. Jose Cochingyan III


look into his sideline business. As the company validly demoted Fuerte, following company policy of doing so should the employee fail to meet the standards set, there was no constructive or illegal dismissal. It was well within managements prerogative to do so. Blue Dairy Corp v NLRC Facts: Respondent was hired by petitioner as a food technologist. Respondent joined the Production Manager one day in one of the visits of the clients outlet, where the company car they were riding was hit by a post as it fell due to the strong winds. Respondent was, however, subsequently transferred to the vegetable processing section, and was no longer allowed to enter the laboratory. Respondent filed a complaint for constructive dismissal. LA ruled in favor of respondent NLRC affirmed Issue: W/N respondent was constructively dismissed? Held: Yes. Respondent was constructively dismissed. Although it may be a management prerogative to transfer employees within the company, based on each employees qualifications, it must still be done within the limits provided by law. Since the petitioner failed to show that the transfer was not unreasonable or it did not result in a diminution in pay or benefits, they were not able to overcome the presumption of constructive dismissal. In addition, petitioner also failed to show that the demotion of respondent was valid. Its only reasoning was the incident when they visited a clients outlet. According to petitioner, respondent was scouting for houses using the company car and during office hours. However, respondent was never given the opportunity to refute the narrations of the company driver.

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x------------------------------------x 1.1.1.4 Right to a Work Schedule/Full Work Week Manila Jockey Club Employees Labor Union v MJC, Inc Facts: Respondent was granted a legislative franchise to operate and maintain horse races. Petitioner entered into a CBA with respondent CBA stated that the work day shall be composed of 7 hours starting from 9am to 5pm. Respondent, however, eventually changed the schedule for Tuesday and Thursday to 1pm 8pm when horse races are held. Petitioner averred that this violated the non-diminution in benefits clause of the Labor Code, as they were now precluded from rendering the usual overtime work from 5pm-9pm Voluntary Arbitrators found in favor of respondent Issue: W/N there was a violation of the non-diminution of benefits, as stated in the Labor Code? Held: No. It was managements prerogative to change the work schedule of the regular employees. The change in work schedule was validly done, pursuant to the change in horse race schedules. As the horse races no longer started at 10am, but at 2pm, there was no work to be done in the morning. Even the CBA recognized the prerogative of respondent to adjust the work schedule of the employees, provided the 7-hour work per day is followed. In addition, respondent was not obliged to pay overtime pay, as the CBA merely states that any work done in excess of 7 hours shall be compensated. Management still had the right to determine whether or not work was actually done in excess of the 7 hours mandated by the CBA. As this was not company practice, having only given overtime occasionally, there can be no diminution in benefits.

Business Law Practice Atty. Jose Cochingyan III


Unicorn Safety Glass v Basarte Facts: Respondent employees worked for petitioner with a 6-day work schedule Peititoner eventually informed respondent that their workdays shall be reduced due to economic considerations (decrease in sales, increase in minimum wage, etc) Respondents expressed their dismay in the decreased workdays Petitioners, however, again informed them of an impending work rotation schedule, which would, in effect, lessen their workdays even more to only 3 days a week. Respondents filed a complaint for constructive dismissal LA ruled in favor of respondents NLRC affirmed CA reversed NLRC & LA rulings Issue: W/N respondents were constructively dismissed? Held: Yes. Respondents were constructively dismissed. Constructive dismissal does not always take diminution in pay or benefits. It may also be the employer was clearly discriminatory, rendered it impossible or unbearable for the continue working there. the form of a that an act of such that it employees to

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diminution of benefits and non-payment of holiday pay LA ruled in favor of petitioner NLRC reversed

Issue: W/N respondents are entitled to bonuses? Held: No. Respondents are not entitled to bonuses. Respondents have been given bonuses for the past 13 years, as such, they reason that this has already become a vested right. However, the petitioners are correct in pointing out that due to financial losses and its present condition being under conservatorship, they cannot be compelled to pay the alleged bonus differentials. Bonuses are amounts granted and paid to an employee for his industry and loyalty which contributed to the success of the business. This is a management prerogative as something given in addition to what is ordinarily received by or strictly due to the recipient. Thus, it is not an enforceable or demandable obligation, specially when the employer is already experiencing deep financial losses. x------------------------------------x 1.1.1.6 Increasing the Divisor Trans-Asia Phils Employees Assoc v NLRC Facts: Petitioners and Respondents entered into a CBA which provided that a 200% holiday pay would be given, plus a 60% premium. Petitioners requested for the payment of holiday pay in arrears but was not granted by respondent Petitioner then filed a complaint with the LA Issue: W/N Respondents are liable for holiday pay? Held: No. Respondents have already incorporated the payment for legal holidays in the monthly salary of the employees.

Although management has the prerogative to lessen the work schedule of its employees, it may only do so for valid business reasons. In the case at bar, the employees failed to show that the rotation schedule was actually done with good faith and with due regard for the rights of labor. x------------------------------------x 1.1.1.5 Right to a Bonus Producers Bank v NLRC Facts: Respondents are employees of petitioner Respondents filed a complaint against

petitioner

for

Business Law Practice Atty. Jose Cochingyan III


Petitioners contend that their monthly salaries did not have the allowance for the payment of legal holiday pay, as nothing in their payslips indicated that such payment was given. However, respondents contend that they have long been using the 286-day divisor in computing for the employees overtime pay and daily rate deductions for absences. 52 x 44 8 = 286 days

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unworked Sundays from 366 (total number of days per year). The factor used merely complies with the basic rule, no work, no pay. x------------------------------------x 1.1.1.7 Consultancy Arrangements on Employment with Related Company Top of

where 52 = # of weeks in a year 48 = # of work hours per week 8 = #of work hours per day 286 already takes into account the 10 legal holidays in a year, as it only subtracts the 52 Sundays and 26 Saturdays (employees are required to work day every Saturday). However, the court still suggests that there is a need to adjust the 286 day divisor to 287 for computations which would be advantageous to the laborer, such as in computing the deductions for absences. 287 divisor is arrived at by taking into account EO 203, taking into account 2 additional special holidays (all saints day & last day of the year) and subtracting one legal holiday (national heroes day, which always falls on a Sunday). Arellano University v CA Facts: Petitioner filed a Notice of Strike with the NLRC charging respondents with violation of Unfair Labor Practice, including a diminution in benefits by using 314 days as divisor in computing the daily wage of the workers. Although NLRC tried to mediate, petitioners still staged a strike Issue: W/N there was a diminution in benefits due to respondent using 314 as divisor? Held: No. There was no diminution in pay. Respondents use 314 as they merely deducted the 52

Siemens Philippines v Domingo Facts: In 1987, Domingo signed an Employment Contract with MATEC (a subsidiary of Siemens Philippines) as a consultant. Thereafter, Domingo was given additional work by MATEC, in which he was paid on top of his original salary. The extra work was the result of a contract entered into by MATEC and Siemens Germany (a German company which has an investment in Siemens Philippines), whereby MATEC, at the request of Siemens Germany, hired Domingo to handle the operation of OEN OEV TD. On January 1992, ETSI (a subsidiary of Siemens Philippines) availed of Domingos services as assistant manager. The Contract of Employment of Domingo with ETSI provides that the latter shall have the right to assign the said contract in favor of Siemens Philippines. On March 16, 1992, while still an assistant manager of ETSI, Domingo was hired as a consultant by Siemens Germany in the field of text and data networks for a period of twelve (12) months. As compensation, he received DM20,000.00, payable once for every twelvemonth period. On March 31, 1992, Siemens Germany sent a letter to ETSI guaranteeing the consultancy agreement. On June 1, 1992, Domingo signed a Contract of Employment with Siemens Philippines. In, 1993, while Domingo was already in the employ of Siemens Philippines, Siemens Germany extended the consultancy agreement with Domingo for another twelve (12) months. Again, in 1994, Siemens Germany renewed the consultancy agreement with Domingo for another six (6) months expiring on September 1994. Complacent that the consultancy agreement would be renewed in accordance

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Business Law Practice Atty. Jose Cochingyan III


with the guarantee letter, Domingo continued to render service as a consultant despite the absence of a formal notice of renewal. On October 31, 1994, Siemens Philippines sent a letter to Domingo proposing a new incentive scheme. Incentive scheme was, in effect, a replacement of his consultancy contract with Siemens Germany under which Domingo would receive a sales compensation package of only 20% of his original peso salary. Feeling humiliated by the diminution of his salary, Domingo was forced to resign. Domingo filed a complaint for illegal dismissal. Labor Arbiter: Illegally Dismissed. NLRC: Not Illegally Dismissed. CA: Constructively Dismissed. Issue: W/N there was constructive dismissal? Held: Yes. The gauge for constructive dismissal is whether a reasonable person in the employees position would feel compelled to give up his employment under the prevailing circumstances. Constructive dismissal is defined as quitting when continued employment is rendered impossible, unreasonable or unlikely as the offer of employment involves a demotion in rank or diminution in pay. It exists when the resignation on the part of the employee was involuntary due to the harsh, hostile and unfavorable conditions set by the employer. It is brought about by the clear discrimination, insensibility or disdain shown by an employer which becomes unbearable to the employee. An employee who is forced to surrender his position through the employers unfair or unreasonable acts is deemed to have been illegally terminated and such termination is deemed to be involuntary. Domingos resignation was brought about by the decision of the management of Siemens Philippines not to renew or work for the renewal of his consultancy contract with Siemens Germany which clearly resulted in the substantial diminution of his salary. The argument of Siemens Philippines that it is not privy to the consultancy agreement between Domingo and Siemens Germany is unacceptable. By virtue of its employment contract with Domingo, Siemens Philippines stepped into the

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shoes of ETSI as Domingos employer. The stipulation in the contract that Domingo shall suffer no diminution in salary, benefits and privileges that he enjoyed as employee of ETSI is, in effect, assumption by Siemens Philippines of ETSIs obligations and commitments. There was a commitment by Siemens Germany that the consultancy contract would continue as long as Domingo remained an employee of ETSI; and Domingos employment with Siemens Philippines was merely a continuation of his employment with ETSI. While Siemens Philippines is not a party to the arrangement between Siemens Germany, ETSI and Domingo, knowledge of and acquiescence to if not actual concurrence in the arrangement can be imputed to Siemens Philippines as to bind it to the arrangement as supported by: 1st. Intimate corporate relationship of Siemens Germany and Siemens Philippines, including the practice of the two companies of integrating their workforce 2nd. Siemens Philippines never questioned the continued consultancy work of Domingo with Siemens Germany, not even when the consultancy agreement was renewed twice during the lifetime of Domingos contract of employment with Siemens Philippines. 3rd. Guarantee letter issued by Siemens Germany in favor of Domingo was never questioned, much less revoked by Siemens Philippines when it assumed the employment of Domingo. 4th. Consultancy agreement was a form of benefit or privilege given to Domingo by ETSI, a privilege that was allowed by Siemens Philippines to continue when it took over the majority of the business activities of ETSI and, consequently, became Domingos employer. x------------------------------------x 1.1.2 Forms of Payment:

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Business Law Practice Atty. Jose Cochingyan III


LC ART. 102 Forms of payment. 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 and Employment or as stipulated in a collective bargaining agreement. OMNIBUS RULES IMPLEMENTING LC BOOK III, RULE VIII, SEC 1 & 2 SECTION 1. Manner of wage payment. As a general rule, wages shall be paid in legal tender and the use of tokens, promissory notes, vouchers, coupons, or any other form alleged to represent legal tender is absolutely prohibited even when expressly requested by the employee. SECTION 2. Payment by check. Payment of wages by bank checks, postal checks or money orders is allowed where such manner of wage payment is customary on the date of the effectivity of the Code, where it is so stipulated in a collective agreement, or where all of the following conditions are met: (a) There is a bank or other facility encashment within a radius of one kilometer from the workplace; for (1)

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(c) The employees are given reasonable time during banking hours to withdraw their wages from the bank which time shall be considered as compensable hours worked if done during working hours; and (d) The payment by check is with the written consent of the employees concerned if there is no collective agreement authorizing the payment of wages by bank checks. LABOR ADVISORY ON ATM PAYMENTS (NOVEMBER 25, 1996) Payment through automated teller machine (ATM) of banks provided the following conditions are met: 1. The ATM system of payment is with the written consent of the employees concerned; 2. The employees are given reasonable time to withdraw their wages from the bank facility which time, if done during working hours, shall be considered compensable hours worked; 3. The system shall allow workers to receive their wages within the period or frequency and in the amount prescribed under the Labor Code, as amended; chanrobles virtual law library 4. There is a bank or ATM facility within a radius of one (1) kilometer to the place of work; 5. Upon request of the concerned employee/s, the employer shall issue a record of payment of wages, benefits and deductions for a particular period; 6. There shall be n additional expenses and no diminution of benefits and privileges as a result of the ATM system of payment;

(b) The employer or any of his agents or representatives does not receive any pecuniary benefit directly or indirectly from the arrangement;

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7. The employer shall assume responsibility in case the wage protection provisions of law and regulations are not complied with under the arrangement. National Federation of Labor v CA Facts: (see page 3) Issue: W/N payment through check is valid payment or legal tender? Held: Yes. Payment by check is allowed. Labor Code Art. 102 and its implementing rules provide that payment by check is allowed, so long as the conditions stipulated in the Omnibus Rules are followed. x------------------------------------x 1.1.3 Distinction between facilities and supplement

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Sec. 5. Facilities. The term facilities as used in this Rule shall include articles or services for the benefit of the employee or his family but shall not include tools of the trade or articles or services primarily for the benefit of the employer or necessary to the conduct of the employers business. Sec. 6. Value of facilities. The Secretary of Labor may from time to time fix in appropriate issuances the fair and reasonable value of board, lodging, and other facilities customarily furnished by an employer to his employees both in agricultural and nonagricultural enterprises. The fair and reasonable value of facilities is hereby determined to be the cost of operation and maintenance, including adequate depreciation plus reasonable allowance (but not more than 5 1/2 % interest on the depreciated amount of capital invested by the employer); provided that if the total so computed is more than the fair rental value (or the fair price of the commodities or facilities offered for sale) the fair rental value (or the fair price of the commodities or facilities offered for sale) shall be the reasonable cost of the operation and maintenance. The rate of depreciation and depreciated amount computed by the employer shall be those arrived at under good accounting practices. The term good accounting practices shall not include accounting practices which have been rejected by the Bureau of Internal Revenue for income tax purposes. The term depreciations shall include obsolescence. Sec. 7. Acceptance of facilities. In order that the cost of facilities furnished by the employer may be charged against an employee, his acceptance of such facilities must be voluntary.

OMNIBUS RULES IMPLEMENTING LC BOOK III, RULE VII A, SEC 4 7 Sec. 4. Cash Wage. The minimum wage rates prescribed in Section 1 hereof shall be basic, cash wages without deducting therefrom whatever benefits, supplements or allowances which the employees enjoy free of charge aside from the basic pay. An employer may provide subsidized meals and snacks to his employees provided that the subsidy shall not be less than 30% of the fair and reasonable value of such facilities. In such case, the employer may deduct from the wages of the employees not more than 70% of the value of the meals and snacks enjoyed by the employees, provided that such deduction is with the written authorization of the employees concerned.

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x------------------------------------x 1.1.4 Place of Payment

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with stakes of money or things representing money except in the case of persons employed in said places. RULES IMPLEMENTING RA 6727 CHAPTER I, SEC 19 & 20 Section 19. Payment of Wages. Upon written petition of the majority of the workers and employees concerned, all private establishments, companies, businesses and other entities with at least twenty-five workers and located within one kilometer radius to a commercial, savings or rural bank, shall pay the wages and other benefits of their workers through any of said banks within the period and in the manner and form prescribed under the Labor Code as amended. Section 20. Duty of Bank. Whenever applicable and upon request of a concerned worker or union, the bank through which wages and other benefits are paid shall issue a certification of the record of payment of said wages and benefits of a particular worker or workers for a particular payroll period. WAGE RATIONALIZATION ACT, SEC. 7 Upon written permission of the majority of the employees or workers concerned, all private establishments, companies, businesses, and other entities with twenty five (25) or more employees and located within one (1) kilometer radius to a commercial, savings or rural bank shall pay the wages and other benefits of their employees through any of said banks and within the period of payment of wages fixed by Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines. x------------------------------------x 1.1.5 Time of Payment

LC ART. 104 Place of payment. Payment of wages shall be made at or near the place of undertaking, except as otherwise provided by such regulations as the Secretary of Labor and Employment may prescribe under conditions to ensure greater protection of wages. OMNIBUS RULES IMPLEMENTING LC BOOK III, RULE VIII, SEC 4 As a general rule, the place of payment shall be at or near the place of undertaking. Payment in a place other than the work place shall be permissible only under the following circumstances: (a) When payment cannot be effected at or near the place of work by reason of the deterioration of peace and order conditions, or by reason of actual or impending emergencies caused by fire, flood, epidemic or other calamity rendering payment thereat impossible; (b) When the employer provides free transportation to the employees back and forth; and

(c) Under any other analogous circumstances; Provided, That the time spent by the employees in collecting their wages shall be considered as compensable hours worked; (d) No employer shall pay his employees in any bar, night or day club, drinking establishment, massage clinic, dance hall, or other similar places or in places where games are played

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LC ART. 103 Time of payment. Wages shall be paid at least once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days. If on account of force majeure or circumstances beyond the employers control, payment of wages on or within the time herein provided cannot be made, the employer shall pay the wages immediately after such force majeure or circumstances have ceased. No employer shall make payment with less frequency than once a month. The payment of wages of employees engaged to perform a task which cannot be completed in two (2) weeks shall be subject to the following conditions, in the absence of a collective bargaining agreement or arbitration award: 1. That payments are made at intervals not exceeding sixteen (16) days, in proportion to the amount of work completed; 2. That final settlement completion of the work. is made upon

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amount of work completed. Final settlement shall be made immediately upon completion of the work. x------------------------------------x 1.1.6 Payment By Results

LC ART. 101 Payment by results. The Secretary of Labor and Employment shall regulate the payment of wages by results, including pakyao, piecework, and other nontime work, in order to ensure the payment of fair and reasonable wage rates, preferably through time and motion studies or in consultation with representatives of workers and employers organizations. OMNIBUS RULES IMPLEMENTING LC BOOK III, RULE VII A, SEC 8 Sec. 8. Payment of Results. On petition of any interested party, or upon its initiative, the Department of labor shall use all available devises, including the use of time and motion studies and consultation with representatives of employers and workers organizations, to determine whether the employees in any industry or enterprise are being compensated in accordance with the minimum wage requirements of this Rule. (b) The basis for piece, output performance minimum skill the establishment of rates for or contract work shall be the of an ordinary worker of or ability.

OMNIBUS RULES IMPLEMENTING LC BOOK III, RULE VIII, SEC 3 (a) Wages shall be paid not less than once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days, unless payment cannot be made with such regularity due to force majeure or circumstances beyond the employer's control in which case the employer shall pay the wages immediately after such force majeure or circumstances have ceased. (b) In case of payment of wages by results involving work which cannot be finished in two (2) weeks, payment shall be made at intervals not exceeding sixteen days in proportion to the

(c) An ordinary worker of minimum skill or ability is the average worker of the lowest producing group representing 50% of the total number of employees engaged in similar employment in a particular establishment, excluding learners, apprentices and handicapped

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workers employed therein. (d) Where the output rates established by the employer do not conform with the standards prescribed herein, or with the rates prescribed by the Department of Labor in an appropriate order, the employees shall entitled to the difference between the amount to which they are entitled to receive under such prescribed standards or rates and that actually paid them by the employer. x------------------------------------x 1.1.7 Direct Payment of Wages

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Secretary of Labor and Employment or his representative. The representative of the Secretary of Labor and Employment shall act as referee in dividing the amount paid among the heirs. The payment of wages under this Article shall absolve the employer of any further liability with respect to the amount paid. x------------------------------------x 1.1.8 Prohibition regarding Wages

LC ART. 105 Direct payment of wages. Wages shall be paid directly to the workers to whom they are due, except: a) In cases of force majeure rendering such payment impossible or under other special circumstances to be determined by the Secretary of Labor and Employment in appropriate regulations, in which case, the worker may be paid through another person under written authority given by the worker for the purpose; or b) Where the worker has died, in which case, the employer may pay the wages of the deceased worker to the heirs of the latter without the necessity of intestate proceedings. The claimants, if they are all of age, shall execute an affidavit attesting to their relationship to the deceased and the fact that they are his heirs, to the exclusion of all other persons. If any of the heirs is a minor, the affidavit shall be executed on his behalf by his natural guardian or next-ofkin. The affidavit shall be presented to the employer who shall make payment through the

LC ART. 112 119 Art. 112. Non-interference in disposal of wages. No employer shall limit or otherwise interfere with the freedom of any employee to dispose of his wages. He shall not in any manner force, compel, or oblige his employees to purchase merchandise, commodities or other property from any other person, or otherwise make use of any store or services of such employer or any other person. Art. 113. Wage deduction. No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except: In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance; For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment.

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Art. 114. Deposits for loss or damage. No employer shall require his worker to make deposits from which deductions shall be made for the reimbursement of loss of or damage to tools, materials, or equipment supplied by the employer, except when the employer is engaged in such trades, occupations or business where the practice of making deductions or requiring deposits is a recognized one, or is necessary or desirable as determined by the Secretary of Labor and Employment in appropriate rules and regulations. Art. 115. Limitations. No deduction from the deposits of an employee for the actual amount of the loss or damage shall be made unless the employee has been heard thereon, and his responsibility has been clearly shown. Art. 116. Withholding of wages and kickbacks prohibited. It shall be unlawful for any person, directly or indirectly, to withhold any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth, intimidation, threat or by any other means whatsoever without the workers consent. Art. 117. Deduction to ensure employment. It shall be unlawful to make any deduction from the wages of any employee for the benefit of the employer or his representative or intermediary as consideration of a promise of employment or retention in employment. Art. 118. Retaliatory measures. It shall be unlawful for an employer to refuse to pay or reduce the wages and benefits, discharge or in any manner discriminate against any employee who has filed any complaint or instituted any proceeding under this Title or has testified or is about to testify in such proceedings.

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Art. 119. False reporting. It shall be unlawful for any person to make any statement, report, or record filed or kept pursuant to the provisions of this Code knowing such statement, report or record to be false in any material respect. OMNIBUS RULES IMPLEMENTING LC BOOK III, RULE VIII, SEC 9-11

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1.2 Key Provisions in the Wage Rationalization Act (RA 6272) 1.2.1 National Wage Commission and the Regional Wages and Productivity Board 1.2.2 1.2.3 What is a Wage Order; Minimum Wage Fixing Wage Distortion Standards/Criteria for Facts: Issue: Held:

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x------------------------------------x 1.2.3.3 Intentional Quantitative Differences Metropolitan Bank v NLRC Facts: Petitioners entered into a CBA on May 1989 with respondent bank, which granted a wage increase of: - P900/mo effective 1989 - P600/mo for 1990 - P200/mo for 1991 On 1989, only the regular employees were given the P900/mo increase On July 1989, RA 6727 was enacted, fixing new wage rates - Minimum wage was increased by P25 - Provided, those already receiving above minimum wage up to P100 shall also receive P25 increase in the daily wage Respondent bank gave P25 increase/day or P750/mo to its probationary employees or to those who were just promoted to regular, but were still receiving P100 and below Petitioners contend that RA 6727 resulted in categorization of: 1. Probationary employees as of enactment of RA 6727 & those promoted to regular status but receiving P100 or less 2. Regular employees as of January 1989 with over P100/day wage Petitioners aver that this reduced the salary gap Bank said only 6.8% of regular employees benefited from wage increase LA ruled in favor of petitioners, saying there IS wage distortion - It is enough that there is a SEVERE CONTRACTION of the

LC ART. 100 Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code. LC ART. 127 Non-diminution of benefits. No wage order issued by any regional board shall provide for wage rates lower than the statutory minimum wage rates prescribed by Congress. x------------------------------------x 1.2.3.1 Scope of Legal Obligation to Correct Wage Distortion BANKARD v NLRC Facts: Issue: Held:

x------------------------------------x 1.2.3.2 Concept of Classification National Federation v NLRC

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intentional quantitative difference in wage rates between employee groups NLRC reversed LA Presiding Commissioner Bonto-Perez of NLRC dissented: - Quantitative difference between those regular as of enactment of CBA and those regularized only AFTER was CONTRACTED by more or less 83% - Equitable remedy would be to correct that wage structure based on formula suggested by Regional Tripartite Wages and Productivity Commission o Minimum Wage = % x Increase = Adjustment Actual Salary Prescribed

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x------------------------------------x 1.2.3.4 Effect of CBA subsequent to the increase PI Manufacturing v PI Mfg Supervisors and Foremen Facts: RA 6640 was enacted on December 10, 1987 providing for statutory minimum wage rates: - 10/day - except non-agri workers & those outside MM who shall receive an 11/day increase - those already receiving minimum wage up to 100/day shall receive increase of 10/day PIMASUFA (respondents) entered into new CBA on December 18, 1987 with petitioners after enactment of said law - Supervisors get increase of 625/mo - Foremen get increase of 475/mo CBA was made to retroact to May 1987 prior to passage of RA 6640 until 1989 Respondents allege a wage distortion resulting from implementation of RA LA ruled in favor of respondents - Decision stated that union cannot waive future benefits - 13.5% increase should also be given to the foremen & supervisors o Minimum wage was 54/day o Increase of 10/day, making it 64/day is 13.5% NLRC affirmed LA Petition for certiorari to SC but referred to CA based on judicial hierarchy (NLRC decisions reviewed by CA through original action on certiorari before SC can review) CA affirmed NLRC but modified 13.5% to 18.5% - The increase resulting in wage distortions from the implementation of RA 6640 cannot be waived - Petitioners claimed that since CBA was signed subsequent to implementation of RA, they were deemed to have waived the benefits of such RA - 18.5% is used because 10/day increase of 54/day

Issue: W/N RA 6727 mandating an increase in pay of P25 created a wage distortion? Held: Yes. There is wage distortion. Wage distortion is defined as a situation where an increase in prescribed wage results in the elimination or SEVERE CONTRACTION of intentional quantitative differences in wage or salary rates between and among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills, length of service, or other logical bases of differentiation. The law does not require the complete elimination of the difference or gap between the salary groups. It is enough that there is a severe contraction or an extreme decrease in the difference between such groups. The CBA set the intentional quantitative difference when it agreed to give a P900 increase/mo to those already regularized as of the effectivity of the CBA. Since the increase was granted only to those who were not benefitted by the CBA, the gap between the 2 groups lessened. Thus, there is a need to adjust the salary of those who were benefited by the CBA by using the formula of the Presiding Commissioner.

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is 18.5% Issue: W/N implementation of RA 6640 caused wage distortion? YES. W/N such distortion was cured by subsequent 1987 CBA? YES. Yes. There was wage distortion. But such was cured by the CBA. Wage distortion is the disappearance or virtual disappearance of pay differentials between lower & higher positions in an enterprise because of compliance with a wage order. The 2 foremen & 1 supervisor earning less than 100/day got the 10peso increase making them earn more than those who have seniority in the company. This eliminated the intentional quantitative difference in wage rates. However, this was cured when the CBA was enacted, increasing the monthly pay of supervisors by 625pesos more than double the 10/day granted by RA 6640, & 475pesos almost double the RA increase. The gap brought about by RA 6640 was reestablished by the enactment of the CBA. Even though such was not the result of a special grievance procedure, such cannot be ignored. Respondents cannot enjoy the benefits of the CBA but ignore the concessions voluntarily extended to petitioners. x------------------------------------x 1.2.3.5 Disparity between regions Prubankers Assoc v Prudential Bank Facts: Regional Tripartite Wages & Productivity Board of Region V ordered an increase in cost of living allowance (COLA) by 17.50 in Naga & Legaspi, 15.50 in Tabaco municipality & 3

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others, and 10.00 for all others. RTWPB of Region VII issued another order mandating the increase in COLA by 10pesos in Cebu, Mandaue & Lapulapu, and 5pesos in the others. Respondent bank implemented the orders on its employees in said regions. Petitioners contend that the wage increase should be implemented to all its employees even outside Regions V & VII, as this caused a wage distortion. Arbitration committee ruled in favor of bank. CA affirmed. - underlying considerations in issuing wage orders are diverse, based on distinctive situations in each region - distinctions in the region are maintained despite implementation of the orders, as all its employees were granted the wage increase.

Issue: W/N wage distortion resulted from implementation of the wage orders? Held: No. There was no wage distortion. Quantitative difference remained the same in all branches in the affected region. Disparity in wages among those located in the same rungs in the corporate ladder, but in different regions, does not constitute wage distortion. Wage distortion arises when wage order results in wage parity between employees in different rungs but in the same region, not the other way around. RA 6727 (Wage Rationalization Act) recognizes the existing regional disparities in the cost of living. In determining wage increases, the board looks at the existing regional disparities in the COLA and other socio-economic factors. Wages in other areas may be increased to prevent migration to the NCR, hence, decongesting the metropolis. There are, after all, different needs for different situations in different regions of the country. This does not violate equal pay for equal work because there are varying necessities in each region & the increase will be

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based on such prevailing situations. The bank in its entirety is also not what the law envisions as an establishment for the purposes of determining wage distortions. Section 13 of RA 6727 provides that the minimum wage rates in branches of establishments in or outside the NCR shall be those applicable in the PLACE WHERE THEY ARE SANCTIONED. There was also no management practice, as the bank only implemented the uniform wage policy before the enactment of RA 6727. Since then, they were mandated to regionalize its wage structure. A single instance cannot equate to management practice. Side issue:There was forum shopping. A voluntary arbitration case was still pending when the case was filed with the courts. Elements of litis pendentia are present. 1. Same parties 2. Same rights & relief prayed for 3. Judgment rendered in one will amount to res judicata in the other Although voluntary arbitration issue was whether adoption of wage orders are valid & binding; while the one in the courts was whether there was wage distortion, it still boils down to one issue: validity of the banks regionalizing its wage structure based on the wage orders. x------------------------------------x 1.2.4 Wage Rationalization Act 4 (c) & (d)

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appropriate Regional Board in accordance with the applicable rules and regulations issued by the Commission. Whenever an application for exemption has been duly filed with the appropriate Regional Board, action on any complaint for alleged non-compliance with this Act shall be deferred pending resolution of the application for exemption by the appropriate Regional Board. In the event that applications for exemptions are not granted, employees shall receive the appropriate compensation due them as provided for by this Act plus interest of one per cent (1%) per month retroactive to the effectivity of this Act. (d) If expressly provided for and agreed upon in the collective bargaining agreements, all increases in the daily basic wage rates granted by the employers three (3) months before the effectivity of this Act shall be credited as compliance with the increases in the wage rates prescribed herein, provided that, where such increases are less than the prescribed increases in the wage rates under this Act, the employer shall pay the difference. Such increases shall not include anniversary wage increases, merit wage increases and those resulting from the regularization or promotion of employees. Where the application of the increases in the wage rates under this Section results in distortions as defined under existing laws in the wage structure within an establishment and gives rise to a dispute therein, such dispute shall first be settled voluntarily between the parties and in the event of a deadlock, the same shall be finally resolved through compulsory arbitration by the regional branches of the National Labor Relations Commission (NLRC) having jurisdiction over the

(c) Exempted from the provisions of this Act are household or domestic helpers and persons employed in the personal service of another, including family drivers. Retail/service establishments regularly employing not more than ten (10) workers may be exempted from the applicability of this Act upon application with and as determined by the

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workplace. It shall be mandatory for the NLRC to conduct continuous hearings and decide any dispute arising under this Section within twenty (20) calendar days from the time said dispute is formally submitted to it for arbitration. The pendency of a dispute arising from a wage distortion shall not in any way delay the applicability of the increase in the wage rates prescribed under this Section. x------------------------------------x 1.2.5 Wage Rationalization Act 12 officer, general manager, partner.

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managing director or

x------------------------------------x 1.2.6 Wage Order NCR-16

1. The P22.00 per day COLA prescribed in this Order shall apply to all minimum wage earners in the private sector in NCR, regardless of their position, designation or status of employment and irrespective of the method by which they are paid; 2. The P22.00 per day COLA shall NOT cover household or domestic helpers, persons in the personal service of another, including family drivers, and workers of duly registered Barangay Micro Business Enterprises (BMBEs) with Certificates of Authority pursuant to Republic Act 9178; 3. The following may be exempted from the applicability of the Wage Order: 1) Distressed Establishments; 2) Retail/Service Establishments Regularly Employing Not More Than Ten (10) Workers; 3) Establishments whose Total Assets including those arising from loans but exclusive of the land on which the particular business entitys office, plant and equipment are situated, are not more than P3 Million; and 4) Establishments Adversely Affected by Natural Calamities. 4. This Order shall not reduce any existing wage rates, allowances and benefits of any form under existing laws, decrees, issuances, executive orders and/or under any contract or agreement between the workers and employers; 5. This Order shall not prevent workers in particular firms or industries from bargaining for higher wages with their respective employers;

Any person. corporation. trust. firm. parmersnip. association or entity which refuses or fails to pay any of the prescribed increases or adjustments in the wage rales made in accordance with this Act shall be punished by a fine not less than Twenty-five thousand pesos (P25.000) nor more than One hundred thousand pesos (P100.000) or imprisonment of not less than two (2) years nor more than four (4) years or both such fine and imprisonment at the discretion of the court: Provided. That any person convicted under this Act shall not be entitled to the benefits provided for under the Probation Law. The employer concerned shall be ordered to pay an arnount equivalent to double the unpaid benefits owing to the employees: Provided. That payment of indemnity shall not absolve the employer from the criminal liability imposable under this Act. If the violation is committed by a corporation. trust or firm. partnership, association or any other entity, the penalty of imprisonment shall be imposed upon the entity's responsible officers including but not limited to the president, vicepresident, chief executive

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6. Any increase granted by an employer in an organized establishment within three (3) months prior to the effectivity of this Order shall be credited as compliance with the prescribed increase set forth herein, provided that an agreement to this effect has been forged between the parties or a collective bargaining agreement provision allowing creditability exists. In the absence of such an agreement or provision in the CBA, any increase granted by the employer shall not be credited as compliance with the COLA prescribed in this Order. In case the increases given are less than the prescribed COLA, the employer shall pay the difference. Such increases shall not include anniversary increases, merit wage increases and those resulting from the regularization or promotion of employees. 7. In unorganized establishments, any increase granted by the employer within five (5) months prior to the effectivity of this Order shall be credited as compliance therewith. In case the increases given are less than the prescribed COLA, the employer shall pay the difference. Such increases shall not include anniversary increases, merit wage increases and those resulting from the regularization or promotion of employees. 8. In the case of contracts for construction projects and for security, janitorial and similar services, the COLA prescribed in this Order shall be borne by the principals or clients of the construction/service contractors and the contract shall be deemed amended accordingly. In the event, however, that the principals or clients fail to pay the prescribed wage rates, the construction/service contractor shall be jointly

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and severally liable with his principal or client. 9. In the case of private educational institutions, the share of covered workers and employees in the increase in tuition fees for School Year 2011-2012 shall be considered as compliance with the COLA prescribed herein. However, payment of any shortfall in the wage increase set forth herein shall be covered starting School Year 2012-2013. Private educational institutions which have not increased their tuition fees for School Year 20112012 may defer compliance with the COLA prescribed herein until the beginning of School Year 2012-2013. In any case, all private educational institutions shall implement the COLA prescribed herein starting School Year 2012-2013. 10. All workers paid by result, including those who are paid on piecework, takay or task basis, shall be entitled to receive not less than the prescribed COLA a day, or a proportion thereof for working less than eight (8) hours; 11. Wages of apprentices and learners shall in no case be less than seventy-five percent (75%) of the applicable new wage rates prescribed in this Order. All recognized learnership and apprenticeship agreements entered into before the effectivity of this Order shall be considered automatically modified insofar as their wage clauses are concerned to reflect the new wage rates. All qualified handicapped workers shall receive the full amount of the new wage rates prescribed herein pursuant to Republic Act No. 7277, otherwise known as the Magna Carta for Disabled Persons.

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x------------------------------------x 1.3 Hours of Work Night Shift, Overtime LC Art. 82-90 Art. 82. Coverage. The provisions of this Title shall apply to employees in all establishments and undertakings whether for profit or not, but not to government employees, managerial employees, field personnel, members of the family of the employer who are dependent on him for support, domestic helpers, persons in the personal service of another, and workers who are paid by results as determined by the Secretary of Labor in appropriate regulations. As used herein, "managerial employees" refer to those whose primary duty consists of the management of the establishment in which they are employed or of a department or subdivision thereof, and to other officers or members of the managerial staff. "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. Art. 83. Normal hours of work. The normal hours of work of any employee shall not exceed eight (8) hours a day. Health personnel in cities and municipalities with a population of at least one million (1,000,000) or in hospitals and clinics with a bed capacity of at least one hundred (100) shall hold regular office hours for eight (8) hours a day, for five (5) days a week, exclusive of time for meals, except where the exigencies of the service require that such personnel

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work for six (6) days or forty-eight (48) hours, in which case, they shall be entitled to an additional compensation of at least thirty percent (30%) of their regular wage for work on the sixth day. For purposes of this Article, "health personnel" shall include resident physicians, nurses, nutritionists, dietitians, pharmacists, social workers, laboratory technicians, paramedical technicians, psychologists, midwives, attendants and all other hospital or clinic personnel. Art. 84. Hours worked. Hours worked shall include (a) all time during which an employee is required to be on duty or to be at a prescribed workplace; and (b) all time during which an employee is suffered or permitted to work. Rest periods of short duration during working hours shall be counted as hours worked. Art. 85. Meal periods. Subject to such regulations as the Secretary of Labor may prescribe, it shall be the duty of every employer to give his employees not less than sixty (60) minutes time-off for their regular meals. Art. 86. Night shift differential. Every employee shall be paid a night shift differential of not less than ten percent (10%) of his regular wage for each hour of work performed between ten oclock in the evening and six oclock in the morning. Art. 87. Overtime work. Work may be performed beyond eight (8) hours a day provided that the employee is paid for the overtime work, an additional compensation equivalent to his regular wage plus at least twenty-five percent (25%) thereof. Work performed beyond eight hours on a holiday or rest day shall be paid an additional compensation equivalent to the rate of the first eight hours on a holiday or rest day plus at least thirty percent (30%) thereof.

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Business Law Practice Atty. Jose Cochingyan III


Art. 88. Undertime not offset by overtime. Undertime work on any particular day shall not be offset by overtime work on any other day. Permission given to the employee to go on leave on some other day of the week shall not exempt the employer from paying the additional compensation required in this Chapter. Art. 89. Emergency overtime work. Any employee may be required by the employer to perform overtime work in any of the following cases: When the country is at war or when any other national or local emergency has been declared by the National Assembly or the Chief Executive; When it is necessary to prevent loss of life or property or in case of imminent danger to public safety due to an actual or impending emergency in the locality caused by serious accidents, fire, flood, typhoon, earthquake, epidemic, or other disaster or calamity; When there is urgent work to be performed on machines, installations, or equipment, in order to avoid serious loss or damage to the employer or some other cause of similar nature; When the work is necessary to prevent loss or damage to perishable goods; and Where the completion or continuation of the work started before the eighth hour is necessary to prevent serious obstruction or prejudice to the business or operations of the employer. Any employee required to render overtime work under this Article shall be paid the additional compensation required in this Chapter. Art. 90. Computation of additional

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compensation. For purposes of computing overtime and other additional remuneration as required by this Chapter, the "regular wage" of an employee shall include the cash wage only, without deduction on account of facilities provided by the employer. Omnibus Implementing Rules Labor Code Book III RULE I-A Hours of Work of Hospital and Clinic Personnel SECTION 1. General statement on coverage. This Rule shall apply to: (a) All hospitals and clinics, including those with a bed capacity of less than one hundred (100) which are situated in cities or municipalities with a population of one million or more; and (b) All hospitals and clinics with a bed capacity of at least one hundred (100), irrespective of the size of the population of the city or municipality where they may be situated. SECTION 2. Hospitals or clinics within the meaning of this Rule. The terms "hospitals" and "clinics" as used in this Rule shall mean a place devoted primarily to the maintenance and operation of facilities for the diagnosis, treatment and care of individuals suffering from illness, disease, injury, or deformity, or in need of obstetrical or other medical and nursing care. Either term shall also be construed as any institution, building, or place where there are installed beds, or cribs, or bassinets for twenty-four (24) hours use or longer by patients in the treatment of disease, injuries, deformities, or abnormal physical and mental states, maternity cases or sanitorial care; or infirmaries, nurseries, dispensaries, and such other similar names by which they may be designated. SECTION 3. Determination of bed capacity and

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Business Law Practice Atty. Jose Cochingyan III


population. (a) For purposes of determining the applicability of this Rule, the actual bed capacity of the hospital or clinic at the time of such determination shall be considered, regardless of the actual or bed occupancy. The bed capacity of hospital or clinic as determined by the Bureau of Medical Services pursuant to Republic Act No. 4226, otherwise known as the Hospital Licensure Act, shall prima facie be considered as the actual bed capacity of such hospital or clinic. (b) The size of the population of the city or municipality shall be determined from the latest official census issued by the Bureau of the Census and Statistics. SECTION 4. Personnel covered by this Rule. This Rule applies to all persons employed by any private or public hospital or clinic mentioned in Section 1 hereof, and shall include, but not limited to, resident physicians, nurses, nutritionists, dieticians, pharmacists, social workers, laboratory technicians paramedical technicians, psychologists, midwives, and attendants. SECTION 5. Regular working hours. The regular working hours of any person covered by this Rule shall not be more than eight (8) hours in any one day nor more than forty (40) hours in any one week. For purposes of this Rule a "day" shall mean a work day of twenty-four (24) consecutive hours beginning at the same time each calendar year. A "week" shall mean the work of 168 consecutive hours, or seven consecutive 24-hour work days, beginning at the same hour and on the same calendar day each calendar week. SECTION 6. Regular working days. The regular working days of covered employees shall not be more than five days in a work week. The work week may begin at any hour and on any day, including

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Saturday or Sunday, designated by the employer. Employers are not precluded from changing the time at which the work day or work week begins, provided that the change is not intended to evade the requirements of this Rule. SECTION 7. Overtime work. Where the exigencies of the service so require as determined by the employer, any employee covered by this Rule may be scheduled to work for more than five (5) days or forty (40) hours a week, provided that the employee is paid for the overtime work an additional compensation equivalent to his regular wage plus at least thirty percent (30%) thereof, subject to the provisions of this Book on the payment of additional compensation for work performed on special and regular holidays and on rest days. SECTION 8. Hours worked. In determining the compensable hours of work of hospital and clinic personnel covered by this Rule, the pertinent provisions of Rule 1 of this Book shall apply. SECTION 9. Additional compensation. Hospital and clinic personnel covered by this Rule, with the exception of those employed by the Government, shall be entitled to an additional compensation for work performed on regular and special holidays and rest days as provided in this Book. Such employees shall also be entitled to overtime pay for services rendered in excess of forty hours a week, or in excess of eight hours a day, whichever will yield the higher additional compensation to the employee in the work week. SECTION 10. Relation to Rule I. All provisions of Rule I of this Book which are not inconsistent with this Rule shall be deemed applicable to hospital and clinic personnel. RULE II

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Business Law Practice Atty. Jose Cochingyan III


Night Shift Differential SECTION 1. Coverage. This Rule shall apply to all employees except: (a) Those of the government and any of its political subdivisions, including government-owned and/or controlled corporations; (b) Those of retail and service establishments regularly employing not more than five (5) workers; (c) Domestic helpers and persons in the personal service of another; (d) Managerial employees as defined in Book Three of this Code; (e) Field personnel and other employees whose time and performance is unsupervised by the employer including those who are engaged on task or contract basis, purely commission basis, or those who are paid a fixed amount for performing work irrespective of the time consumed in the performance thereof. SECTION 2. Night shift differential. An employee shall be paid night shift differential of no less than ten per cent (10%) of his regular wage for each hour of work performed between ten o'clock in the evening and six o'clock in the morning. SECTION 3. Additional compensation. Where an employee is permitted or suffered to work on the period covered after his work schedule, he shall be entitled to his regular wage plus at least twenty-five per cent (25%) and an additional amount of no less than ten per cent (10%) of such overtime rate for each hour or work performed between 10 p.m. to 6 a.m. SECTION 4. Additional compensation on scheduled rest day/special holiday. An employee who is required or permitted to work on the period covered during rest days and/or special holidays not falling on regular holidays, shall be paid a compensation equivalent to his regular wage plus

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at least thirty (30%) per cent and an additional amount of not less than ten (10%) per cent of such premium pay rate for each hour of work performed. SECTION 5. Additional compensation on regular holidays. For work on the period covered during regular holidays, an employee shall be entitled to his regular wage during these days plus an additional compensation of no less than ten (10%) per cent of such premium rate for each hour of work performed. SECTION 6. Relation to agreements. Nothing in this Rule shall justify an employer in withdrawing or reducing any benefits, supplements or payments as provided in existing individual or collective agreements or employer practice or policy. x------------------------------------x 1.4 Holidays and Leaves etc. 1.4.1 Rates LC Art. 91-96 Art. 91. Right to weekly rest day. It shall be the duty of every employer, whether operating for profit or not, to provide each of his employees a rest period of not less than twenty-four (24) consecutive hours after every six (6) consecutive normal work days. The employer shall determine and schedule the weekly rest day of his employees subject to collective bargaining agreement and to such rules and regulations as the Secretary of Labor and Employment may provide. However, the employer shall respect the preference of employees as to their weekly rest day when such preference is based on religious grounds.

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Business Law Practice Atty. Jose Cochingyan III


Art. 92. When employer may require work on a rest day. The employer may require his employees to work on any day: In case of actual or impending emergencies caused by serious accident, fire, flood, typhoon, earthquake, epidemic or other disaster or calamity to prevent loss of life and property, or imminent danger to public safety; In cases of urgent work to be performed on the machinery, equipment, or installation, to avoid serious loss which the employer would otherwise suffer; In the event of abnormal pressure of work due to special circumstances, where the employer cannot ordinarily be expected to resort to other measures; To prevent loss or damage to perishable goods; Where the nature of the work requires continuous operations and the stoppage of work may result in irreparable injury or loss to the employer; and Under other circumstances analogous or similar to the foregoing as determined by the Secretary of Labor and Employment. Art. 93. Compensation for rest day, Sunday or holiday work. Where an employee is made or permitted to work on his scheduled rest day, he shall be paid an additional compensation of at least thirty percent (30%) of his regular wage. An employee shall be entitled to such additional compensation for work performed on Sunday only when it is his established rest day. When the nature of the work of the employee is such that he has no regular workdays and no regular rest days can be scheduled, he shall be paid an additional

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compensation of at least thirty percent (30%) of his regular wage for work performed on Sundays and holidays. Work performed on any special holiday shall be paid an additional compensation of at least thirty percent (30%) of the regular wage of the employee. Where such holiday work falls on the employees scheduled rest day, he shall be entitled to an additional compensation of at least fifty per cent (50%) of his regular wage. Where the collective bargaining agreement or other applicable employment contract stipulates the payment of a higher premium pay than that prescribed under this Article, the employer shall pay such higher rate. Art. 94. Right to holiday pay. Every worker shall be paid his regular daily wage during regular holidays, except in retail and service establishments regularly employing less than ten (10) workers; The employer may require an employee to work on any holiday but such employee shall be paid a compensation equivalent to twice his regular rate; and As used in this Article, "holiday" includes: New Years Day, Maundy Thursday, Good Friday, the ninth of April, the first of May, the twelfth of June, the fourth of July, the thirtieth of November, the twenty-fifth and thirtieth of December and the day designated by law for holding a general election. Art. 95. Right to service incentive leave. Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay.

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Business Law Practice Atty. Jose Cochingyan III


This provision shall not apply to those who are already enjoying the benefit herein provided, those enjoying vacation leave with pay of at least five days and those employed in establishments regularly employing less than ten employees or in establishments exempted from granting this benefit by the Secretary of Labor and Employment after considering the viability or financial condition of such establishment. The grant of benefit in excess of that provided herein shall not be made a subject of arbitration or any court or administrative action. Art. 96. Service charges. All service charges collected by hotels, restaurants and similar establishments shall be distributed at the rate of eighty-five percent (85%) for all covered employees and fifteen percent (15%) for management. The share of the employees shall be equally distributed among them. In case the service charge is abolished, the share of the covered employees shall be considered integrated in their wages. Omnibus Implementing Rules Book III RULE III Weekly Rest Periods SECTION 1. General statement on coverage. This Rule shall apply to all employers whether operating for profit or not, including public utilities operated by private persons. SECTION 2. Business on Sundays/Holidays. All establishments and enterprises may operate or open for business on Sundays and holidays provided that the employees are given the weekly rest day and the benefits as provided in this Rule. SECTION 3. Weekly rest day. Every employer shall give his employees a rest period of not less

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than twenty-four (24) consecutive hours after every six consecutive normal work days. SECTION 4. Preference of employee. The preference of the employee as to his weekly day of rest shall be respected by the employer if the same is based on religious grounds. The employee shall make known his preference to the employer in writing at least seven (7) days before the desired effectivity of the initial rest day so preferred. Where, however, the choice of the employee as to his rest day based on religious grounds will inevitably result in serious prejudice or obstruction to the operations of the undertaking and the employer cannot normally be expected to resort to other remedial measures, the employer may so schedule the weekly rest day of his choice for at least two (2) days in a month. SECTION 5. Schedule of rest day. (a) Where the weekly rest is given to all employees simultaneously, the employer shall make known such rest period by means of a written notice posted conspicuously in the work place at least one week before it becomes effective. (b) Where the rest period is not granted to all employees simultaneously and collectively, the employer shall make known to the employees their respective schedules of weekly rest through written notices posted conspicuously in the work place at least one week before they become effective. SECTION 6. When work on rest day authorized. An employer may require any of his employees to work on his scheduled rest day for the duration of the following emergencies and exceptional conditions: (a) In case of actual or impending emergencies caused by serious accident, fire, flood, typhoon, earthquake, epidemic or other disaster or calamity, to prevent loss of life or property, or in cases of force majeure or imminent danger to public safety;

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Business Law Practice Atty. Jose Cochingyan III


(b) In case of urgent work to be performed on machineries, equipment or installations to avoid serious loss which the employer would otherwise suffer; (c) In the event of abnormal pressure of work due to special circumstances, where the employer cannot ordinarily be expected to resort to other measures; (d) To prevent serious loss of perishable goods; (e) Where the nature of the work is such that the employees have to work continuously for seven (7) days in a week or more, as in the case of the crew members of a vessel to complete a voyage and in other similar cases; and (f) When the work is necessary to avail of favorable weather or environmental conditions where performance or quality of work is dependent thereon. No employee shall be required against his will to work on his scheduled rest day except under circumstances provided in this Section: Provided, However, that where an employee volunteers to work on his rest day under other circumstances, he shall express such desire in writing, subject to the provisions of Section 7 hereof regarding additional compensation. SECTION 7. Compensation on rest day/Sunday/holiday. (a) Except those employees referred to under Section 2, Rule I, Book Three, an employee who is made or permitted to work on his scheduled rest day shall be paid with an additional compensation of at least 30% of his regular wage. An employee shall be entitled to such additional compensation for work performed on a Sunday only when it is his established rest day. (b) Where the nature of the work of the employee is such that he has no regular work days and no regular rest days can be scheduled, he shall be paid an additional compensation of at least 30% of his regular wage for work performed on Sundays and holidays. (c) Work performed on any special holiday shall be

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paid with an additional compensation of at least 30% of the regular wage of the employees. Where such holiday work falls on the employee's scheduled rest day, he shall be entitled to additional compensation of at least 50% of his regular wage. (d) The payment of additional compensation for work performed on regular holiday shall be governed by Rule IV, Book Three, of these regulations. (e) Where the collective bargaining agreement or other applicable employment contract stipulates the payment of a higher premium pay than that prescribed under this Section, the employer shall pay such higher rate. SECTION 8. Paid-off days. Nothing in this Rule shall justify an employer in reducing the compensation of his employees for the unworked Sundays, holidays, or other rest days which are considered paid-off days or holidays by agreement or practice subsisting upon the effectivity of the Code. SECTION 9. Relation to agreements. Nothing herein shall prevent the employer and his employees or their representatives in entering into any agreement with terms more favorable to the employees than those provided herein, or be used to diminish any benefit granted to the employees under existing laws, agreements, and voluntary employer practices. RULE IV Holidays with Pay SECTION 1. Coverage. This rule shall apply to all employees except: (a) Those of the government and any of the political subdivision, including government-owned and controlled corporation; (b) Those of retail and service establishments regularly employing less than ten (10) workers; (c) Domestic helpers and persons in the personal

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Business Law Practice Atty. Jose Cochingyan III


service of another; (d) Managerial employees as defined in Book Three of the Code; (e) Field personnel and other employees whose time and performance is unsupervised by the employer including those who are engaged on task or contract basis, purely commission basis, or those who are paid a fixed amount for performing work irrespective of the time consumed in the performance thereof. SECTION 2. Status of employees paid by the month. Employees who are uniformly paid by the month, irrespective of the number of working days therein, with a salary of not less than the statutory or established minimum wage shall be paid for all days in the month whether worked or not. For this purpose, the monthly minimum wage shall not be less than the statutory minimum wage multiplied by 365 days divided by twelve. SECTION 3. Holiday Pay. Every employer shall pay his employees their regular daily wage for any worked regular holidays. As used in the rule, the term 'regular holiday' shall exclusively refer to: New Year's Day, Maundy Thursday, Good Friday, the ninth of April, the first of May, the twelfth of June, the last Sunday of August, the thirtieth of November, the twenty-fifth and thirtieth of December. Nationwide special days shall include the first of November and the last day of December. As used in this Rule legal or regular holiday and special holiday shall now be referred to as 'regular holiday' and 'special day', respectively. SECTION 4. Compensation for holiday work. Any employee who is permitted or suffered to work on any regular holiday, not exceeding eight (8) hours, shall be paid at least two hundred percent (200%) of his regular daily wage. If the holiday work falls on the scheduled rest day of the employee, he

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shall be entitled to an additional premium pay of at least 30% of his regular holiday rate of 200% based on his regular wage rate. SECTION 5. Overtime pay for holiday work. For work performed in excess of eight hours on a regular holiday, an employee shall be paid an additional compensation for the overtime work equivalent to his rate for the first eight hours on such holiday work plus at least 30% thereof. Where the regular holiday work exceeding eight hours falls on the scheduled rest day of the employee, he shall be paid an additional compensation for the overtime work equivalent to his regular holiday-rest day for the first 8 hours plus 30% thereof. The regular holiday rest day rate of an employee shall consist of 200% of his regular daily wage rate plus 30% thereof. SECTION 6. Absences. (a) All covered employees shall be entitled to the benefit provided herein when they are on leave of absence with pay. Employees who are on leave of absence without pay on the day immediately preceding a regular holiday may not be paid the required holiday pay if he has not worked on such regular holiday. (b) Employees shall grant the same percentage of the holiday pay as the benefit granted by competent authority in the form of employee's compensation or social security payment, whichever is higher, if they are not reporting for work while on such benefits. (c) Where the day immediately preceding the holiday is a non-working day in the establishment or the scheduled rest day of the employee, he shall not be deemed to be on leave of absence on that day, in which case he shall be entitled to the holiday pay if he worked on the day immediately preceding the non-working day or rest day. SECTION 7. Temporary or periodic shutdown and temporary cessation of work. (a) In cases

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Business Law Practice Atty. Jose Cochingyan III


of temporary or periodic shutdown and temporary cessation of work of an establishment, as when a yearly inventory or when the repair or cleaning of machineries and equipment is undertaken, the regular holidays falling within the period shall be compensated in accordance with this Rule. (b) The regular holiday during the cessation of operation of an enterprise due to business reverses as authorized by the Secretary of Labor and Employment may not be paid by the employer. SECTION 8. Holiday pay of certain employees. (a) Private school teachers, including faculty members of colleges and universities, may not be paid for the regular holidays during semestral vacations. They shall, however, be paid for the regular holidays during Christmas vacation; (b) Where a covered employee, is paid by results or output, such as payment on piece work, his holiday pay shall not be less than his average daily earnings for the last seven (7) actual working days preceding the regular holiday; Provided, However, that in no case shall the holiday pay be less than the applicable statutory minimum wage rate. (c) Seasonal workers may not be paid the required holiday pay during off-season when they are not at work. (d) Workers who have no regular working days shall be entitled to the benefits provided in this Rule. SECTION 9. Regular holiday falling on rest days or Sundays. (a) A regular holiday falling on the employee's rest day shall be compensated accordingly. (b) Where a regular holiday falls on a Sunday, the following day shall be considered a special holiday for purposes of the Labor Code, unless said day is also a regular holiday. SECTION 10. Successive regular holidays. Where there are two (2) successive regular holidays,

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like Holy Thursday and Good Friday, an employee may not be paid for both holidays if he absents himself from work on the day immediately preceding the first holiday, unless he works on the first holiday, in which case he is entitled to his holiday pay on the second holiday. SECTION 11. Relation to agreements. Nothing in this Rule shall justify an employer in withdrawing or reducing any benefits, supplements or payments for unworked holidays as provided in existing individual or collective agreement or employer practice or policy. x------------------------------------x 1.4.2 Leaves 1.4.2.1 Service Incentive Leave LC Art. 95 Right to service incentive leave. Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay. This provision shall not apply to those who are already enjoying the benefit herein provided, those enjoying vacation leave with pay of at least five days and those employed in establishments regularly employing less than ten employees or in establishments exempted from granting this benefit by the Secretary of Labor and Employment after considering the viability or financial condition of such establishment. The grant of benefit in excess of that provided herein shall not be made a subject of arbitration or any court or administrative action. Omnibus Implementing Rules Book III

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Business Law Practice Atty. Jose Cochingyan III


RULE V Service Incentive Leave SECTION 1. Coverage. This rule shall apply to all employees except: (a) Those of the government and any of its political subdivisions, including government-owned and controlled corporations; (b) Domestic helpers and persons in the personal service of another; (c) Managerial employees as defined in Book Three of this Code; (d) Field personnel and other employees whose performance is unsupervised by the employer including those who are engaged on task or contract basis, purely commission basis, or those who are paid a fixed amount for performing work irrespective of the time consumed in the performance thereof; (e) Those who are already enjoying the benefit herein provided; (f) Those enjoying vacation leave with pay of at least five days; and (g) Those employed in establishments regularly employing less than ten employees. SECTION 2. Right to service incentive leave. Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay. SECTION 3. Definition of certain terms. The term "at least one-year service" shall mean service for not less than 12 months, whether continuous or broken reckoned from the date the employee started working, including authorized absences and paid regular holidays unless the working days in the establishment as a matter of practice or policy, or that provided in the employment contract is less than 12 months, in which case said period shall be considered as one year.

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SECTION 4. Accrual of benefit. Entitlement to the benefit provided in this Rule shall start December 16, 1975, the date the amendatory provision of the Code took effect. SECTION 5. Treatment of benefit. The service incentive leave shall be commutable to its money equivalent if not used or exhausted at the end of the year. SECTION 6. Relation to agreements. Nothing in the Rule shall justify an employer from withdrawing or reducing any benefits, supplements or payments as provided in existing individual or collective agreements or employer's practices or policies. x------------------------------------x 1.4.2.2 Paternity Leave Act of 1995 RA 8187 SECTION 1. Short Title. - This Act shall be known as the "Paternity Leave Act of 1996". SECTION 2. Notwithstanding any law, rules and regulations to the contrary, every married male employee in the private and public sectors shall be entitled to a paternity leave of seven (7) days with full pay for the first four (4) deliveries of the legitimate spouse with whom he is cohabiting. The male employee applying for paternity leave shall notify his employer of the pregnancy of his legitimate spouse and the expected date of such delivery. For purposes, of this Act, delivery shall include childbirth or any miscarriage. SECTION 3. Definition of Term. - For purposes of this Act, Paternity Leave refers to the benefits granted to a married male employee allowing him not to report for work for seven (7) days but continues to earn the compensation therefor,

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on the condition that his spouse has delivered a child or suffered a miscarriage for purposes of enabling him to effectively lend support to his wife in her period of recovery and/or in the nursing of the newly-born child. SECTION 4. The Secretary of Labor and Employment, the Chairman of the Civil Service Commission and the Secretary of Health shall, within thirty (30) days from the effectivity of this Act, issue such rules and regulations necessary for the proper implementation of the provisions hereof. SECTION 5. Any person, corporation, trust, firm, partnership, association or entity found violating this Act or the rules and regulations promulgated thereunder shall be punished by a fine not exceeding Twenty-five thousand pesos (P25,000) or imprisonment of not less than thirty (30)days nor more than six (6) months. If the violation is committed by a corporation, trust or firm, partnership, association or any other entity, the penalty of imprisonment shall be imposed on the entity's responsible officers, including, but not limited to, the president, vicepresident, chief executive officer, general manager, managing director or partner directly responsible therefor. SECTION 6. Nondiminution Clause. - Nothing in this Act shall be construed to reduce any existing benefits of any form granted under existing laws, decrees, executive orders, or any contract agreement or policy between employer and employee. x------------------------------------x 1.4.2.3 Maternity Leaves Social Security Law of 1997 SEC. 14-A. Maternity Leave Benefit. - A female member who has paid at least three (3) monthly contributions in the twelve-month period immediately preceding the semester of her childbirth

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or miscarriage shall be paid a daily maternity benefit equivalent to one hundred percent (100%) of her average daily salary credit for sixty (60) days or seventy-eight (78) days in case of caesarian delivery, subject to the following conditions: (a) That the employee shall have notified her employer of her pregnancy and the probable date of her childbirth, which notice shall be transmitted to the SSS in accordance with the rules and regulations it may provide; (b) The full payment shall be advanced by the employer within thirty (30) days from the filing of the maternity leave application; (c) That payment of daily maternity benefits shall be a bar to the recovery of sickness benefits provided by this Act for the same period for which daily maternity benefits have been received; (d) That the maternity benefits provided under this section shall be paid only for the first four (4) deliveries or miscarriages; (e) That the SSS shall immediately reimburse the employer of one hundred percent (100%) of the amount of maternity benefits advanced to the employee by the employer upon receipt of satisfactory proof of such payment and legality thereof; and (f) That if an employee member should give birth or suffer miscarriage without the required contributions having been remitted for her by her employer to the SSS, or without the latter having been previously notified by the employer of the time of the pregnancy, the employer shall pay to the SSS damages equivalent to the benefits which said employee member would otherwise have been entitled to.

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Business Law Practice Atty. Jose Cochingyan III


x------------------------------------x 1.4.2.4 Solo Parents Welfare Act of 2000 RA 8972 Who is considered as a solo parent? A solo parent (pursuant to Republic Act No. 8972, also known as the Solo Parents Welfare Act of 2000) is any individual who falls under any of the following categories: (1) A woman who gives birth as a result of rape and other crimes against chastity even without a final conviction of the offender: Provided, That the mother keeps and raises the child; (2) Parent left solo or alone with the responsibility of parenthood due to death of spouse; (3) Parent left solo or alone with the responsibility of parenthood while the spouse is detained or is serving sentence for a criminal conviction for at least one (1) year; (4) Parent left solo or alone with the responsibility of parenthood due to physical and/or mental incapacity of spouse as certified by a public medical practitioner; (5) Parent left solo or alone with the responsibility of parenthood due to legal separation or de facto separation from spouse for at least one (1) year, as long as he/she is entrusted with the custody of the children; (6) Parent left solo or alone with the responsibility of parenthood due to declaration of nullity or annulment of marriage as decreed by a court or by a church as long as he/she is entrusted with the custody of the children;

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(7) Parent left solo or alone with the responsibility of parenthood due to abandonment of spouse for at least one (1) year; (8) Unmarried mother/father who has preferred to keep and rear her/his child/children instead of having others care for them or give them up to a welfare institution; (9) Any other person who solely provides parental care and support to a child or children; (10) Any family member who assumes the responsibility of head of family as a result of the death, abandonment, disappearance or prolonged absence of the parents or solo parent. A change in the status or circumstance of the parent claiming benefits under Republic Act No. 8972, such that he/she is no longer left alone with the responsibility of parenthood, shall terminate his/her eligibility for these benefits. Who are considered as children? Children refer to those living with and dependent upon the solo parent for support who are unmarried, unemployed and not more than eighteen (18) years of age, or even over eighteen (18) years but are incapable of self-support because of mental and/or physical defect/disability. What is parental responsibility? With respect to minor children, it refers to the rights and duties of the parents as defined in Article 220 of Executive Order No. 209 (also known as the Family Code of the Philippines). Article 220 provides that the parents and those exercising parental authority

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Business Law Practice Atty. Jose Cochingyan III


shall have, with the respect to their unemancipated children on wards, the following rights and duties: (1) To keep them in their company, to support, educate and instruct them by right precept and good example, and to provide for their upbringing in keeping with their means; (2) To give them love and affection, advice and counsel, companionship and understanding; (3) To provide them with moral and spiritual guidance, inculcate in them honesty, integrity, selfdiscipline, self-reliance, industry and thrift, stimulate their interest in civic affairs, and inspire in them compliance with the duties of citizenship; (4) To furnish them with good and wholesome educational materials, supervise their activities, recreation and association with others, protect them from bad company, and prevent them from acquiring habits detrimental to their health, studies and morals; (5) To represent them in all matters affecting their interests; (6) To demand from them respect and obedience; (7) To impose discipline on them as may be required under the circumstances; and (8) To perform such other duties as are imposed by law upon parents and guardians. What are the employment-related available to ALL solo parents? benefits

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as defined by the employer. The employer shall provide for a flexible working schedule for solo parents, as long as it shall not affect individual and company productivity. In case of certain meritorious grounds, the employer may request exemption from DOLE. No work discrimination. Employer are prohibited from discriminating against any solo parent employee with respect to terms and conditions of employment on account of his/her status. Parental leave. Parental leave means leave benefits granted to a solo parent to enable him/her to perform parental duties and responsibilities where physical presence is required. In addition to leave privileges under existing laws, parental leave of not more than seven (7) working days every year shall be granted to any solo parent employee who has rendered service of at least one (1) year. What other benefits are available to solo parents? Subject to income thresholds (poverty threshold) set by the National Economic and Development Authority (NEDA) and subject to the assessment of the DSWD worker in the area, solo parents shall be entitled to the following: Educational benefits, including scholarship programs for qualified solo parents and their children in institutions of basic, tertiary and technical/skills education, and nonformal education programs appropriate for solo parents and their children. Housing benefits, including allocation in government low-cost housing projects, with liberal terms of payment. Medical assistance, with comprehensive health care

Flexible work schedule. This refers to the right of a solo parent employee to vary his/her arrival and departure time without affecting the core work hours

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Business Law Practice Atty. Jose Cochingyan III


programs for solo parents and their children to be implemented by the DOH through their retained hospitals and medical centers and the local government units (LGUs) through their provincial/district/city/municipal hospitals and rural health units (RHUs). x------------------------------------x 1.4.2.5 Special Leave Benefits for Women Magna Carta for Women Section 18. Special Leave Benefits for Women. - A woman employee having rendered continuous aggregate employment service of at least six (6) months for the last twelve (12) months shall be entitled to a special leave benefit of two (2) months with full pay based on her gross monthly compensation following surgery caused by gynecological disorders. Rules & Regulations Implementing Magna Carta for Women SECTION 21. Special Leave Benefits for Women A. Any female employee in the public and private sector regardless of age and civil status shall be entitled to a special leave of two (2) months with full pay based on her gross monthly compensation subject to existing laws, rules and regulations due to surgery caused by gynecological disorders under such terms and conditions: 1. She has rendered at least six (6) months continuous aggregate employment service for the last twelve (12) months prior to surgery; 2. In the event that an extended leave is necessary, the female employee may use her earned leave credits; and

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3. This special leave shall be non-cumulative and nonconvertible to cash.77 B. The CSC, in the case of the public sector including LGUs and other State agencies, and the DOLE, in the case of the private sector, shall issue further guidelines and appropriate memorandum circulars within sixty (60) days from the adoption of these Rules and Regulations to operationalize said policy, and monitor its implementation and act on any violations thereof. x------------------------------------x 1.4.2.6 Victims of Violence Against Women & Children RA 9262 SECTION 43. Entitled to Leave. Victims under this Act shall be entitled to take a paid leave of absence up to ten (10) days in addition to other paid leaves under the Labor Code and Civil Service Rules and Regulations, extendible when the necessity arises as specified in the protection order. Any employer who shall prejudice the right of the person under this section shall be penalized in accordance with the provisions of the Labor Code and Civil Service Rules and Regulations. Likewise, an employer who shall prejudice any person for assisting a co-employee who is a victim under this Act shall likewise be liable for discrimination. Rules & Regulations Implementing RA 9262 Section 42. Ten-day paid leave in addition to other leave benefits. - At any time during the application of any protection order, investigation, prosecution and/or trial of the criminal case, a victim of VAWC who is employed shall be entitled to a paid leave of up to ten (10) days in addition to other paid leaves under the Labor Code and Civil Service Rules

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and Regulations and other existing laws and company policies, extendible when the necessity arises as specified in the protection order. The Punong Barangay/kagawad or prosecutor or the Clerk of Court, as the case may be, shall issue a certification at no cost to the woman that such an action is pending, and this is all that is required for the employer to comply with the 10-day paid leave. For government employees, in addition to the aforementioned certification, the employee concerned must file an application for leave citing as basis R.A. 9262. The administrative enforcement of this leave entitlement shall be considered within the jurisdiction of the Regional Director of the DOLE under Article 129 of the Labor Code of the Philippines, as amended, for employees in the private sector, and the Civil Service Commission, for government employees. The availment of the ten day-leave shall be at the option of the woman employee, which shall cover the days that she has to attend to medical and legal concerns. Leaves not availed of are noncumulative and not convertible to cash. The employer/agency head who denies the application for leave, and who shall prejudice the victim-survivor or any person for assisting a coemployee who is a victim-survivor under the Act shall be held liable for discrimination and violation of R.A 9262. The provision of the Labor Code and the Civil Service Rules and Regulations shall govern the penalty to be imposed on the said employer/agency head. x------------------------------------x 1.4.2.6 Sick Leave PLDT v NLRC

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Facts: Private respondent was employed as telephone operator but subsequently dismissed from employment for absences without authorized leave Respondent filed a complaint for illegal dismissal alleging that petitioner dismissed her despite her presentation of medical certificates, which were not honored. Petitioner alleged that she had 3 unauthorized absences in the same year. - 1st was in March when she allegedly had marital problems, getting an 18 day suspension (9 days absent x 2 = 18days) - 2nd was in June when she was allegedly suffering from gastroenteritis, but petitioners doctors only confirmed part of her sick leave, as the medical certificate shown only covered the first period of her absence - 3rd was end of June to July when she was allegedly suffering from viral infection, but had no lab examinations to prove such LA ruled in favor of private respondent, ordering reinstatement - Only the 1st was unauthorized. The subsequent ones were not necessarily unauthorized absences, as she presented medical certificates, which was the only thing required. And petitioners doctors were only assuming situations based on their opinion. - Sick leaves are considered unauthorized only in the ff cases: 1. Forged doctors signature 2. Alteration of date or contents 3. Facts stated in med cert are false 4. Doctor is not qualified 5. Patent falsities and misrepresentations 6. Patent abuse of sick leave privileges NLRC affirmed LA CA affirmed NLRC Issue: W/N respondent was validly dismissed? Held: Yes. She was validly dismissed for patent abuse of sick leave privileges.

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Business Law Practice Atty. Jose Cochingyan III


Employer validly established that respondent repeatedly absented herself from work, using the excuse of being sick. Petitioner presented sufficient proof that the medical certificates were also not believable, based on the testimony of its doctors. Respondent failed to prove otherwise. As respondent is in a position which is vital to the companys operations, her abuse of sick leave privileges became a detriment to the company, thus making it a valid dismissal. x------------------------------------x 1.4.3 Holidays

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the holiday will be observed on the Monday of the week. If the holiday falls on a Sunday, the holiday will be observed on the Monday that follows: RA 9492 Sec. 26, Regular Holidays and Nationwide Special Days. (1) Unless otherwise modified by law, and or proclamation, the following regular holidays and special days shall be observed in the country: a) Regular Holidays New years Day - January 1 Maundy Thursday- Movable date Good Friday - Movable date Eidul Fitr - Movable date Araw ng Kagitingan (Bataaan and Corregidor Day) - Monday nearest April 9 Labor Day - Monday nearest May 1 Independence Day - Monday nearest June 12 National Heroes Day - Last Monday of August Bonifacio Day - Monday nearest November 30 Christmas Day - December 25 Rizal Day - Monday nearest December 30 b) Nationwide Special Holidays: Ninoy Aquino Day- Monday nearest August 21 All Saints Day - November 1 Last Day of the Year - December 31 c) In the event the holiday falls on a Wednesday, the holiday will be observed on the Monday of the week. If the holiday falls on a Sunday, the holiday will be observed on the Monday that follows: Provided, That for movable holidays, the President shall issue a proclamation, at least six months prior to the holiday concerned, the

RA 9849 (1) Unless otherwise modified by law, order, or proclamation, the following regular holidays and special days shall be observed in the country: (a) Regular Holidays New Year's Day - January 1 Maundy Thursday- Movable Date Good Friday - Movable Date Eidul Fitr - Movable Date Eidul Adha- Movable Date Araw ng Kagitingan (Bataan and Corregidor Day) Monday nearest April 9 Labor Day - Monday nearest May 1 Independence Day - Monday nearest June 12 National Heroes Day - Last Monday of August Bonifacio Day - Monday nearest November 30 Christmas Day - December 25 Rizal Day - Monday nearest December 30 (b) Nationwide Special Holidays Ninoy Aquino Day- Monday nearest August 21 All Saints Day - November 1 Last Day of the Year - December 31 (c) In the event the holiday falls on a Wednesday,

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specific date that shall be declared as a nonworking day: Provided, however, The Eidul Adha shall be celebrated as a regional holiday in the Autonomous Region in Muslim Mindanao. RA 9256 Section 1. Ninoy Aquino Day. - In order to commemorate the death anniversary of Former Senator Benigno "Ninoy" S. Aquino J., August twentyone of every year is hereby declared as the Ninoy Aquino Day which shall be a national nonworking holiday. RA 9177 Section 1. The first day of Shawwal, the tenth month of the Islamic calendar, is hereby declared a national holiday for the observance of Eidul Fitr, and the tenth day of Zhul Hijja, the twelfth month of the Isalamic calendar is hereby delared a regional holiday in the Autonomous Region in Muslim Mindanao (ARMM) for the observance ofEidul Adha. Eidul Fitr is the first day marking the end of the thirty (30)-day fasting period of Ramadhan Eidul Adhais a tenth day in the month of Hajj or Islamic Pilgrimage to Mecca wherein Muslims pay homage to Abraham's supreme act of sacrifice and signifies mankind's obedience to God. The approximate date of these Islamic holidays may be determined in accordance with the Islamic calendar (Hijra) or the lunar calendar, or upon Islamic astronomical calculations, whichever is possible or convenient. EO 203 (June 30, 1987) Regular Holidays New Year's Day January Maundy ThursdayMovable date Good Friday Movable date

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Araw ng Kagitingan (Bataan and Corregidor Day) April 9 Labor Day May 1 Independence Day June 12 National Heroes Day Last Sunday of August Bonifacio Day November 30 Christmas Day December 25 Rizal Day December 30 Nationwide Special Days All Saints Day November 1 Last Day of the Year December 31 Sec. 2. Henceforth, the terms "legal or regular holiday" and "special holiday", as used in laws, orders, rules and regulations or other issuances shall now be referred to as "regular holiday" and "special day", respectively. Proclamation No. 1699 (December 24, 2008) A. Regular Holidays: Araw ng Kagitingan April 6 (Monday, in lieu of April 9) Maundy Thursday April 9 Good Friday April 10 Labor Day May 1 (Friday) Independence Day June 12 (Friday) National Heroes Day August 31 (Monday), last Monday of August Bonifacio Day November 30 (Monday) Christmas Day December 25 (Friday) Rizal Day December 30 (Wednesday) B. Special (Non-Working) Days Ninoy Aquino Day August 21 (Friday) All Saints Day November 1 (Sunday) Additional (non-working) day November 2 (Monday) Additional (non-working) day December 24 (Thursday) Last Day of the Year December 31 (Thursday)

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Business Law Practice Atty. Jose Cochingyan III


x------------------------------------x 1.5 Formula for Computing Wages Rules Implementing RA 6727 Section 6. Suggested Formula in Determining the Equivalent Monthly Statutory Minimum Wage Rates. Without prejudice to existing company practices, agreements or policies, the following formula may be used as guides in determining the equivalent monthly statutory minimum wage rates: a) For those who are required to work everyday including Sundays or rest days, special days and regular holidays: Equivalent Applicable daily wage rate Monthly = (ADR) x 390.90 days Rate (EMR) 12 Where 390.90 days = 302 days Ordinary working days 20 days 10 regular holidays x 200% 66.30 days 51 rest days x 130% 2.60 days 2 special days x 130% 390.90 days Total equivalent number of days. Note: For workers whose rest days fall on Sundays, the number of rest days in a year is reduced from 52 to 51 days, the last Sunday of August being a regular holiday under Executive Order No. 203. For purposes of computation, said holiday, although still a rest day for them, is included in the ten regular holidays. For workers whose rest days do not fall on Sundays, the number of rest days is 52 days, as there are 52 weeks in a year. DOLE Department Advisory 1-201 (March 5, 2010)

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Trans-Asia V NLRC Facts: Petitioners and Respondents entered into a CBA which provided that a 200% holiday pay would be given, plus a 60% premium. Petitioners requested for the payment of holiday pay in arrears but was not granted by respondent Petitioner then filed a complaint with the LA Issue: W/N Respondents are liable for holiday pay? Held: No. Respondents have already incorporated the payment for legal holidays in the monthly salary of the employees. Petitioners contend that their monthly salaries did not have the allowance for the payment of legal holiday pay, as nothing in their payslips indicated that such payment was given. However, respondents contend that they have long been using the 286-day divisor in computing for the employees overtime pay and daily rate deductions for absences. 52 x 44 8 = 286 days

where 52 = # of weeks in a year 48 = # of work hours per week 8 = #of work hours per day 286 already takes into account the 10 legal holidays in a year, as it only subtracts the 52 Sundays and 26 Saturdays (employees are required to work day every Saturday). However, the court still suggests that there is a need to adjust the 286 day divisor to 287 for computations which would be advantageous to the laborer, such as in computing the deductions for absences. 287 divisor is arrived at by taking into account EO 203, taking into account 2 additional special holidays (all saints day & last day of the year) and subtracting one legal holiday (national heroes day, which always falls on a Sunday).

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Business Law Practice Atty. Jose Cochingyan III


Producers Bank v NLRC Facts: Respondents are employees of petitioner Respondents filed a complaint against petitioner diminution of benefits and non-payment of holiday pay LA ruled in favor of petitioner NLRC reversed Issue: W/N respondents are entitled to bonuses? NO. W/N 13th month pay was diminished? NO. Held: No. Respondents are not entitled to bonuses. Respondents have been given bonuses for the past 13 years, as such, they reason that this has already become a vested right. However, the petitioners are correct in pointing out that due to financial losses and its present condition being under conservatorship, they cannot be compelled to pay the alleged bonus differentials. Bonuses are amounts granted and paid to an employee for his industry and loyalty which contributed to the success of the business. This is a management prerogative as something given in addition to what is ordinarily received by or strictly due to the recipient. Thus, it is not an enforceable or demandable obligation, specially when the employer is already experiencing deep financial losses. No. The 13th month pay was actually given in the form of Christmas bonuses. PD 851 required employers to pay all its employees with basic salary of not more than 1,000 per month a 13 th month pay. However, an exception was granted in the implementing rules such that if the employer is already giving them other form of bonuses which is not less than 1/12 of their basic salary, this shall be construed as already giving 13th month pay. Omnibus Rules Implementing the Labor Code Book III SECTION 2. Status of employees paid by the

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month. Employees who are uniformly paid by the month, irrespective of the number of working days therein, with a salary of not less than the statutory or established minimum wage shall be paid for all days in the month whether worked or not. For this purpose, the monthly minimum wage shall not be less than the statutory minimum wage multiplied by 365 days divided by twelve. Odango v NLRC Facts: DOLE, upon routine inspection, found that ANTECO employees have been under-paid. LA ruled in favor of petitioners, directing private respondent to pay the wage differentials - Based on Sec. 2 of implementing rules, employees are deemed paid for all the days in a month - Petitioners claim they should be paid for all 10 legal holidays, unworked half Saturdays and all of Sundays. - Petitioners were also given credence when they mentioned that ANTECO was only using 304 as its divisor in computing for leave credits, thus, they owe petitioners for wages for 61 days, the difference between 365 and 304, as specified in Sec. 2 NLRC reversed - Daily wage rates of ANTECO were above minimum wage - NLRC applied computation in Sec. 2 (Wage x 12 / 365) - Using 304 as divisor in computing for leave credits was more favorable since lower divisor yields a higher rate of pay. CA dismissed for insufficiency in form and substance Issue: W/N petitioners have a right to the wage differential awarded by the LA? Held: No. ANTECO does not need to pay petitioners the wage differential. The LAs reliance on Sec. 2 of the Implementing Rules and

for

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Business Law Practice Atty. Jose Cochingyan III


Policy Instructions No. 9 issued by then Minister of Labor is faulty. The SC has long decided that such provision is null and void, since in the guise of clarifying the LCs provisions on holiday pay, they in effect, amended them by enlarging the scope of the exclusion. It is clear that monthly paid employees are not exempted from the benefits of holiday pay, but Sec. 2 provided that it shall already be presumed that they are being paid holiday pay, whether worked or not. This cannot be the basis of any claim, as it is null and void. The basic rule is no work, no pay. The right to be paid for unworked days is limited to the 10 legal holidays in a year. The use of 304 as a divisor cannot mean that ANTECO is liable for underpayment. The allowable minimum divisor is actually only 287. (365 52 Sundays 26 Saturdays) x------------------------------------x 1.6 13th Month Pay Law PD 851 (as amended by Memorandum Order No. 28) 1. Removal of Salary Ceiling. On August 13, 1986, President Corazon C. Aquino issued Memorandum Order No. 28 which provides as follows: "Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year." Before its modification by the aforecited Memorandum Order, P.D. No. 851 excludes from entitlement to the 13th month pay those employees who were receiving a basic salary of more than P1,000.00 a month. With the removal of the salary ceiling of P1,000.00, all rank and file employees are now entitled to a 13th month pay

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regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year. 2. Exempted Employers. The following employers are still not covered by P.D. No. 851: a. The Government and any of its political subdivisions, including government-owned and controlled corporations, excepts those corporations operating essentially as private subsidiaries of the Government; b. Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the time of this issuance; c. Employers of household helpers and persons in the personal service of another in relation to such workers; and d. Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piecerate basis in which case the employer shall grant the required 13th month pay to such workers. As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in

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producing the same. The term "its equivalent" as used on paragraph (b) hereof shall include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary but shall not include cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as nonmonetary benefits. Where an employer pays less than required 1/12th of the employees basic salary, the employer shall pay the difference. 3. Who are Rank-and File Employees. The Labor Code distinguishes a rank-and-file employee from a managerial employee. It provides that a managerial employee is one who is vested with powers of prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank-and-file employees. The above distinction shall be used as guide for the purpose of determining who are rank-and-file employees entitled to the mandated 13th month pay. 4. Amount and payment of 13th Month Pay (a) Minimum of the Amount. The minimum 13th month pay required by law shall not be less than one-twelfth of the total basic salary earned by an employee within a calendar year. For the year 1987, the computation of the 13th month pay shall include the cost of living allowances (COLA) integrated into the basic salary of a covered employee pursuant to Executive Order 178.

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E.O. No. 178 provides, among other things, that the P9.00 of the daily COLA of P17.00 for non-agricultural workers shall be integrated into the basic pay of covered employees effective 1 May 1987, and the remaining P8.00 effective 1 October 1987. For establishments with less than 30 employees and paid-up capital of P500,000 or less, the integration of COLAs shall be as follows: P4.50 effective on 1 May 1987; P4.50 on 1 October 1987; and P8.00 effective 1 January 1988. Thus, in the computation of the 13th month pay for 1987, the COLAs integrated into the basic pay shall be included as of the date of their integration. Where the total P17.00 daily COLA was integrated effective 1 May 1987 or earlier the inclusion of said COLA as part of the of the basic pay for the purpose of computing the 13th month pay shall be reckoned from the date of actual integration. The "basic salary" of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.

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Business Law Practice Atty. Jose Cochingyan III


(b) Time of Payment. The required 13th month pay shall be paid not later than December 24 of each year. An employer, however, may give to his employees one half () of the required 13th month pay before the opening of the regular school year and the other half on before the 24th of December of every year. The frequency of payment of this monetary benefit may be the subject of agreement between the employer and the recognized/collective bargaining agent of the employees. 5. 13th Month Pay for Certain Types of Employees. (a) Employees Paid by Results. Employees who are paid on piece work basis are by law entitled to the 13th month pay. Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month pay, based on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission. (b) Those with Multiple Employers. Government employees working part time in a private enterprise, including private educational institutions, as well as employees working in two or more private firms, whether on full or part time basis, are entitled to the required 13th month pay from all their private employers regardless of their total earnings from each or all their employers. (c) Private School Teachers. Private school teachers, including faculty members of universities and colleges, are entitled to the required 13th month pay, regardless of the

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number of months they teach or are paid within a year, if they have rendered service for at least one (1) month within a year. 6. 13th Month Pay of Resigned or Separated Employee. An employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period. The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship. 7. Non-inclusion in Regular Wage. The mandated 13th month pay need not be credited as part of regular wage of employees for purposes of determining overtime and premium pays, fringe benefits insurance fund, Social Security, Medicare and private retirement plans. 8. Prohibitions against elimination of benefits. reduction or

Nothing herein shall be construed to authorize any employer to eliminate, or diminish in any

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Business Law Practice Atty. Jose Cochingyan III


way, supplements, or other employee benefits or favorable practice being enjoyed by the employee at the time of promulgation of this issuance. Revised Guidelines on the Implementation of 13th Month Pay Law 1. Removal of Salary Ceiling. On August 13, 1986, President Corazon C. Aquino issued Memorandum Order No. 28 which provides as follows: "Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year."chan robles virtual law library Before its modification by the aforecited Memorandum Order, P.D. No. 851 excludes from entitlement to the 13th month pay those employees who were receiving a basic salary of more than P1,000.00 a month. With the removal of the salary ceiling of P1,000.00, all rank and file employees are now entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year. 2. Exempted Employers. The following employers are still not covered by P.D. No. 851: a. The Government and any of its political subdivisions, including government-owned and

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controlled corporations, excepts those corporations operating essentially as private subsidiaries of the Government; b. Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the time of this issuance; c. Employers of household helpers and persons in the personal service of another in relation to such workers; and d. Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piece-rate basis in which case the employer shall grant the required 13th month pay to such workers. As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same. The term "its equivalent" as used on paragraph (b) hereof shall include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary but shall not include cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. Where an employer pays less than required 1/12th of the employees basic salary, the employer shall pay the difference.chan robles virtual law library 3. Who are Rank-and File Employees.

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Business Law Practice Atty. Jose Cochingyan III


The Labor Code distinguishes a rank-and-file employee from a managerial employee. It provides that a managerial employee is one who is vested with powers of prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank-and-file employees. The above distinction shall be used as guide for the purpose of determining who are rank-and-file employees entitled to the mandated 13th month pay. 4. Amount and payment of 13th Month Pay (a) Minimum of the Amount. The minimum 13th month pay required by law shall not be less than one-twelfth of the total basic salary earned by an employee within a calendar year. For the year 1987, the computation of the 13th month pay shall include the cost of living allowances (COLA) integrated into the basic salary of a covered employee pursuant to Executive Order 178. E.O. No. 178 provides, among other things, that the P9.00 of the daily COLA of P17.00 for non-agricultural workers shall be integrated into the basic pay of covered employees effective 1 May 1987, and the remaining P8.00 effective 1 October 1987. For establishments with less than 30 employees and paid-up capital of P500,000 or less, the integration of COLAs shall be as follows: P4.50 effective on 1 May 1987; P4.50 on 1 October 1987; and P8.00 effective 1 January 1988. Thus, in the computation of the 13th month pay for 1987, the COLAs integrated into the basic pay shall be included as of the date of their integration. Where the total P17.00 daily COLA was integrated

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effective 1 May 1987 or earlier the inclusion of said COLA as part of the of the basic pay for the purpose of computing the 13th month pay shall be reckoned from the date of actual integration. The "basic salary" of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees. (b) Time of Payment. The required 13th month pay shall be paid not later than December 24 of each year. An employer, however, may give to his employees one half () of the required 13th month pay before the opening of the regular school year and the other half on before the 24th of December of every year. The frequency of payment of this monetary benefit may be the subject of agreement between the employer and the recognized/collective bargaining agent of the employees. 5. 13th Month Pay for Certain Types of Employees. (a) Employees Paid by Results. Employees who are paid on piece work basis are by law entitled to the 13th month pay. Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated

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Business Law Practice Atty. Jose Cochingyan III


13th month pay, based on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission. (b) Those with Multiple Employers. Government employees working part time in a private enterprise, including private educational institutions, as well as employees working in two or more private firms, whether on full or part time basis, are entitled to the required 13th month pay from all their private employers regardless of their total earnings from each or all their employers.chan robles virtual law library (c) Private School Teachers. Private school teachers, including faculty members of universities and colleges, are entitled to the required 13th month pay, regardless of the number of months they teach or are paid within a year, if they have rendered service for at least one (1) month within a year. 6. 13th Month Pay of Resigned or Separated Employee. An employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period. The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all liabilities

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and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship. 7. Non-inclusion in Regular Wage. The mandated 13th month pay need not be credited as part of regular wage of employees for purposes of determining overtime and premium pays, fringe benefits insurance fund, Social Security, Medicare and private retirement plans. 8. Prohibitions against reduction or elimination of benefits. chan robles virtual law library Nothing herein shall be construed to authorize any employer to eliminate, or diminish in any way, supplements, or other employee benefits or favorable practice being enjoyed by the employee at the time of promulgation of this issuance. Philippine Duplicators v NLRC Facts: SC 3rd Division dismissed petition for certiorari by Petitioner, affirming LA & NLRC decision directing Petitioner to pay 13th month pay based on basic salary PLUS sales commission MR was subsequently denied Petitioners filed Motion for Leave to admit 2nd MR Petitioner invoked recent ruling on Boie-Takeda, where SC 2nd Division declared null and void the 2nd paragraph of Sec 5(a) of Revised Guidelines issued by Sec. Drilon - Employers are required to pay 13th month based on total earnings: fixed wage and commission Petitioners aver that this ruling was opposite to the conclusion reached in its case. Issue: W/N the Boie-Takeda ruling decision in Petitioners case? abandoned the previous

Held: No. Boie-Takeda issue is not the same as Petitioners.

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Commission a referred to in the Boie-Takeda ruling is different from that in Petitioners case. 3rd Division found that the sales commissions given by Petitioner to its employees actually formed part of their fixed or basic wages, so as to include it in the computation of 13th month pay. These sales commissions formed an integral part of the basic salary structure. Although it was used to motivate employees to do better, it still formed part of their basic wage. In Boie-Takeda, the commissions were not considered as part of the basic wage, as these were paid to the employees as productivity bonuses, which were dependent on the success of the company, and not of the individual. Similar to profit sharing payments, these do not form part of the basic wage. Further, Medical Representatives in Boie-Takeda are not the same as Salesmen in Duplicators. They do not effect any sale of article, but merely promote such products. Should the company earn from their promotions, they will then be given bonuses, but such is still dependent on the companys profitability. What the 2nd Division ruled was that those additional payments made to employees, which partake in the nature of profit-sharing payments, are properly excluded as part of the basic salary. It struck down the 2nd paragraph of Sec 5(a) as having no legal basis for including within the term commission those additional payments, which are, in fact, profit sharing payments. However, to the extent of the doctrine laid down in Duplicators, wherein the commission refers to those directly dependent on the extent an employee exerts himself, such still remains valid. PAL v PALEA Facts: PAL & PALEA entered into a CBA in 1987. - 13th month pay to be paid in advance in May - Christmas bonus staggered in 2 stages Prior to payment of 13th month, PAL released guidelines - Dividing the groups into those already regularized and

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those who are not - Those who are not shall receive their 13th month pay on or before December 24, and shall be paid the equivalent of not less than month of their basic monthly salary within the calendar year PALEA contended that all employees whether regular or not should be receiving their 13th month pay on May PAL averred that those not regularized are not entitled to 13th month pay yet, as they have already received their Christmas bonus pursuant to said guidelines - This was also pursuant to PD 851, which stated that those already paying the equivalent of 13th month pay shall be exempted from further paying the 13th month pay - PAL stated that its equivalent referred to the Christmas bonus already given LA dismissed PALEAs petition NLRC reversed LA - 13th month pay or mid-year bonus is distinct from Christmas bonus CA dismissed PALs Petition for Review of Certiorari Proceedings were suspended when PAL went into rehabilitation but revived as soon as its operations were stabilized

Issue: W/N PAL is liable to pay the 13th month pay to those regularized after the guidelines were issued by PAL? YES. W/N 13th month pay or mid-year bonus can be equated to Christmas bonus? NO. Held: Yes. PAL should still pay them 13th month pay. The CBA entered into actually referred to all employees in the bargaining unit, without distinction as to whether they were regular or non-regular employees. All employees in PAL are entitled to the same benefits. Even those not belonging to the chosen bargaining labor organization are included in the enjoyment of the benefits, so long as they are in the same bargaining unit. No. Despite payment of Christmas bonus, employer is still liable for 13th month pay.

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Although PD851 exempts those already paying 13 month or its equivalent from further paying 13th month pay again, such still does not exempt PAL. When PAL entered into the CBA with PALEA, they specifically agreed that they would pay BOTH the 13th month pay or mid-year bonus AND the Christmas bonus. PAL cannot unilaterally declare that nonregular employees cannot enjoy the benefits of the CBA. If the Christmas bonus was intended to include the 13th month pay, then there should never have been a separate provision for such in the CBA. Central Azucarera v Central Azucarera Union Facts: Pursuant to PD851, Petitioner granted 13th month pay to its employees Such was computed by dividing total basic annual salary by 12. Basic salary included basic monthly salary, 1st 8 hours overtime pay on Sunday and holiday, night premium pay, vacation leaves & sick leaves. Petitioner used this computation from 1975 to 2006. In 2004, Respondents staged a strike, which caused temporary cessation of operations, but subsequently ended in 2005. On April-May 2006, there was another strike, which again caused a temporary cessation of operations, then employees were allowed to report for work starting June on a 15-day per month rotation basis, which lasted until September. When employees were given their 13th month pay, they averred that it should have been divided by 8, since they only worked for a total of 8 months, and not 12. Petitioner averred that it was merely correcting a mistake, wherein the 13th month pay should only have included the basic monthly pay, and not the other benefits. LA ruled in favor of Petitioners NLRC reversed CA affirmed NLRC
th

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Issue: W/N Petitioners are liable for the wage differential in 13 th month pay? Held: Yes. Petitioners must pay respondent the wage differential. Petitioner cannot now complain that only after 30 years, they are correcting an error. PD 851 was issued, specifying that basic salary shall be used in computing the 13th month pay. Its supplementary rules were issued, specifically stating that other remunerations shall not be included in the computation, such as unused vacation leave credits, overtime pay, etc. Despite such guidelines, petitioner still chose to pay 13 th month using the computation, which included overtime pay, vacation leave, sick leave, etc. This was done for almost 30 years. It has already ripened into company practice, and as such, cannot be unilaterally withdrawn. There was no doubtful question of law, wherein which petitioner can base his error on. Thus, petitioner shall be liable to pay the wage differential. x------------------------------------x 2. BASIC INCOME TAX ON INDIVIDUAL CITIZENS National Internal Revenue Code (amended by RA 9504) SEC. 24. Income Tax Rates (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. (1) An income tax is hereby imposed: (a) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within and without the Philippines be every individual citizen of the Philippines residing therein;

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(b) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual citizen of the Philippines who is residing outside of the Philippines including overseas contract workers referred to in Subsection(C) of Section 23 hereof; and (c) On the taxable income defined in Section 31 of this code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual alien who is a resident of the Philippines. (2) Rates of Tax on Taxable Income of Individuals. - The tax shall be computed in accordance with and at the rates established in the following schedule: Not over P10,000 = 5% Over P10,000 but not over P30,000 = P500+10% of excess over P10,000 Over P30,000 but not over P70,000 = P2,500+15% of the excess over P30,000 Over P70,000 but not over P140,000 = P8,500+20% of the excess over P70,000 Over P140,000 but not over P250,000 = P22,500+25% of the excess over P140,000 Over P250,000 but not over P500,000

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= P50,000+30% of the excess over P250,000 Over P500,000 = P125,000+32% of the excess over P500,000 For married individuals, the husband and wife, subject to the provision of Section 51 (D) hereof, shall compute separately their individual income tax based on their respective total taxable income: Provided, that if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. Provided, That minimum wage earners as defined in Section 22 (HH) of this Code shall be exempt from the payment of income tax on their taxable income: Provided, further, That the holiday pay, overtime pay, night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax. (B) Rate of Tax on Certain Passive Income. (1) Interests, Royalties, Prizes, and Other Winnings. - A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; royalties, except on books, as well as other literary works and

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musical compositions, which shall be imposed a final tax of ten percent (10%); prizes (except prizes amounting to Ten thousand pesos (P10,000) or less which shall be subject to tax under Subsection (A) of Section 24; and other winnings (except Philippine Charity Sweepstakes and Lotto winnings), derived from sources within the Philippines: Provided, however, That interest income received by an individual taxpayer (except a nonresident individual) from a depository bank under the expanded foreign currency deposit system shall be subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income: Provided, further, That interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this Subsection: Provided, finally, That should the holder of the certificate pre-terminate the deposit or investment before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: Four (4) years to less than five (5) years 5%; Three (3) years to less than (4) years 12%; and Less than three (3) years - 20%

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(2) Cash and/or Property Dividends - A final tax at the following rates shall be imposed upon the cash and/or property dividends actually or constructively received by an individual from a domestic corporation or from a joint stock company, insurance or mutual fund companies and regional operating headquarters of multinational companies, or on the share of an individual in the distributable net income after tax of a partnership (except a general professional partnership) of which he is a partner, or on the share of an individual in the net income after tax of an association, a joint account, or a joint venture or consortium taxable as a corporation of which he is a member or co-venturer: Six percent (6%) beginning January 1, 1998; Eight percent (8%) beginning January 1, 1999; and Ten percent (10% beginning January 1, 2000. Provided, however, That the tax on dividends shall apply only on income earned on or after January 1, 1998. Income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to this tax. (C) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of

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shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. 5% Not over P100,000........

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(18) calendar months from the date of sale or disposition, shall be exempt from the capital gains tax imposed under this Subsection: Provided, That the historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired: Provided, further, That the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption herein mentioned: Provided, still further, That the said tax exemption can only be availed of once every ten (10) years: Provided, finally, that if there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax. For this purpose, the gross selling price or fair market value at the time of sale, whichever is higher, shall be multiplied by a fraction which the unutilized amount bears to the gross selling price in order to determine the taxable portion and the tax prescribed under paragraph (1) of this Subsection shall be imposed thereon. SEC. 32. Gross Income (A) General Definition. - Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items: (1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and

On any amount in excess of P100,000 10% (D) Capital Gains from Sale of Real Property. (1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24 (A) or under this Subsection, at the option of the taxpayer. (2) Exception. - The provisions of paragraph (1) of this Subsection to the contrary notwithstanding, capital gains presumed to have been realized from the sale or disposition of their principal residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal residence within eighteen

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similar items; (2) Gross income derived from the conduct of trade or business or the exercise of a profession; (3) Gains derived from dealings in property; (4) Interests; (5) Rents; (6) Royalties; (7) Dividends; (8) Annuities; (9) Prizes and winnings; (10) Pensions; and (11) Partner's distributive share from the net income of the general professional partnership. (B) Exclusions from Gross Income. - The following items shall not be included in gross income and shall be exempt from taxation under this title: (1) Life Insurance. - The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income. (2) Amount Received by Insured as Return of Premium. - The amount received by the insured, as a return of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract. (3) Gifts, Bequests, and Devises. - The value of property acquired by gift, bequest, devise, or descent: Provided, however, That income from such property, as well as gift, bequest, devise or descent of

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income from any property, in cases of transfers of divided interest, shall be included in gross income. (4) Compensation for Injuries or Sickness. amounts received, through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received, whether by suit or agreement, on account of such injuries or sickness. (5) Income Exempt under Treaty. - Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. (6) Retirement Benefits, Pensions, Gratuities, etc.(a) Retirement benefits received under Republic Act No. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement: Provided, further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. For purposes of this Subsection, the term 'reasonable private benefit plan' means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or

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employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein its is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees. Any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death sickness or other physical disability or for any cause beyond the control of the said official or employee. The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public. Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration. Benefits received from or enjoyed under the Social Security System in accordance with the provisions of Republic Act No. 8282. Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by

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government officials and employees. (7) Miscellaneous Items. (a) Income Derived by Foreign Government. - Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments. (b) Income Derived by the Government or its Political Subdivisions. - Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof. (c) Prizes and Awards. - Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement but only if: (i) The recipient was selected without any action on his part to enter the contest or proceeding; and (ii) The recipient is not required to render substantial future services as a condition to receiving the prize or award. (d) Prizes and Awards in Sports Competition. - All prizes and awards granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their national sports associations. (e) 13th Month Pay and Other Benefits. -

(b)

(c)

(d)

(e)

(f)

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Gross benefits received by officials and employees of public and private entities: Provided, however, That the total exclusion under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover: (i) Benefits received by officials and employees of the national and local government pursuant to Republic Act No. 6686; (ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; (iii) Benefits received by officials and employees not covered by Presidential decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and (iv) Other benefits such as productivity incentives and Christmas bonus: Provided, further, That the ceiling of Thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering among others, the effect on the same of the inflation rate at the end of the taxable year. (f) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pag-ibig contributions, and union dues of individuals. (g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. - Gains realized from the same or exchange or retirement of

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bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years. (h) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the investor upon redemption of shares of stock in a mutual fund company as defined in Section 22 (BB) of this Code. x------------------------------------x 3. FRINGE BENEFIT TAXES 3.1 NIRC National Internal Revenue Code (amended by RA 9504) SEC. 33. Special Treatment of Fringe Benefit (A) Imposition of Tax.- A final tax of thirty-four percent (34%) effective January 1, 1998; thirty-three percent (33%) effective January 1, 1999; and thirty-two percent (32%) effective January 1, 2000 and thereafter, is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees as defined herein) by the employer, whether an individual or a corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer). The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57 (A) of this Code. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe

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benefit by sixty-six percent (66%) effective January 1, 1998; sixty-seven percent (67%) effective January 1, 1999; and sixty-eight percent (68%) effective January 1, 2000 and thereafter: Provided, however, That fringe benefit furnished to employees and taxable under Subsections (B), (C), (D) and (E) of Section 25 shall be taxed at the applicable rates imposed thereat: Provided, further, That the grossed -Up value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and the applicable rates of income tax under Subsections (B), (C), (D), and (E) of Section 25. (B) Fringe Benefit defined.- For purposes of this Section, the term "fringe benefit" means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as, but not limited to, the following: (1) (2) (3) (4) Housing; Expense account; Vehicle of any kind; Household personnel, such as maid, driver and others; (5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted; (6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations; (7) Expenses for foreign travel;

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(8) Holiday and vacation expenses; (9) Educational assistance to the employee or his dependents; and (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. (C) Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this Section: (1) Fringe benefits which are authorized and exempted from tax under special laws; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, such rules and regulations as are necessary to carry out efficiently and fairly the provisions of this Section, taking into account the peculiar nature and special need of the trade, business or profession of the employer. SEC. 22. Definitions (AA) The term "rank and file employees" shall mean all employees who are holding

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neither managerial nor supervisory position as defined under existing provisions of the Labor Code of the Philippines, as amended. (CC) The term "trade, business or profession" shall not include performance of services by the taxpayer as an employee. Revenue Regulation 03-98 SEC. 2.33. SPECIAL TREATMENT OF FRINGE BENEFITS (A) Imposition of Fringe Benefits Tax A final withholding tax is hereby imposed on the grossed-up monetary value of fringe benefit furnished, granted or paid by the employer to the employee, except rank and file employees as defined in these Regulations, whether such employer is an individual, professional partnership or a corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalities except when: (1) the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer; or (2) when the fringe benefit is for the convenience or advantage of the employer. The fringe benefit tax shall be imposed at the following rates: Effective January 1, 1998 Effective January 1, 1999 Effective January 1, 2000 34% 33% 32%

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(A) (Withholding of Final Tax on certain Incomes) and Sec. 58 A (Quarterly Returns and Payments of Taxes Withheld) of the Code. The grossed-up monetary value of the fringe benefit shall be determined by dividing the monetary value of the fringe benefit by the following percentages and in accordance with the following schedule: Effective January 1, 1998 Effective January 1, 1999 Effective January 1, 2000 66% 67% 68%

The grossed-up monetary value of the fringe benefit represents the whole amount of income realized by the employee which includes the net amount of money or net monetary value of property which has been received plus the amount of fringe benefit tax thereon otherwise due from the employee but paid by the employer for and in behalf of his employee, pursuant to the provisions of this Section. Coverage These Regulations shall cover only those fringe benefits given or furnished to managerial or supervisory employees and not to the rank and file. The term, "RANK AND FILE EMPLOYEES" means all employees who are holding neither managerial nor supervisory position. The Labor Code of the Philippines, as amended, defines "managerial employee" as one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off,

The tax imposed under Sec. 33 of the Code shall be treated as a final income tax on the employee which shall be withheld and paid by the employer on a calendar quarterly basis as provided under Sec. 57

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recall, discharge, assign or discipline employees. "Supervisory employees" are those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgment. Moreover, these regulations do not cover those benefits properly forming part of compensation income subject to withholding tax on compensation in accordance with Revenue Regulations No. 2-98. Fringe benefits which have been paid prior to January 1, 1998 shall not be covered by these Regulations. Determination of the Amount Subject to the Fringe Benefit Tax In general, the computation of the fringe benefits tax would entail (a) valuation of the benefit granted and (b) determination of the proportion or percentage of the benefit which is subject to the fringe benefit tax. That the Tax Code allows for the cases where only a portion (i.e. less than 100 per cent) of the fringe benefit is subject to the fringe benefit tax is clearly stated in Section 33 (a) of R.A. 8424 which stipulates that fringe benefits which are "required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer" are not subject to the fringe benefit tax. Thus, in cases where the fringe benefits entail joint benefits to the employer and employee, the portion which

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shall be subject to the fringe benefits tax and the guidelines for the valuation of fringe benefits are defined under these rules and regulations. Unless otherwise provided regulations, the valuation benefits shall be as follows: in of these fringe

(1) If the fringe benefit is granted in money, or is directly paid for by the employer, then the value is the amount granted or paid for. (2) If the fringe benefit is granted or furnished by the employer in property other than money and ownership is transferred to the employee, then the value of the fringe benefit shall be equal to the fair market value of the property as determined in accordance with Sec. 6 (E) of the Code (Authority of the Commissioner to Prescribe Real Property Values). (3) If the fringe benefit is granted or furnished by the employer in property other than money but ownership is not transferred to the employee, the value of the fringe benefit is equal to the depreciation value of the property. Taxation of fringe benefit received by a non-resident alien individual who is not engaged in trade or business in the Philippines A fringe benefit tax of twenty-five percent (25%) shall be imposed on the grossed-up monetary value of the fringe benefit. The said tax base shall be computed by dividing the monetary value of the fringe benefit by seventy-five per cent (75%).

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Taxation of fringe benefit received by (1) an alien individual employed by regional or area headquarters of a multinational company or by regional operating headquarters of a multinational company; (2) an alien individual employed by an offshore banking unit of a foreign bank established in the Philippines; (3) an alien individual employed by a foreign service contractor or by a foreign service subcontractor engaged in petroleum operations in the Philippines; and (4) any of their Filipino individual employees who are employed and occupying the same position as those occupied or held by the alien employees. A fringe benefit tax of fifteen per cent (15%) shall be imposed on the grossed-up monetary value of the fringe benefit. The said tax base shall be computed by dividing the monetary value of the fringe benefit by eighty-five per cent (85%). cdrep Taxation of fringe benefit received by employees in special economic zones Fringe benefits received by employees in special economic zones, including Clark Special Economic Zone and Subic Special Economic and Free Trade Zone, are also covered by these regulations and subject to the normal rate of fringe benefit tax or the special rates of 25% or 15% as provided above. (B) Definition of Fringe Benefit In general, except as otherwise provided under these regulations, for purposes of this Section, the term "FRINGE BENEFIT" means any good, service, or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an

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individual employee (except rank and file employee as defined in these regulations) such as, but not limited to the following: (1) Housing; (2) Expense account; (3) Vehicle of any kind; (4) Household personnel, such as maid, driver and others; (5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted; (6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations; (7) Expenses for foreign travel; (8) Holiday and vacation expenses; (9) Educational assistance to the employee or his dependents; and (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. For this purpose, the guidelines for valuation of specific types of fringe benefits and the determination of the monetary value of the fringe benefits are give below. The taxable value shall be the grossed-up monetary value of the fringe benefit. (1) Housing privilege (a) If the employer leases a residential property for the use of his employee and the said property is the usual place of residence of the employee, the value of the benefit shall be the amount of rental paid thereon by the employer, as

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evidenced by the lease contract. The monetary value of the fringe benefit shall be fifty per cent (50%) of the value of the benefit. (b) If the employer owns a residential property and the same is assigned for the use of his employee as his usual place of residence, the annual value of the benefit shall be five per cent (5%) of the market value of the land and improvement, as declared in the Real Property Tax Declaration Form, or zonal value as determined by the Commissioner pursuant to Section 6(E) of the Code (Authority of the Commissioner to Prescribe Real Property Values), whichever is higher. The monetary value of the fringe benefit shall be fifty per cent (50%) of the value of the benefit. The monetary value of the housing fringe benefit is equivalent to the following: MV = [5%(FMV or ZONAL VALUE] X 50% WHERE: MV = MONETARY VALUE FMV = FAIR MARKET VALUE (c) If the employer purchases a residential property on installment basis and allows his employee to use the same as his usual place of residence, the annual value of the benefit shall be five per cent (5%) of the acquisition cost, exclusive of interest. The monetary value of

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fringe benefit shall be fifty per cent (50%) of the value of the benefit. (d) If the employer purchases a residential property and transfers ownership thereof in the name of the employee, the value of the benefit shall be the employer's acquisition cost or zonal value as determined by the Commissioner pursuant to Section 6(E) of the Code (Authority of the Commissioner to Prescribe Real Property Values), whichever is higher. The monetary value of the fringe benefit shall be the entire value of the benefit. (e) If the employer purchases a residential property and transfers ownership thereof to his employee for the latter's residential use, at a price less than the employer's acquisition cost, the value of the benefit shall be the difference between the fair market value, as declared in the Real Property Tax Declaration Form, or zonal value as determined by the Commissioner pursuant to Sec. 6(E) of the Code (Authority of the Commissioner to Prescribe Real Property Values), whichever is higher, and the cost to the employee. The monetary value of the fringe benefit shall be the entire value of the benefit. (f) Housing privilege of military officials of the Armed Forces of the Philippines (AFP) consisting of officials of the Philippine Army, Philippine Navy and Philippine Air Force shall not be treated as taxable fringe benefit in

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accordance with the existing doctrine that the State shall provide its soldiers with necessary quarters which are within or accessible from the military camp so that they can be readily on call to meet the exigencies of their military service. (g) A housing unit which is situated inside or adjacent to the premises of a business or factory shall not be considered as a taxable fringe benefit. A housing unit is considered adjacent to the premises of the business if it is located within the maximum of fifty (50) meters from the perimeter of the business premises. (h) Temporary housing for an employee who stays in a housing unit for three (3) months or less shall not be considered a taxable fringe benefit. (2) Expense account (a) In general, expenses incurred by the employee but which are paid by his employer shall be treated as taxable fringe benefits, except when the expenditures are duly receipted for and in the name of the employer and the expenditures do not partake the nature of a personal expense attributable to the employee. (b) Expenses paid for by the employee but reimbursed by his employer shall be treated as taxable benefits except only when the expenditures are duly receipted for and in the name of the employer and the

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expenditures do not partake the nature of a personal expense attributable to the said employee. (c) Personal expenses of the employee (like purchases of groceries for the personal consumption of the employee and his family members) paid for or reimbursed by the employer to the employee shall be treated as taxable fringe benefits of the employee whether or not the same are duly receipted for in the name of the employer. (d) Representation and transportation allowances which are fixed in amounts and are regular received by the employees as part of their monthly compensation income shall not be treated as taxable fringe benefits but the same shall be considered as taxable compensation income subject to the tax imposed under Sec. 24 of the Code. (3) Motor vehicle of any kind (a) If the employer purchases the motor vehicle in the name of the employee, the value of the benefit is the acquisition cost thereof. The monetary value of the fringe benefit shall be the entire value of the benefit, regardless of whether the motor vehicle is used by the employee partly for his personal purpose and partly for the benefit of his employer. (b) If the employer provides the employee with cash for the purchase of a motor vehicle, the ownership of which is placed in the name of the employee, the value of

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the benefits shall be the amount of cash received by the employee. The monetary value of the fringe benefit shall be the entire value of the benefit regardless of whether the motor vehicle is used by the employee partly for his personal purpose and partly for the benefit of his employer, unless the same was subjected to a withholding tax as compensation income under Revenue Regulations No. 2-98. (c) If the employer purchases the car on installment basis, the ownership of which is placed in the name of the employee, the value of the benefit shall be the acquisition cost exclusive of interest, divided by five (5) years. The monetary value of the fringe benefit shall be the entire value of the benefit regardless of whether the motor vehicle is used by the employee partly for his personal purpose and partly for the benefit of his employer. (d) If the employer shoulders a portion of the amount of the purchase price of a motor vehicle the ownership of which is placed in the name of the employee, the value of the benefit shall be the amount shouldered by the employer. The monetary value of the fringe benefit shall be the entire value of the benefit regardless of whether the motor vehicle is used by the employee partly for his personal purpose and partly for the benefit of his employer. Cdpr (e) If the employer owns and

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maintains a fleet of motor vehicles for the use of the business and the employees, the value of the benefit shall be the acquisition cost of all the motor vehicles not normally used for sales, freight, delivery service and other non-personal used divided by five (5) years. The monetary value of the fringe benefit shall be fifty per cent (50%) of the value of the benefit. The monetary value of the motor vehicle fringe benefit is equivalent to the following: MV = [(A)/5] X 50% where: MV = Monetary value A = acquisition cost (f) If the employer leases and maintains a fleet of motor vehicles for the use of the business and the employees, the value of the benefit shall be the amount of rental payments for motor vehicles not normally used for sales, freight, delivery, service and other nonpersonal use. The monetary value of the fringe benefit shall be fifty per cent (50%) of the value of the benefit. (g) The use of aircraft (including helicopters) owned and maintained by the employer shall be treated as business use and not be subject to the fringe benefits tax. (h) The use of yacht whether owned and maintained or leased by the

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employer shall be treated as taxable fringe benefit. The value of the benefit shall be measured based on the depreciation of a yacht at an estimated useful life of 20 years. (4) Household expenses Expenses of the employee which are borne by the employer for household personnel, such as salaries of household help, personal driver of the employee, or other similar personal expenses (like payment for homeowners association dues, garbage dues, etc.) shall be treated as taxable fringe benefits. (5) Interest on loan at less than market rate (a) If the employer lends money to his employee free of interest or at a rate lower than twelve per cent (12%), such interest foregone by the employer or the difference of the interest assumed by the employee and the rate of twelve per cent (12%) shall be treated as a taxable fringe benefit. (b) The benchmark interest rate of twelve per cent (12%) shall remain in effect until revised by a subsequent regulation. (c) This regulation shall apply to installment payments or loans with interest rate lower than twelve per cent (12%) starting January 1, 1998. (6) Membership fees, dues, and other expenses borne by the employer for his employee, in social and athletic clubs or other similar organizations. These expenditures shall be treated as taxable fringe employee in full.

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benefits of the

(7) Expenses for foreign travel (a) Reasonable business expenses which are paid for by the employer for the foreign travel of his employee for the purpose of attending business meetings or conventions shall not be treated as taxable fringe benefits. In this instance, inland travel expenses (such as expenses for food, beverages and local transportation) except lodging cost in a hotel (or similar establishments) amounting to an average of US$300.00 or less per day, shall not be subject to a fringe benefit tax. The expenses should be supported by documents proving the actual occurrences of the meetings or conventions. The cost of economy and business class airplane ticket shall not be subject to a fringe benefit tax. However, 30 percent of the cost of first class airplane ticket shall be subject to a fringe benefit tax. (b) In the absence of documentary evidence showing that the employee's travel abroad was in connection with business meetings or conventions, the entire cost of the ticket, including cost of hotel accommodations and other expenses incident thereto shouldered by the employer, shall be treated as taxable fringe benefits. The business meetings shall be evidenced by official

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communications from business associates abroad indicating the purpose of the meetings. Business conventions shall be evidenced by official invitations/communications from the host organization or entity abroad. Otherwise, the entire cost thereof shouldered by the employer shall be treated as taxable fringe benefits of the employee. (c) Travelling expenses which are paid by the employer for the travel of the family members of the employee shall be treated as taxable fringe benefits of the employee. (8) Holiday and vacation expenses Holiday and vacation expenses of the employee borne by his employer shall be treated as taxable fringe benefits. (9) Educational assistance to the employee or his dependents (a) The cost of the educational assistance to the employee which are borne by the employer shall, in general, be treated as taxable fringe benefit. However, a scholarship grant to the employee by the employer shall not be treated as taxable fringe benefit if the education or study involved is directly connected with the employer's trade, business or profession, and there is a written contract between them that the employee is under obligation to remain in the employ of the employer for period of time that

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they have mutually agreed upon. In this case, the expenditure shall be treated as incurred for the convenience and furtherance of the employer's trade or business. (b) The cost of educational assistance extended by an employer to the dependents of an employee shall be treated as taxable fringe benefits of the employee unless the assistance was provided through a competitive scheme under the scholarship program of the company. (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows The cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, except the following: (a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law, such as under the Social Security System (SSS), (R.A. No. 8282, as amended ) or under the Government Service Insurance System (GSIS) (R.A. No. 8291 ), or similar contributions arising from the provisions of any other existing law; and (b) the cost of premiums borne by the employer for the group insurance of his employees. (C) Fringe Benefits Not Subject to Fringe Benefits Tax In general, the fringe benefits tax shall not be imposed on the following fringe benefits:

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(1) Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; (4) De minimis benefits as defined in these Regulations; (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of the fringe benefit is for the convenience of the employer. The exemption of any fringe benefit from the fringe benefit tax imposed under this Section shall not be interpreted to mean exemption from any other income tax imposed under the Code except if the same is likewise expressly exempt from any other income tax imposed under the Code or under any other existing law. Thus, if the fringe benefit is exempted from the fringe benefits tax, the same may, however, still form part of the employee's gross compensation income which is subject to income tax, hence, likewise subject to a withholding tax on compensation income payment. The term "DE MINIMIS" benefits which are exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or

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furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees such as the following: (1) Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year ; (2) Medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per month ; (3) Rice subsidy of P350 per month granted by an employer to his employees ; (4) Uniforms given to employees by the employer ; (5) Medical benefits given to the employees by the employer ; (6) Laundry allowance of P150 per month ; (7) Employee achievement awards, e.g. for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding one-half (1/2) month of the basic salary of the employee receiving the award under an established written plan which does not discriminate in favor of highly paid employees ; dctai (8) Christmas and major anniversary celebrations for employees and their guests ; (9) Company picnics and sports tournaments in the Philippines and are participated exclusively by employees ; and (10) Flowers, fruits, books or similar items given to employees under special circumstances, e.g. on account of illness, marriage, birth of a baby,

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etc. (D) Tax Accounting for the Fringe Benefit Furnished to the Employee and the Fringe Benefit Tax Due Thereon. As a general rule, the amount of taxable fringe benefit and the fringe benefits tax shall constitute allowable deductions from gross income of the employer. However, if the basis for computation of the fringe benefits tax is the depreciation value, the zonal value as determined by the Commissioner pursuant to Section 6(E) of the Code or the fair market value as determined in the current real property tax declaration of a certain property, only the actual fringe benefits tax paid shall constitute a deductible expense for the employer. The value of the fringe benefit shall not be deductible and shall be presumed to have been tacked on or actually claimed as depreciation expense by the employer. Provided, however, that if the aforesaid zonal value or fair market value of the said property is greater than its cost subject to depreciation, the excess amount shall be allowed as a deduction from the employer's gross income as fringe benefit expense. Illustrations on fringe benefit furnished or granted by the employer to an employee (other than a rank-and-file employee) (1) During the year 1998, ABC Corporation paid for the monthly rental of a residential house of its branch manager (Mr. Dela Cruz) amounting to P66,000.00. In this case, the monthly taxable

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grossed-up monetary value of the said fringe benefit furnished or granted to its branch manager (Mr. Dela Cruz) shall be P50,000.00, computed as follows: Monthly rental for house P66,000.00 the residential

Grossed-up monetary benefit granted (P66,000.00 divided by 66% factor for calendar year 1998 times 50% taxable portion) P50,000.00 Fringe benefit tax due thereon (34%) P17,000.00 ========= ABC Corporation shall take up in its books of accounts the P66,000.00 fringe benefit furnished to Mr. Dela Cruz, under account title "Fringe Benefit Expense" and the amount of 17,000.00 under the account title "Fringe Benefit Tax Expense". The aforesaid amounts shall be fully allowed as deductions from the gross income of ABC Corporation and shall be taken up in the said employer's books of accounts as follows: Debit: Fringe Benefit Expense P66,000 Debit: Fringe Benefit Tax Expense P17,000 Credit: Cash P83,000 To record fringe benefit expense and fringe benefit tax paid on rental of the

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residential property furnished to Mr. Dela Cruz for his residential use. (Note: If the fringe benefit expense of P66,000.00 has already accrued but not yet paid, use the account title "fringe benefit payable". If the fringe benefit tax has already accrued but not yet paid, use the account title "fringe benefit tax payable"). (2) XYZ Corporation owns a condominium unit. During the year 1998, the said corporation furnished and granted the said property for the residential use of its Assistant Vice-President. The fair market value of the said property as determined by the Commissioner pursuant to Section 6(E) of the Code amounts P10,000,000.00 while its fair market value as shown in its current Real Property Tax Declaration amounts to P8,000,000.00. In this case, the higher fair market value of P10,000,000.00 as determined by the Commissioner shall be used in computing the monetary of the fringe benefit so furnished or granted to said employee and the fringe benefit tax due thereon shall be computed as follows: Monthly rental value of the property (P10,000,000 times 5% thereof times 50% divided by 12 months) P20,833.33 Grossed-up monetary value thereof as fringe benefit (P20,833.33 divided by 66% factor for calendar year 1998) P31,565.66

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Fringe Benefit tax due thereon (34%) P10,732.32 ========= In general, under this illustration, the XYZ Corporation shall not further claim deduction for allowing its Assistant Vice-President the use of its residential property since the cost for the use thereof has already been recovered as deduction from its gross income under "Depreciation Expense". However, since the fringe benefit tax in the amount of P10,732.32, assumed and paid by XYZ corporation has not as yet been recovered by way of deduction from gross income, the same shall be allowed as a deduction from its gross income. XYZ Corporation shall take up the foregoing in its books of accounts, as follows: Debit: Fringe Benefit Tax Expense P10,732.32 Credit: Cash/Fringe Benefit Tax Payable P10,732.32 To record fringe benefit tax expense for the residential property furnished to employees. However, if the cost of the aforesaid condominium unit subject to depreciation allowance (example: its acquisition cost is only P7,000,000.00) is lesser than its fair market value as determined by the Commissioner (i.e. P10,000,000.00), the excess amount (i.e. P3,000,000.00) shall be amortized

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throughout the remaining estimated useful life of the residential property used in computing the said employer's depreciation expense and allowed as a deduction from the said employer's gross income as fringe benefit expense. Thus, if the remaining estimated useful life thereof during the year 1998 is fifteen (15) years, its monthly amortization shall be computed as follows: Monthly amortization (P3,000,000.00 divided by 15 years divided by 12 months) P16,666.67 In this case, XYZ Corporation shall take up the foregoing in its books of accounts as follows: Debit: Fringe benefit expense P16,666.67 Debit: Fringe benefit tax P10,732.32 Credit: Income constructively realized P16,666.67 Credit: Cash/Fringe benefit tax payable P10,732.32 To record fringe benefit and fringe benefit tax expenses and income constructively realized from the use of company-owned residential property furnished to employees. x------------------------------------x 3.2 Nature of Fringe Benefit Taxes BIR Ruling 004-00 (United Coconut Chemical Inc.) INCOME TAX; Fringe benefits received by

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employees in Special Economic Zones Fringe benefits received by employees, except rank and file employees, in special economic zones, including Clark Special Economic Zone and Subic Special Economic and Free Trade Zone, are subject to the normal rate of fringe benefit tax, i.e., 34% effective January 1, 1998, 33% effective January 1, 1999 and 32% effective January 1, 2000 or the special rates of 25% imposed on the fringe benefit received by non-resident alien not engaged in trade or business in the Philippines or 15% imposed on the fringe benefit received by (1) an alien individual employed by regional or area headquarters of a multinational company or by regional operating headquarters of a multinational company; (2) an alien individual employed by an offshore banking unit of a foreign bank established in the Philippines; (3) an alien individual employed by a foreign service contractor or by a foreign service subcontractor engaged in petroleum operations in the Philippines; and (4) any of their Filipino individual employees who are employed and occupying the same position as those occupied or held by the alien employees, pursuant to Sec. 2.33 (A) of Revenue Regulations No. 3-98. Moreover, the grossed-up monetary value of fringe benefit on which the final withholding tax is paid is now deductible on the part of the employer falling under the expense category, pursuant to Section 34(A)(1)(a)(I), also of the Tax Code of 1997. (BIR Ruling No. 004-2000 dated January 5, 2000) BIR Ruling 208-99 (Toyota Parts Philippines Inc)

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INCOME TAX; Fringe Benefits Tax - The term "fringe benefit" is defined under Section 33(B) of the Tax Code of 1997 as any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees). It includes, among others, housing benefit granted to the managerial and supervisory employees of the company. The Directors of TAP who are at same time receiving fixed salaries as TAP officers, are considered as employees holding positions other than rank and file positions i.e. managerial and/or supervisory positions. Accordingly, the housing assistance granted by TAP to the expatriates who are directors and at the same time holding managerial and supervisory positions, is considered as fringe benefit subject to the Fringe Benefit Tax under Section 33 (B) of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98. The source of the fringe benefit granted to the employees does not affect the taxability of the said fringe benefit. Thus, the housing allowance of the director/officer of TAP which is paid out of its Retained Earnings, is still considered as a fringe benefit subject to the fringe benefit tax imposed under Section 33 of the Tax Code of 1997 as implemented by Revenue Regulations No. 398. Section 33 of the Tax Code of 1997 on fringe benefit applies to managerial and supervisory employees. Thus, where the officer/director of TAP is considered as an employee regardless of whether a fixed monthly income is given or their remuneration is determined by the Board of Directors based on the Retained Earnings of the corporation, the housing

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assistance granted to the said officers/directors are still subject to the Fringe Benefit Tax. On the other hand, where a director is being paid on a retainer basis, no employer-employee relationships exist between the company and the director. Thus, the housing assistance granted to him shall not be considered as fringe benefit subject to the Fringe Benefit Tax but is considered as part of his gross income which is subject to the applicable tax rates under Section 24(A) (1)(c)of the Tax Code of 1997. (BIR Ruling No. 208-99 dated December 28, 1999) x------------------------------------x 3.3 De Minimis Benefits Revenue Regulation 10-2008 (amended by RR 005-11 & RMC 202011) SECTION 1. Section 2.78.1 of RR 2-98, as amended, is hereby further amended to read as follows: Sec. 2.78.1. Withholding of Income Tax on Compensation Income.(A) Compensation Income Defined. xxx xxx xxx xxx xxx (3) Facilities and privileges of relatively small value. Ordinarily, facilities and privileges (such as entertainment, medical services, or so- called "courtesy discounts on purchases), otherwise known as "de minimis benefits," furnished or offered by an employer to his employees, are not considered as compensation subject to income tax and consequently to withholding tax, if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as means of

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promoting the contentment, or employees. health, goodwill, efficiency of his

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form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; j) Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%) of the basic minimum wage on a per region basis; All other benefits given by employers which are not included in the above enumeration shall not be considered as "de minimis" benefits, and hence, shall be subject to income tax as well as withholding tax on compensation income. In implementing Section 2.33 of Revenue Regulations (RR) No. 3-98 as last amended by RR 5-2011 with respect to the Special Treatment of Fringe Benefits, the income tax and withholding tax on compensation income referred to under Section 2 of RR 5-2011 shall refer to fringe benefits tax. (RMC 20-2011) The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30,000.00 ceiling of other benefits excluded from gross income under Section 32(b)(7)(e) of the Code. Provided that, the excess of the de minimis benefits over the irrespective ceilings prescribed by these

The following shall be considered as "de minimis" benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees: a) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year; b) Monetized value of vacation and sick leave credits paid to government officials and employees; c) Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; d) Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500; e) Uniform and Clothing allowance not exceeding P4,000 per annum; f) Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000.00 per annum; g) Laundry allowance not exceeding P300 per month; h) Employees achievement awards, e.g., for length of service or safety achievement, which must be in the

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regulations shall be considered as part of other benefits and the employee receiving it will be subject to tax only on the excess over the P30,000.00 ceiling. Provided, further, that MWEs receiving other benefits exceeding the P30,000.00 limit shall be taxable on the excess benefits, as well as on his salaries, wages and allowances, just like an employee receiving compensation income beyond the SMW. Any amount given by the employer as benefits to its employees, whether classified as de minimis benefits or fringe benefits, shall constitute as deductible expense upon such employer. Where compensation is paid in property other than money, the employer shall make necessary arrangements to ensure that the amount of the tax required to be withheld is available for payment to the Bureau of Internal Revenue . xxx xxx xxx (B) Exemptions from Withholding Tax on Compensation.- The following income payments are exempted from the requirements of withholding tax on compensation: xxx xxx xxx (13) Compensation income of MWEs who work in the private sector and being paid the Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage and Productivity Board (RTWPB) / National Wages and Productivity Commission (NWPC), applicable to the place where he/she is assigned. The aforesaid income shall likewise be exempted from income tax.

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Statutory Minimum Wage (SMW) shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board (RTWPB), as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). The RTWPB of each region shall determine the wage rates in the different regions based on established criteria and shall be the basis of exemption from income tax for this purpose. Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned MWE shall likewise be covered by the above exemption. Provided, however, that an employee who receives/earns additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and night shift differential pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income tax and, consequently, from withholding tax. MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except income subject to final tax, in addition to compensation income are not exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from withholding tax.

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For purposes of these regulations, hazard pay shall mean the amount paid by the employer to MWEs who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or isolated stations and camps, which expose them to great danger of contagion or peril to life. Any hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to income tax and consequently, to withholding tax. In case of hazardous employment, the employer shall attach to the Monthly Remittance Return of Withholding Tax on Compensation (BIR Form No. 1601C) for return periods March, June, September and December a copy of the list submitted to the nearest DOLE Regional/Provincial Offices Operations Division/Unit showing the names of MWEs who received the hazard pay, period of employment, amount of hazard pay per month; and justification for payment of hazard pay as certified by said DOLE/allied agency that the hazard pay is justifiable. The NWPC shall officially submit a Matrix of Wage Order by region (Annex A), and any changes thereto, within ten (10) days after its effectivity to the Assistant Commissioner, CollectionService, for circularization in the BIR. Any reduction or diminution of wages for purposes of exemption from income tax shall constitute misrepresentation and therefore, shall result to the automatic disallowance of expense, i.e. compensation and benefits account, on the part of the employer. The offenders may be criminally prosecuted under existing laws.

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(14) Compensation income of employees in the public sector with compensation income of not more than the SMW in the nonagricultural sector, as fixed by RTWPB/NWPC, applicable to the place where he/she is assigned. The aforesaid income shall exempted from income tax. likewise be

The basic salary of MWEs in the public sector shall be equated to the SMW in the nonagricultural sector applicable to the place where he/she is assigned. The determination of the SMW in the public sector shall likewise adopt the same procedures and consideration as those of the private sector. Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned MWE in the public sector shall likewise be covered by the above exemption. Provided, however, that a public sector employee who receives additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, night shift differential pay and hazard pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income tax and, consequently, from withholding tax. MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except income subject to final tax, in addition to compensation

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income are not exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from withholding tax. For purposes of these regulations, hazard pay shall mean the amount paid by the employer to MWEs who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or isolated stations and camps, which expose them to great danger of contagion or peril to life. Any hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to income tax and consequently to withholding tax. In case of hazardous employment, the employer shall attach to the Monthly Remittance Return of Withholding Tax on Compensation (BIR Form No. 1601C) for return periods March, June, September and December a copy of Department of Budget and Management (DBM) circular/s, or equivalent, as to who are allowed to receive hazard pay. x------------------------------------x 3.3.1 Leave Credits 3.3.2 Rice

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Revenue Regulations No. 3-98 in relation to pertinent Joint CSC-DBM Circulars governing the subject of leave credits, namely, Joint CSC-DBM Circulars No. 1, s. 1991. The said Circular defines monetization of leave credits as payment of the money value of the accumulated vacation leave credits without actually going on leave of absence. [Rule III, Section 1 (a)] Thus, officers and employees in the career and non-career service, whether permanent, provisional, temporary or casual, who have accumulated at least fifteen (15) days vacation leave/service credits shall be allowed to monetize a maximum of ten (10) working days vacation leave/service credits a year. The scheme for the monetization of leave credits is in the nature of a facility or privilege of relatively small value which are offered or furnished by the employer-merely as a means of promoting the health, goodwill contentment, or efficiency of its employees. Further extending the exemption to a "maximum number of 30 days and even up to 50% of all earned leave credits" would materially depart from the "de minimis" concept and hence the exemption requested would be beyond the authority of the BIR to recognize. (BIR Ruling No. 045 dated September 26, 2000) x------------------------------------x

BIR Ruling No. 045-00 (Civil Service Commission) INCOME TAX; Monetization of leave credits to a maximum of 30 days and even up to 50 days not allowed for tax exemption purposes The ten-day allowable monetization of leave credits for tax exemption purposes have been crafted into

BIR Ruling No. DA-219-00 (ABB Group of Companies) This refers to your follow up letter dated March 6, 2000 correcting your original request dated January 20, 2000 for exemption from fringe benefit and withholding tax on

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compensation of meal allowance in the amount of P950.00 per month to be given to all the employees of ABB group of companies in the Philippines to that of one (1) sack of rice. It was originally represented that ABB group of companies in the Philippines are composed of Asea Brown Boveri, Inc., ABB Power, Inc., ABB Industry and ABB Koppel, Inc.; that of the four companies, ABB Industry and ABB Koppel have unionized labor organization whereby they were able to negotiate the grant of monthly meal allowance of Php950.00 (or more or less P36.54 per day); and that the new management plans to standardize the benefits to all ABB employees in the Philippines, including the employees of nonunionized companies, namely, Asea Brown Boveri, Inc. and ABB Power, Inc., by granting a meal allowance in the amount of P950.00 per month, to promote the health, contentment, efficiency and good working relations with the employees. In reply, please be informed that facilities or privileges (such as entertainment, medical services, or so called courtesy discounts on purchases) furnished or offered by an employer to his employees, generally, are not considered as compensation subject to withholding tax if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees pursuant to Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 3-98 implementing Section 32(B)(7)(e)(iv) of the 1997 Tax Code.

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Such being the case, a sack of rice which ABB group of companies in the Philippines agreed to give to their employees, is not considered wages. Accordingly, the same is not subject to the withholding tax prescribed by Section 79 in relation Sec. 24(A), both of the same Tax Code of 1997, since the said allowance is relatively of small value and offered by the respective employer to promote health, goodwill, contentment and efficiency of its employees. (BIR Ruling DA-026-99 dated January 18, 1999) Moreover, a sack of rice which ABB group of companies agreed to give to all their employees, is not subject to the fringe benefits tax pursuant to Section 33(C) of the 1997 Tax Code, as implemented by Section 2.33(C) of Revenue Regulations No. 3-98. Accordingly, a sack of rice granted to the rank and file employees of ABB group of companies in the Philippines, in such amount as may be allowable under existing rules and regulations is not subject to the fringe benefit tax the same being of relatively small value. Likewise, if the same benefit, i.e., sack of rice in the amount of P350.00 per month is offered to supervisory, professional or technical employees, it shall not be subject to the fringe benefits tax it being considered de minimis benefit. (BIR Ruling No. 061-99 dated May 5, 1999) BIR Ruling No. DA-053-01 (James Hardie Philippines, Inc.) This refers to your letter dated March 30, 2000 requesting for a ruling on whether the grant of rice allowance by your company to its employees is exempt from the Fringe Benefit Tax (FBT).

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It is represented that your company intends to provide all your employees with rice allowance of P1,300.00 per quarter (effectively P433.33 per month) regardless of ranking and position i.e. including supervisors and managers; and that on a quarterly basis, you will include in the employees payroll the P1,300.00 as rice allowance. Based on the foregoing, you now request for a ruling on the following: 1. For supervisors and managers, can we request that the total amount of rice allowance of P1,300.00 per quarter or P433.33 per month be considered as "De Minimis", that is, will not be subject to Fringe Benefit Tax considering the current cost of one sack of rice? 2. For rank and file employees, how would we treat the P 1,300.00 rice allowance per quarter? Would this fall under the benefit of relatively small value exempt from withholding tax on compensation? Or would it be part of their compensation income subject to tax. If yes, then that would bring us to our next question. 3. What would you suggest is the best set up in order for our employees, especially the rank and file, to think that the company is fair to all? In reply, please be informed that pursuant to Section 2.78.1 (A)(3) of Revenue Regulations No. 2-98, facilities and privileges (such as entertainment, medical services, or so called "courtesy" discounts on purchases), furnished or offered by an employer to his employees

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generally, are not considered as compensation subject to withholding tax if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. Moreover, pursuant to Section 33 (C) of the Tax Code of 1997 as implemented by Section 2.33 (C) of Revenue Regulations No. 3-98, your queries are answered as follows: 1. Rice allowance granted to the supervisors and managers of James Hardie Philippines, Inc. in the amount of P1,300 per quarter is considered as a "de minimis" benefit and therefore, not subject to the Fringe Benefit Tax under Section 33 of the Tax Code of 1997. 2. Rice allowance granted by James Hardie Philippines, Inc. to its rank and file employees in the amount of P1,300 per quarter, is likewise, considered as of relatively small value, and is offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees. (BIR Ruling DA-127-2000 dated March 01, 2000) x------------------------------------x 3.3.3 Meal Allowance

BIR Ruling No. 061-99 (Petron Corporation) INCOME TAX; Overtime Meal Allowance The overtime meal allowances of P80.00/P90.00/P100.00 given by Petron to its rank and file employees, who have actually rendered overtime work, are not considered

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as part of compensation subject to withholding tax since the same are of relatively small value. Likewise, the overtime meal allowance of One hundred fifty pesos (P150.00)given to supervisory, professional and technical employees are not considered as part of compensation subject to withholding tax since such overtime meal allowances are furnished to the employees for the convenience of Petron. Moreover, the said overtime meal allowances granted to rank and file employees and to supervisory, professional and technical employees are not subject to the fringe benefits tax pursuant to Section 33 (C) of the Tax Code of 1997 as implemented by Section 2.33 (C) of Revenue Regulations No. 3-98. In fine, the overtime meal allowances granted to the rank and file employees are not subject to the fringe benefits tax as these are specifically exempted from the application thereof. Likewise, the overtime meal allowances granted to the supervisory, professional and technical employees are not subject to the fringe benefits tax since the same are granted to the employees as required by the nature of, or necessary to your trade, or business and for your convenience. (BIR Ruling No. 061-99 dated May 5, 1999) x------------------------------------x 3.3.4 Projects Incentive given to Faculty Members doing Research

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Regulations No. 2-98, provides that every employer must withhold from compensation paid, an amount computed in accordance with these regulations. Provided, that no withholding of tax shall be required where the total compensation income of an individual does not exceed the statutory minimum wage of five thousand pesos (P5,000.00) monthly or sixty thousand pesos (P60,000.00) a year, whichever is higher. The term "employer" is defined as any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines pursuant to Section 2.78.4(B) of the said Revenue Regulations. The income earned by the project staff of the De La Salle are compensation income wherein the University has the responsibility of withholding the tax as an employer paying compensation on behalf of a non- resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines. The incentive given to faculty members of De La Salle University who are doing research projects for the University can be equated to a productivity incentive and a productivity incentive is a fringe benefit. For supervisory and managerial employees, one of the fringe benefits that is not subject to the fringe benefits tax are "de minimis benefits." The productivity incentive given is no longer subject to the P12,000.00 threshold but the same, plus the 13th month pay not exceeding P30,000.00 are excluded from gross income and therefore exempt from taxation pursuant to Section 32 (B)(7)(e) of the Tax Code of 1997. In excess thereof there shall be

BIR Ruling No. 128-99 (De la Salle University) INCOME TAX - Section 2.79 of Revenue

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imposed a final tax of 34% beginning January 1, 1998, 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits pursuant to Section 33 of the Tax Code of 1997 and its implementing regulations. In general, the relationship of the employer and employee exists when the person for whom services were performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished. An employee is subject to the will and control of the employer not only as to what shall be done, but how it shall be done. In this connection, it is not necessary that the employer actually directs or controls the manner in which the services are performed. It is sufficient that he has the right to do so. The fact however that the Coaches and ROTC Commandant do not enjoy the benefits of a bona-fide employee of De La Salle University does not at all affect DLSU being the withholding agent of the Bureau of Internal Revenue because it is in fact the income payor of the said coaches and commandant and is fully responsible for the services performed by them on its behalf. Therefore, if the qualified faculty member is an overseas contract worker which work contract passes thru the Philippine Overseas Employment Agency (POEA), the income that will be received by the said qualified faculty members are considered income not within the Philippines, not subject to tax, hence, the University is not under obligation to withhold income tax.

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On the other hand, if the qualified faculty member is considered as a non-resident citizen, then he is taxable only on income derived from sources within the Philippines. Thus, income earned by a non-resident citizen abroad is exempt from income tax. An employer may be an individual, a corporation, a partnership, a trust, an estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture, or other unincorporated organizations, group or entity. A trust or estate, rather than the fiduciary acting for or behalf of the trust or estate, is generally the employer. It can be inferred that a trust had been created between the University and the local companies in favor of the faculty members, and between the University and the graduate school students in favor of the said faculty. Hence, it is the trust that is the employer and not the University which only acts as an agent or fiduciary. Nonetheless, being the agent, fiduciary or other person who has the control, receipt, custody or disposal of, or pays the compensation payable by another employer to such employee, the amount of tax required to be withheld on each compensation payment made through an agent, fiduciary, or person shall, whether the compensation is paid separately on behalf of all such employers, be determined based on the aggregate amount of such compensation payment or payments in the same manner as if such aggregate amount had been paid by one employer. Since the University has the control, receipt, custody or disposal of or is

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the one who pays the compensation payable by another employer, the University is under obligation to withhold the corresponding income tax and remit the same to the Bureau of Internal Revenue on behalf of the said employers. (BIR Ruling No. 128-99 dated August 18, 1999) x------------------------------------x 3.3.5 Medical Benefits

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service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees) such as life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. On the other hand, the term "de minimis" benefits which are exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees, such as actual yearly medical benefits not exceeding P10,000.00 per annum. (Revenue Regulations No. 10-2000) It is clear from the above-cited provisions that fringe benefit taxes are imposed on the benefits provided by an employer to its managerial and supervisory employees. Thus, benefits granted to rank and file employees are not subject to fringe benefit tax, but may form part of the compensation of the said (rank and file) employees subject to withholding tax on compensation, except when they are specifically exempt or considered as de minimis benefits. However, the excess of the de minimis value shall be subject to tax on compensation if granted to rank and file employees and to fringe benefit tax if granted to managerial and supervisory employees. Accordingly, in applying the said provisions to the above issues raised, this Office holds that

BIR Ruling No. DA-081-03 (Lacson & Lacson Insurance Brokers) This refers to your letter dated December 27, 2002 requesting clarification on the following: (1) If non-insured in medical benefits provided by an employer to its employees and their dependents are subject to tax; and (2) If an employer decides to buy medical insurance for its employees and their dependents, are the insurance premiums subject to tax. In reply thereto, please be informed that Section 33 of the Tax Code of 1997 provides that a final tax of 32% beginning January 1, 2000 shall be imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees) by the employer, whether an individual or a corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer). The term "fringe benefit" means any good,

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1. If the medical benefits granted do not exceed P10,000.00 per annum, the same shall be considered as de minimis benefits that are not subject to income tax as well as to withholding tax on compensation income of both managerial and rank and file employees. However, if the employer pays more than the ceiling of other benefits provided in Section 32(B)(7)(e) of the Tax Code of 1997, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling, i.e., if pertaining to supervisory or managerial employees, the excess shall be subject to fringe benefit tax while those pertaining to rank and file employees, the excess shall be subject to withholding tax on compensation. Hence, the medical benefits provided by the employer to its employees in excess of the amount considered as de minimis is subject to either fringe benefit tax or income tax on compensation. 2. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows shall be subject to fringe benefit tax (Sec. 2.33(B)(10), Revenue Regulations No. 3-98), except (a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law, such as under the Social Security System (SSS) or Government Service Insurance System (GSIS) or similar contributions arising from the provisions of any other existing law; and (b) the cost of premiums borne by the employer for the group insurance of his employees. Corollarily, Section 32(B)(7)(f) of the Tax Code of 1997 provides that GSIS, SSS, Medicare and PagIbig Contributions, and union dues of individuals shall be excluded from gross

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income. Accordingly, where the employer decides to buy medical insurance for its employees, whether rank and file or supervisory, and their dependents, the insurance premiums paid by the employer shall be excluded from gross income and therefore not subject to withholding tax. On the other hand, the premiums paid by the employer shall be deductible from its gross income as business expense under Section 34 of the Tax Code of 1997. Moreover, the same rule as stated in Number (1) above will apply, when an employer granting insurance benefits to its employees, whether supervisory or rank and file, will buy insurance directly from an insurance company. x------------------------------------x 3.3.6 Various Benefits

BIR Ruling No. DA-335-03 (International Flavors and Fragrances, Inc.) In reply, please be informed that the following rules shall generally apply in considering the tax consequences of certain benefits given by employers to their employees, whether rankand-file, supervisory or managerial. 1. Facilities or privileges that are categorized de minimis benefits under pertinent rules and regulations shall not be included as items of gross income for income tax purposes. They shall not also be included in the computation of the P30,000.00 threshold for a determination of the items of income that are to be excluded from income under Section 32(B)(7)(e) of the Tax Code of 1997.

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2. Corollary to this, de minimis benefits are subject to neither income tax on compensation nor fringe benefits tax. Furthermore, no withholding tax thereon shall be imposed in view of their exclusion and exemption from tax. 3. The gross benefits granted to rank-andfile, supervisory or managerial employees of entities, to the extent of the threshold of P30,000.00 mandated by Section 32(B)(7)(e) of the Tax Code of 1997, shall not be included as items of gross income and shall, therefore, be exempt from income taxation. Accordingly, such benefits given in excess of the threshold amount shall be taxable to the recipient employee. 4. The "other benefits" referred to in Section 32(B)(7)(e)(iv) of the Tax Code of 1997 include all benefits, other than the 13th month pay, such as, the annual Christmas bonus given by private entities, 14th month pay and the like, gifts in cash or in kind and other similar benefits and refer to those benefits received by an employee in a calendar year. 5. Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 and Revenue Regulations No. 10-2000 are illustrative and non-exclusive in the enumeration of what constitutes de minimis fringe benefits. Accordingly, we rule that the meal and food benefits granted, although not intended to be used for overtime work, may still be added in the enumeration of de minimis fringe benefits. However, in terms of de minimis threshold for regular meal and food benefit, the ceiling for benefits of similar nature under Revenue Regulations No. 8-2000

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and Revenue Regulations No. 10-2000 should be used as guidelines. Such being the case, meal and food benefits not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit and therefore, tax exempt. The excess over this amount shall be considered other benefits as contemplated under Section 32(B)(7)(e)(iv) of the Tax Code of 1997. The excess of the meal and food allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed P30,000.00 (BIR Ruling No. 232002 dated June 21, 2002). 6. In keeping with the spirit of the rules and regulations on de minimis benefits, we rule that there can be no aggregation of the values set for each item of benefit stated in Revenue Regulations Nos. 2-98 and 3-98, as amended by Revenue Regulations Nos. 82000 and 10-2000. The intent of the Regulations is to treat each item of de minimis benefit independently of each other, and we have to give life to that intent. Thus, the Regulations separately provide maximum values for rice allowance and for meal allowance. Accordingly, there can be no aggregation of de minimis values for rice and meal and food benefits (BIR Ruling No. 232002 dated June 21, 2002). In addition to the foregoing, it is the rule that the fringe benefits tax is a final tax on the employee, other than a rank-and-file employee, that shall be withheld and paid by the employer on a calendar quarterly basis as provided under Section 57(A) of the Tax Code of 1997. Being a final tax, however, the amount of fringe benefits given shall not be reported as income for the concerned

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employee's annual tax return consolidation. On the basis of the foregoing and according to the pertinent Revenue Regulations on the matter, we proceed to rule on the particular issues raised for our consideration. 1. De Minimis Benefits. a. Medical Benefits De Minimis benefits are non-taxable fringe benefits. Accordingly, Section 2.79(D)(3)(d) of Revenue Regulations No. 2-98, as amended, provides that "[f]or purposes of determining whether the fringe benefit shall be considered payment of de minimis benefits, the employer shall submit a written representation to the Commissioner for the issuance of a ruling taking into account the peculiar nature and special need of the said employer's trade, business or profession." Revenue Regulations No. 8-2000, as amended by Revenue Regulations No. 10-2000, recognize actual yearly medical benefits not exceeding P10,000.00 per annum as de minimis. On this basis, the grant of medical benefits consisting of medicine allowance to cover medical and healthcare needs; annual medical/executive check-up; and routine consultations to your employees shall be considered de minimis to the extent of the maximum amount of P10,000.00 per annum of medical benefits, taken together with all the other medical benefits provided to such employees. b. Rice Allowance

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The rice allowance benefit in the amount of P92.00 per month is within the limitation set by Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 and 10-2000. Accordingly, the rice allowance in the amount of P92.00 per month is subject to neither income tax on compensation nor fringe benefits tax. c. Meal Allowance For a meal allowance to be considered de minimis, only such daily meal allowance for overtime work not exceeding 25% of the basic minimum wage, on a per region basis or in this case, the National Capital Region, shall be recognized and allowed (Revenue Regulations No. 8-2000, as amended by Revenue Regulations No. 10-2000). The elements of the benefit are as follows: i. The meal allowance is being given on the occasion of overtime work; ii. The amount must be computed on a daily basis; and iii. The amount must not exceed 25% of the minimum wage applicable in the area (BIR Ruling No. DA250-02 dated December 18, 2002). In respect to the P56.00 per working day meal allowance given to your employees which is not intended to be used for overtime work, the same may still be added in the enumeration of de minimis fringe benefits. The portion of the meal allowance not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit, and therefore, tax exempt. The excess over this amount shall be considered as "other benefits" as contemplated under Section

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32(B)(7)(e)(iv) of the Tax Code of 1997. The excess of the meal allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed P30,000.00 (BIR Ruling No. 23-2002 dated June 21, 2002). d. Christmas Gift Check The Christmas gift checks ranging from P800.00P3,000.00/employee per annum are within the limitation set by Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 and Revenue Regulations No. 10-2000. Accordingly, the Christmas gift checks ranging from P800.00 P3,000.00/employee per annum are not subject to income tax nor to the fringe benefits tax. e. Clothing Allowance To the extent of P3,000.00 per annum, any provision for uniform and clothing allowance shall be considered de minimis benefit. By implication the excess of P3,000.00 granted to all your employees as clothing allowance shall no longer be de minimis and therefore, shall accordingly be subject to the appropriate income tax, which shall be discussed hereafter (Revenue Regulations No. 8-2000, as amended by Revenue Regulations No. 102000). 2. Benefits Excluded from Income under Section 32(B)(7)(e) of the Tax Code of 1997. Gross benefits, not exceeding P30,000.00, that are received by officials and employees

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of public and private entities are not included in gross income for purposes of computing the recipient's applicable taxes under Title II (Income Tax) of the Tax Code of 1997. Among those enumerated are "other benefits such as productivity incentives and Christmas bonus." In this regard, we find that the birthday gift usually in the form of birthday cake, ice cream and/or noodles is considered "other benefits." Accordingly, the amount of P450.00 birthday gift given to employees should be included in the consideration of the amount of gross benefits not to be reported as taxable income under the afore-stated Tax Code provision. 3. Fringe Benefits vis--vis Compensation Income. Section 2.33(C) of Revenue Regulations No. 398, as amended provides, viz: "(C) Fringe Benefits Not Subject to Fringe Benefits Tax In general, the fringe benefits tax shall not be imposed on the following benefits: xxx xxx xxx (3) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; xxx xxx xxx (6) If the grant of the fringe benefits is for the convenience of the employer." Accordingly, if the transportation allowance in the amount not exceeding P70.00/P140.00 and the annual credit card fees for representation expenses given to your supervisory and managerial employees are provided for IFF's convenience and benefit, the said transportation and representation

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expenses are not subject to fringe benefits tax pursuant to Section 2.33(C) of Revenue Regulations No. 3-98, as amended. However, if the above-mentioned transportation and representation allowances are fixed in amounts and are regularly received by the employees as part of their monthly compensation income, the same shall not be treated as taxable fringe benefits but the same shall be treated as allowances which shall form part of their taxable compensation income subject to income tax and consequently to the withholding tax prescribed under Section 79 of the Tax Code of 1997 (BIR Ruling No. 025-01 dated June 13, 2001). Moreover, any amount paid specifically, either as advances or reimbursements for traveling, representation and other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied: (i) It is for ordinary and necessary travelling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade, business or profession; and (ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Sec. 34 of the Code. The excess of advances made over actual

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expenses shall constitute taxable income if such amount is not returned to the employer. Reasonable amounts are pre-computed on a daily basis and are paid to an employee while he is on an assignment or duty need not be subject to the requirements of substantiation and to withholding (Section 2.78.1(A)(6)(b) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 3-98, 8-2000 and 10-2000). 4. Christmas Party and Company Outing In general, expenses incurred by the employee but which are paid by his employer shall be treated as taxable fringe benefits, except when the expenditures are duly receipted for and in the name of the employer and the expenditures do not partake the nature of a personal expense attributable to the employee. Moreover, Section 2.33(C)(4) and (6) of the Revenue Regulations No. 3-98, as amended, implementing Section 33 of the Tax Code of 1997 provides, viz: "Sec. 33. Special Treatment of Fringe Benefit. xxx xxx xxx (C) Fringe Benefits Not Taxable under this Section. The following fringe benefits are not taxable under this Section: xxx xxx xxx (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. xxx xxx xxx

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(6) If the grant of the fringe benefit is for the convenience of the employer." "De minimis benefits" is defined under Section 2.79(D)(3)(d) of Revenue Regulations No. 298, as amended as follows: "The term 'de minimis benefits' which is exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges (such as entertainment, Christmas party and other cases similar thereto; medical and dental services; or the so-called courtesy discount on purchases), furnished or offered by an employer to his employees, provided such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees." Since the annual Christmas party and company outing are sponsored by the company to foster goodwill and camaraderie among the employees, which redound to the convenience of the employer, the said Christmas party and company outing are exempt from the fringe benefit tax (BIR Ruling No. 061-99 dated May 5, 1999; BIR Ruling No. 128-99 dated August 18, 1999; and BIR Ruling No. DA-331-2000 dated August 28, 2000). x------------------------------------x 3.4 Other Fringe Benefits 3.4.1 Car Plan BIR Ruling No. 076-99 (Bush Boake Allen Philippines, Inc.) FRINGE BENEFITS TAX; Car Plans to Managers and Executives - A company is

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granting ear plan to the managers and sales executive; that the company buys the car and retains the title for five years; that sixty percent (60%) of the cost is recorded as asset and depreciated for rive (5) years in the books of accounts; that forty percent (40%) of the cost is recorded as receivable from the employee and collected within five (5) years interest-free; and that at the end of the five (5) year period, when sixty percent (60%) of the cost of the ear is fully depreciated and the forty percent (40%) share of the employee is fully paid, title is transferred to the employee. The fringe benefit in this particular case is to be computed as follows: Acquisition cost x 60% x 50% = Annual FBT on motor vehicle 5 Years Additionally, the company is further liable to fringe benefits tax under Section 2.33(B)(5)(a) on interest free loan to the employee computed at the benchmark interest rate of twelve percent per annum. Thus, the annual fringe benefit tax on interest-free loan for the 40% of the acquisition cost of the car should likewise be computed, as follows: 40% of the acquisition cost x 12% p.a. x 5 years = Annual FBT on interest 5 Years (BIR Ruling No. 076-99 dated June 16, 1999) BIR Ruling No. DA-005-04 (Cargill Philippines Inc.) This refers to your letter dated August 27, 2003 requesting for a clarification for the taxability of the employer's 50% share in a car program for your sales personnel.

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It is represented that you are a company engaged in the manufacture and distribution of animal feeds; that the company either leases or makes outright purchases of vehicles for its salesmen's use; that you have a car program for your sales people: that the company shares 70% of the lease cost and the employee, 30%; that official use shall take precedence over personal use; and that the vehicle is in the name of the company but at the end of the lease term, ownership is transferred to the employee. In reply, please be informed that Section 2.33(B)(3)(f) of Revenue Regulations No. 3-98 implementing Section 33 of the Tax Code of 1997, reads: "f) If the employer leases and maintains a fleet of motor vehicles for the use of the business of the employer, the value of the benefit shall be the amount of rental payments for motor vehicles not normally used for sales, freight, delivery services and other non-personal use. The monetary value of the fringe benefit shall be fifty percent (50%) of the value of the benefit." Such being the case, and since you require your sales personnel to share at least 30% of the monthly rental and deducted from their payroll subject to the withholding tax on compensation, this Office is of the opinion as it hereby holds that only 20% of the monthly car rental is taxable as fringe benefit tax inasmuch as the 30% share of the employee has already been taxed as compensation. x------------------------------------x

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3.4.2 Tuition Waiver Benefit; Educational Assistance to Faculty members children BIR Ruling No. 189-99 (Faculty Association Inc., De la Salle University) INCOME TAX; Fringe Benefits - Section 2.33(A)(9)(b) provides that the cost of educational assistance extended by an employer to the dependents of an employee shall be treated as taxable fringe benefits of the employee unless the assistance was provided through a competitive scheme under the scholarship program of the company. Since the educational benefit is granted through a competitive scheme, i.e. qualifying exam, such educational assistance shall not be subject to the fringe benefit tax prescribed under Section 33 of the Tax Code of 1997. However, the exemption of any fringe benefit from the fringe benefit tax imposed under Section 33 of the Tax Code of 1997 and implemented by Revenue Regulations No. 398, shall not be interpreted to mean exemption from any other income tax imposed under the Code or under any other existing law. Thus, if the fringe benefit is exempted from the fringe benefit tax, the same may, however, still form part of the employees' gross compensation income which is subject to income tax, hence, likewise subject to withholding tax on compensation income. Such being the case, the amount of the tuition waiver benefit granted to the children of full time faculty members who were in the active service before May 1987 shall be considered as part of compensation income of said faculty members which shall be subject to

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withholding tax prescribed under Section 79 of the Tax Code of 1997. (BIR Ruling No. 18999 dated November 29, 1999) x------------------------------------x 3.4.3 Educational Assitance Under the CBA

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2.33 (B)(10) of Revenue Regulations No. 3-98. The facts, as represented, are as follows: 1. NEC Tokin is a corporation duly organized and existing under and by virtue of the laws of the Philippines. Its principal office address is at 1 Ring Road, Light Industry & Science Park (LISP) II, Barangay La Mesa, Calamba, Laguna. It is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise pursuant to its Certification of Registration No. 02-043. Under the Registration Agreement, the company's registered activity "shall be limited to the manufacture of electro mechanical device as relay and others, and the importation of raw materials, machinery, equipment, tools, goods, wares, articles or merchandise directly used in its registered operations." 2. NEC Tokin provides group hospitalization benefits to its non-rank and file employees under a HMO plan provided by Health Maintenance, Inc. The company shoulders the entire amount of HMO premiums covering its non-rank and file employees pursuant to this group health insurance. The plan is compulsory, meaning that the employee has no option not to be covered by the group health insurance plan. However, the HMO plan has no paid-up value to the employee. 3. Furthermore, under the arrangement with Health Maintenance, Inc., a maximum of three (3) dependents of the non-rank and file employees are enrolled under the HMO plan. In the case of assistant managers, NEC Tokin shoulders the entire amount of the HMO premiums covering their dependents. In the case of supervisors, NEC Tokin advances the

BIR Ruling No. 057-98 (Manggagawa ng Komunikasyon sa Pilipinas) FRINGE BENEFIT TAX - Fringe benefit in the form of Educational Assistance granted by the PLDT Management to the members of MKP, is in all cases exempt from the imposition of fringe benefits tax imposed under Section 33 (A) of the Tax Code of 1997 since it is one of those enumerated under Subsection ( C)(3) which provides for the non-taxability of benefits given to rank-and-file employees whether under a CBA or not. Such benefits, regardless of the amount, provided that the same fall under the definition of ordinary and necessary business expense, are considered as valid deductible expenses of PLDT. (BIR Ruling No. 057-98 dated May 21, 1998) x------------------------------------x 3.4.4 Premiums for Group Hospitalization Benefits (HMO)

BIR Ruling No. DA-469-06 (NEC Tokin Electronics, Inc.) This refers to your letter dated February 16, 2005 requesting on behalf of your client, NEC Tokin Electronics (Philippines), Inc. ("NEC Tokin" for brevity) for confirmation of your opinion that premiums for the group hospitalization benefits it provides to its nonrank and file employees under a Health Maintenance Organization (HMO) are not subject to fringe benefits tax (FBT) under Sec.

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HMO premiums covering their dependents and collects the same through salary deductions over a period of one year. In connection therewith, you now request for a confirmation that: 1. Premium payments made by NEC Tokin to Health Maintenance, Inc. pursuant to its group health insurance plan for its employees are not subject to FBT. 2. Premium payments made by NEC Tokin to Health Maintenance, Inc. pursuant to its group health insurance plan for the dependents of its assistant managers to the extent of P 1,500 per employee per year are not subject to FBT. 3. Premium payments made by NEC Tokin to Health Maintenance, Inc. pursuant to its group health insurance plan for the dependents of its supervisors, which payments are later paid by said employees, are not subject to FBT. In reply thereto, please be informed as follows: 1. On the first issue Revenue Regulations No. 3-98, which implements the above provision of the Tax Code, provides that the cost of group life insurance premiums borne by the employer for his employee shall be considered as a nontaxable fringe benefit. Although technically a health maintenance organization (HMO) is not an insurance company subject to registration and regulation by the insurance Commission, the service rendered by

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such HMOs are akin to the service provided by insurance companies. Being considered as a pre-need company, premium payments to HMOs by a corporation under a group insurance plan are not subject to fringe benefit tax. 2. On the second issue Section 33(C)(4) of the 1997 Tax Code states that de minimis benefits are not subject to fringe benefit tax. In your supplemental letter to this Office, it is stated that the annual premium paid for dependents of assistant managers is P9,890.00 and for dependents of supervisors, P7,831.00, depending on the age of the dependent, and that the premium payment is not shouldered by NEC Tokin, but is paid by employee-supervisor through salary deduction. Applying the rate of P 125.00 per month to an annual basis, the annual ceiling for de minimis benefits given as cash allowance to dependents of employees is P 1,500.00 per employee per year. To this extent, therefore, the premiums paid to HMOs by NEC Tokin are not subject to fringe benefits tax, income tax, nor to withholding tax on compensation. However, any amount in excess of the ceiling may further be considered as part of other benefits, provided that the total benefits shall not exceed P30,000.00. Further still, that the amount in excess of the P30,000.00 threshold of the total of "other benefits" shall be included as part of the taxable compensation of the employer-taxpayer. 3. On the third issue

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The premiums initially paid by NEC Tokin to Health Maintenance, Inc. on behalf of the dependents of its supervisors pursuant to the group insurance plan do not constitute fringe benefits or income to said supervisors. The amount of the premiums is paid by the supervisors as salary deductions. NEC Tokin merely includes their dependents in the group insurance package as an accommodation. In any case, any benefit that the supervisors derive from this accommodation does not exceed the amount of P 1,500.00 per employee per year. As discussed in the preceding section, such benefit, if any, is neither subject to fringe benefit tax nor to income and withholding tax. x------------------------------------x 3.4.5 Housing Privilege

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kilometer distance was for purposes of complying with the state policies on the promotion of the health and welfare of workers (Articles 11, Sections 15 and 18 of the 1987 Constitution) and the constitutional mandate guaranteeing full protection to labor (Art. 13, Sections 3 and 14, ibid.), this situation falls within the purview of Section 33 of the Tax Code of 1997. Such being the case, the costs and related expenses associated with the lease of the condominium unit and residential house for the benefit of the employees are expenses directly attributable to the development, management, operation and/or conduct of the business pursuant to Section 34(A)(1) of the Tax Code, the same shall be deducted from the gross income of ABB Power, Inc. As such, and considering that it is a fringe benefit for the convenience and advantage of the employer, it shall not be included as part of compensation income of the employee subject to withholding neither will it be subject to the fringe benefit under Sec. 33 of the Tax Code of 1997 implemented by Revenue Regulations No. 3-98. (BIR Ruling No. 055-99 dated April 23, 1999) x------------------------------------x 3.4.6 Housing Privilege to OCW

BIR Ruling No. 055-99 (ABB Power Inc.) INCOME TAX; Meaning of Fringe Benefits - Fringe benefits means any goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an employee (except rank and file employee) such as housing. Section 33(a) of the Tax Code of 1997 stipulates that fringe benefits which are "required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefits is for the convenience or advantage of the employer" are not subject to the fringe benefit tax. If the living quarters are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income subject to withholding. It appearing that the 3

BIR Ruling No. 003-97 In other words, for taxation purposes, the general rule is that the monetary value of the housing benefits to the employee shall be added to his remuneration for the purpose of determining the gross compensation income, EXCEPT where the living quarters are furnished to him for his employer's convenience. The question of when is the

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providing of living quarters can be considered as for the employers convenience can be determined on who will benefit more if living quarters are provided to an employee. In this instant case, we are of the opinion that the benefit is more on the part of the employee rather than to that of the employer because when an overseas contract worker applied and accepted an employment contract abroad, he is aware that he will have to rent a house there. So that if living quarters are provided to him, that would mean that he will not incur additional expenses for his living quarters and therefore, savings on his part. As you have said, the free accommodation furnished to Mr. Montoya is part of the nonmonetary fringe benefits granted to him as per the Employment Contract which is actually an incentive which forms part of his compensation and that it is provided not for the convenience of the employer but as part of the compensation package of the OCW. In view thereof, this Office hereby concurs with your opinion that the housing benefits given to Mr. Montoya, an OCW in the Kingdom of Saudi Arabia, being part of his compensation package, should form part of his remuneration which is subject to income tax pursuant to Sec. 2(2) of Revenue Regulations No. 6-82, as amended by Revenue Regulations No. 16-86. (BIR Ruling No. 596-88 dated December 23, 1988). x------------------------------------x 3.4.7 Meal Allowance 3.4.8

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The overtime meal allowances of P80.00/P90.00/P100.00 given by Petron to its rank and file employees, who have actually rendered overtime work, are not considered as part of compensation subject to withholding tax since the same are of relatively small value. Likewise, the overtime meal allowance of One hundred fifty pesos (P150.00)given to supervisory, professional and technical employees are not considered as part of compensation subject to withholding tax since such overtime meal allowances are furnished to the employees for the convenience of Petron. Moreover, the said overtime meal allowances granted to rank and file employees and to supervisory, professional and technical employees are not subject to the fringe benefits tax pursuant to Section 33 (C) of the Tax Code of 1997 as implemented by Section 2.33 (C) of Revenue Regulations No. 3-98. In fine, the overtime meal allowances granted to the rank and file employees are not subject to the fringe benefits tax as these are specifically exempted from the application thereof. Likewise, the overtime meal allowances granted to the supervisory, professional and technical employees are not subject to the fringe benefits tax since the same are granted to the employees as required by the nature of, or necessary to your trade, or business and for your convenience. (BIR Ruling No. 061-99 dated May 5, 1999) x------------------------------------x Housing Loan

BIR Ruling No. 061-99 (Petron Corporation) INCOME TAX; Overtime Meal Allowance -

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BIR Ruling No. DA-170-04 (Sony Life Insurance) The computation of the fringe benefits tax in a situation where the company provides its officers with a housing loan would entail (a) valuation of the benefit granted and (b) determination of the proportion or percentage of the benefit which is subject to the fringe benefit tax. Accordingly, the monetary value of the fringe benefit shall be the entire value of the benefit regardless of whether the house is used by the officer partly for his personal purpose and partly for the benefit of his employer pursuant to Section 2.33 of Revenue Regulations (Rev. Regs.) No. 3-98, as amended by Rev. Regs. No. 8-2000 and 102000. The value of the benefit is the portion of the amount of the purchase price of the house which amount is shouldered by the employer. On the other hand, where the employer lends money to his employee for his housing loan at a rate lower than twelve percent (12%), the difference of the interest assumed by the employee and the rate of twelve percent (12%) shall be treated as a taxable fringe benefit pursuant to Section 2.33 of Rev. Regs. No. 3-98. (BIR Ruling No. DA-11-97 dated August 28, 2000) Fringe benefits means any goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an employee (except, rank and file employee) such as housing benefit. Section 33 (a) of Republic Act No. 8424 stipulates that fringe benefits which are "required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer" are not subject to the fringe benefit tax. Thus,

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where the house is required by the nature of, or necessary to the trade, business or profession of the employer, or is for the convenience or advantage of the employer, the benefit shall not be subject to the fringe benefit tax pursuant to Section 33 of the Tax Code of 1997. The benefits given to the employees provided that the same fall under the definition of ordinary and necessary business expense as those enumerated under Section 34(A)(1)(a) (i) of the same Tax Code, are considered as valid deductible expenses of the Company. In general, the computation of the FBT would entail (a) valuation of the benefit granted and (b) determination of the proportion or percentage of the benefit which is subject to the FBT. Where the fringe benefit is granted in money or is directly paid for by the employer, as in your case, then the value is the amount granted or paid for pursuant to Rev. Reg. No. 3-98, as amended by Rev. Regs. No. 8-2000 and 10-2000. The grossed-up monetary value of the fringe benefit shall be determined by dividing the monetary value of the fringe benefit by 68%. The grossed-up monetary value of the fringe benefit represents the whole amount of income realized by the employee which includes the net amount of money or net monetary value of property which has been received plus the amount of fringe benefit tax thereon otherwise due from the employee but paid by the employer for and in behalf of his employee. x------------------------------------x

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3.4.9 Transportation Allowance & other benefits at call centers BIR Ruling No. DA-233-07 (eTelecare Global Solutions, Inc.) Compare with Revenue Regulation No. 3-98 In reply, please be informed as follows: Transportation Allowance Cash allowances given to employees as incentives are generally considered compensation income subject to income tax and withholding tax pursuant to Section 2.78.1 of Revenue Regulations No. 2-98, as amended. However, this Office ruled in BIR Ruling No. DA-350-04 dated June 25, 2004 that ". . . if the transportation allowance . . . given to your customer service representatives and . . . to your coaches are provided for Parlance's and Vocative's convenience and benefit, the said transportation allowance is not subject to fringe benefits tax pursuant to Section 2.33(C) of Revenue Regulations no. 398, as amended. However, if the above-mentioned transportation and representation allowances are fixed in amounts and are regularly received by the employees as part of their monthly compensation income, the same shall not be treated as taxable fringe benefits but the same shall be treated as allowances which shall form part of their taxable compensation income subject to income tax and consequently to the withholding tax prescribed under Section 79 of the Tax Code of 1997.

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Moreover, any amount paid specifically, either as advances or reimbursements for traveling, representation and other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied: (i) It is for ordinary and necessary traveling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade, business or profession; and (ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Section 34 of the Code. The excess of advances made over actual expenses shall constitute taxable income if such amount is not returned to the employer. Reasonable amounts which are pre-computed on a daily basis and are paid to an employee while he is on an assignment or duty need not be subject to the requirements of substantiation and to withholding (Section 2.78.1(A)(6)(b) of Revenue Regulations No. 298, as amended by Revenue Regulations No. 3-98, 8-2000 and 10-2000) In view of the foregoing, this Office confirms your opinion that the transportation allowance being given by your subsidiaries, Parlance Systems, Inc. and Vocative Systems, Inc. to its customer service representatives are not compensation subject to income tax and consequently, to withholding tax on wages in accordance with Revenue Regulations No. 2-

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98, as amended. Moreover, since the transportation allowance is pre-computed on a daily basis and are paid to the employee while on an assignment or duty, the said transportation allowance is not subject to the requirements of substantiation and to withholding pursuant to Revenue Regulations No. 2-98, as amended." Applying the above ruling, this Office confirms your opinion that since the transportation allowance being given to EGSI's employees is an ordinary and necessary expense paid or incurred by the employees in the pursuit of the business of the company, the said allowance is not considered compensation, hence, not subject to withholding tax. The said transportation allowance is not subject to the requirements of substantiation and to withholding since it is pre-computed on a daily basis and is paid to the employees while on an assignment or duty pursuant to Revenue Regulations No. 2-98, as amended. Moreover, transportation allowance is not subject to the fringe benefits tax since it is required by the nature of the business of EGSI and under the convenience of employer rule pursuant to Section 33 (C) of the Tax Code of 1997 as implemented by RR No. 3-98. This Office had occasion to rule in BIR Ruling No. 023-02 dated June 21, 2002 that the above regulations are illustrative and nonexclusive in the enumeration of what constitutes de minimis fringe benefits. The Commissioner held that although the meal and food benefits granted were not intended to be used for overtime work, they may still be added in the above enumeration. However,

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in terms of de minimis threshold for regular meal and food benefit, the ceiling for benefits of similar nature under RR No. 8-2000 should be used as guidelines. Such being the case, meal and food benefits not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit and therefore, tax exempt. The excess over this amount shall be considered "other benefits" as contemplated under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997. The excess of the meal and food allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of "other benefits," shall not exceed PhP30,000. In one case, a call center providing technical support service with 24 hours operation daily planned to provide its graveyard shift employees PhP100.00 meal allowance for every night's work. This Office held "In view of the foregoing, the PhP100.00 meal allowance given to your graveyard shift employees which is not intended to be used for overtime work may still be added in the enumeration of de minimis fringe benefits. The portion of the meal allowance not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit, and therefore, tax exempt. The excess over this amount shall be considered as "other benefits" as contemplated under Sec. 32(B)(7) (e)(iv) of the Tax Code of 1997. The excess of the meal allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed PhP30,000 (BIR Ruling No. DA-238-03 dated July 23, 2003)." Accordingly, this Office holds that meal

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allowance being given across all EGSI staff/officer levels not exceeding 25% of their respective daily minimum wage may be considered de minimis meal benefit pursuant to RR No. 8-2000 and 10-2000 and therefore, tax exempt. The excess over this amount shall be considered "other benefits" as contemplated under Section 32(B)(7)(e)(iv) of the Tax Code of 1997. The excess of the meal allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed PhP30,000 when added to the 13th month pay. If the employer pays more than the ceiling prescribed by the Regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the PhP30,000 ceiling (cited in BIR Ruling No. 001-2007 dated January 20, 2007). The said meal allowance is not subject to fringe benefits tax since it is specifically exempted from the application thereof pursuant to Section 33(C)(4), (5) and (6) of RR 3-98 implementing Section 33(C) of the Tax Code. (BIR Ruling No. 61-99 dated May 5, 1999). Neither is it subject to substantiation requirement. Mobile Allowance As stated earlier, cash allowances given to employees as incentives are generally considered compensation income subject to income tax and withholding tax pursuant to Section 2.78.1 of RR No. 2-98, as amended. However, in one case, a company operating a power plant was compelled to provide housing facility to ensure 24-hour access to skilled workers as power failure and trouble shooting may be required at any time of the

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day. This Office has ruled in the said case that ". . . fringe benefits means any goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an employee (except rank and file employee) such as housing. Section 33(a) of the Tax Code of 1997 stipulates that fringe benefits which are 'required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer' are not subject to the fringe benefit tax. If the living quarters are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income subject to withholding. . . . xxx xxx xxx . . . considering that it is a fringe benefit for the convenience and advantage of the employer, it shall not be included as part of compensation income of the employee subject to withholding neither will it be subject to the fringe benefits tax under Sec. 33 of the Tax Code of 1997 as implemented by Revenue Regulations No. 3-98." (BIR Ruling No. 055-99 dated April 23, 1999) In another case, a company gives a fixed amount of outstation allowance for meals, baggage services, laundry expenses, parking fees, toll fees, telephone fees and other incidental expenses to employees who are sent to locations beyond Metro Manila. The Commissioner held that ". . . as a general rule, Section 33(A) of the Tax Code of 1997 imposes a final withholding tax of 32% on the grossed-up monetary value of fringe benefit furnished or granted to the

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employee (except rank and file employees) by the employer, whether an individual or corporation. This general rule is not, however, without exception. The aforequoted section sets forth two scenarios wherein no fringe benefits tax will be imposed, i.e., (1) when the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer; or (2) when the fringe benefit is for the convenience or advantage of the employer. xxx xxx xxx The Outstation Allowance, therefore, is clearly required by the nature of or necessary to the trade or business of PGMC. Accordingly, this Office opines and so holds that the grant of the Outstation Allowance by PGMC to its managerial and supervisory employees are not subject to the fringe benefits tax prescribed in Section 33(A) of the said Code. Consequently, the Outstation Allowance, not being part of the compensation income of the employee, is not subject to income tax and consequently to withholding tax. By the same token, the Outstation Allowance which may be incurred or expected to be incurred by the aforesaid employee in the performance of his duties cannot be considered as part of compensation subject to withholding tax even if the employee fails to account/liquidate the same considering that said expense is pre-computed on a daily basis and is paid to an employee while he is on an assignment or duty. Section 2(6)(b)(ii) of Revenue Regulations No. 8-2000 specifically states that: '(ii) The employee is required to

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account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Sec. 34 of the Code. The excess of actual expenses over advances made shall constitute taxable income if such amount is not returned to the employer. Reasonable amounts of reimbursements/advances for traveling and entertainment expenses which are precomputed on a daily basis and are paid to an employee while he is on an assignment or duty need not be subject to the requirements of substantiation and to withholding.' "(BIR Ruling No. 013-02 dated April 5, 2002) In view of the foregoing and since you represented that the mobile phone allowance is being granted to directors, managers and supervisors because the nature of their jobs requires them to be on call 24 hours a day which is necessary to the business of EGSI and redounds to the convenience and benefit of the company, said fringe benefit shall not be included as part of compensation income of the concerned employees subject to withholding tax prescribed under Section 79 of the Tax Code of 1997 neither will it be subject to the fringe benefits tax under Section 33 of the Tax Code of 1997, as implemented by RR No. 3-98, as amended. Further, the mobile allowance is not subject to the requirement of substantiation. BIR Ruling No. DA-013-08 (Metrobank Card Corporation) In reply thereto, please be informed that Section 2.33 (C) of Revenue Regulations No. 3-98, as amended, provides "(C) Fringe Benefits Not Subject to Fringe

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Benefit Tax. In general, the fringe benefits tax shall not be imposed on the following fringe benefits: xxx xxx xxx (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of fringe benefits to the employee is for the convenience of the employer." Corollarily, Section 2.78.1 (A) (6) (b) of Revenue Regulations No. 8-2000 provides that "(6) Fixed or variable transportation, representation and other allowances. xxx xxx xxx (b) Any amount paid specifically, either as advances or reimbursements for traveling, representation and other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied: (i) It is paid for ordinary and necessary traveling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade, business or profession; and (ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Section 34 of the Code. The excess of actual expenses over advances made shall constitute taxable income if such amount is not required to the employer. Reasonable amounts of

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reimbursements/advances for traveling and entertainment expenses which are precomputed on a daily basis and are paid to an employee while he is on an assignment or duty need not be subject to the requirements of substantiation and to withholding." In stressing the rationale of the abovementioned principles, this Office elucidated on the matter in BIR Ruling No. DA350-04 dated June 25, 2004, as follows: "Transportation allowance being given by your subsidiaries, Parlance Systems, Inc. and Vocative Systems, Inc. to its customer service representatives are not compensation subject to income tax and consequently to withholding tax on wages in accordance with Revenue Regulations No. 2-98, as amended. Moreover, since the transportation allowance is pre-computed on a daily basis and are paid to the employee while on an assignment or duty, the said transportation allowance is not subject to the requirements of substantiation and to withholding pursuant to Revenue Regulations No. 2-98, as amended." The above-cited ruling was later reiterated in BIR Ruling No. DA-023-06 dated January 27, 2006, where it was held that "If the Outstation Allowance is clearly required by the nature of or necessary to the trade or business of the employer, the grant of such Outstation Allowance is not subject to the fringe benefits tax prescribed in Section 33(A) of the said Code. Consequently, the Outstation Allowance, not being part of the compensation income of the employee, is not subject to income tax and consequently to withholding tax. By the same token, the

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Outstation Allowance which may be incurred or expected to be incurred by the aforesaid employee in the performance of his duties cannot be considered as part of compensation subject to withholding tax even if the employee fails to account/liquidate the same considering that said expense is precomputed on a daily basis and is paid to an employee while he is on an assignment or duty." IN VIEW OF THE FOREGOING, this Office hereby confirms your opinion that the abovementioned benefits which are for the convenience of MCC and are required by the nature of, or necessary to the trade or business of MCC are not subject to the fringe benefits tax pursuant to Section 2.33 (C) of Revenue Regulations No. 3-98, as amended. Moreover, since the said benefits are precomputed on a daily basis and are paid to the employees, while they are on assignment or duty, they are not subject to the requirements of substantiation and therefore not subject to income tax and to withholding tax. x------------------------------------x 4. TAX TREATMENT OF 13TH MONTH PAY & OTHER BENEFITS National Internal Revenue Code 32(B)(7)(e) (e) 13th Month Pay and Other Benefits. Gross benefits received by officials and employees of public and private entities: Provided, however, That the total exclusion under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover: (i) Benefits received by officials and employees of the national and local

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government pursuant to Republic Act No. 6686; (ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; (iii) Benefits received by officials and employees not covered by Presidential decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and (iv) Other benefits such as productivity incentives and Christmas bonus: Provided, further, That the ceiling of Thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering among others, the effect on the same of the inflation rate at the end of the taxable year. PERFORMANCE BONUS BIR Ruling No. 001-07 (PLDT) This refers to your letter dated July 14, 2006 requesting for confirmation of your opinion that the performance bonus given to the rank and file employees as well as to supervisory employees of Philippine Long Distance Telephone Company ("PLDT") is a "de minimis" benefit exempt from withholding tax citing BIR Ruling No. DA-336-2006 as your basis. In reply, please be informed that it is basic in statutory construction that where the law is clear and unambiguous, there is no room for interpretation. Hence, the duty of this Office is

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merely to apply the law. Under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997, "other benefits" include all benefits other than the 13th month pay, such as, productivity incentives and the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits and refer to those benefits received by an official or employee for one (1) calendar year, the total amount of which including the 13th month pay does not exceed P30,000.00. Section 2 of Rev. Regs. No. 8-2000, as amended, clarifies that "other benefits" and "de minimis" benefits are not the same. For purposes of determining the P30,000.00 ceiling in "other benefits," the two are treated differently in that the amount of "de minimis" benefits conforming to the limits prescribed under Revenue Regulations (Rev. Regs.) No. 8-2000 shall not be considered in determining the P30,000.00 ceiling of "other benefits" provided under Section 32 (B) (7) (e) of the Code. The regulations does not provide for a ceiling with regard to "de minimis" benefits. However, it provides for a limit in the amount of each "de minimis" benefit such that if the employer gives more than the limit prescribed, the excess of the PhP30,000 ceiling/limit shall be taxable to the employee receiving the benefits. Both "other benefits" and "de minimis" benefits do not form part of the employees' taxable compensation income and are, therefore, not subject to withholding tax on wages under Section 79 in relation to Section 24 (A) both of the Tax Code of 1997. In view of the foregoing, the performance

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bonus given by PLDT to its rank and file employees as well as to supervisory employees can be equated to a productivity incentive bonus which may be considered as falling within the contemplation of "other benefits" provided for under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997, and therefore, need not form part of the employees' taxable compensation income subject to withholding tax on wages under Section 79 in relation to Section 24 (A) both of the Tax Code of 1997, provided, however, that such "other benefits," inclusive of the above allowances/benefits, shall not, in the aggregate, exceed P30,000.00 when added to the 13th month pay. Any amount in excess of the P30,000.00 ceiling shall be taxable to the employee receiving the benefits. Provided, further, that any amount given by the employer as benefits to its employees, whether classified as "de minimis" benefits or fringe benefits, shall constitute as deductible expense upon such employer pursuant to Section 2.78.1 (A) (3) of Rev. Regs. No. 8-2000, as amended. Accordingly, the performance bonus is not subject to the fringe benefits tax also since it addresses PLDT's concern in encouraging good performance as well as promoting contentment and efficiency among its employees, which in effect redounds to the convenience of the employer. Finally, consistent with the aim of this Bureau to harmonize conflicting rulings, BIR Ruling No. DA-336-2006 dated May 22, 2006 which ruled "IN VIEW OF THE FOREGOING, this Office

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holds that the annual cash award to be given to your rank and file employees as Performance Incentive Award ranging from P7,500.00 to P15,000.00 shall be considered as de minimis benefits and therefore not subject to income tax and consequently to withholding tax. xxx xxx xxx" is hereby revoked insofar as it held that performance incentive award is considered as "de minimis" benefit. All BIR rulings inconsistent herewith are deemed repealed, revoked or modified. BIR Ruling No. DA-252-06 (Lufthansa Technical) This refers to your letter dated September 12, 2005 requesting for confirmation of your opinion that the performance bonus ("bonus") given by Lufthansa Technical Training Philippines, Inc. (LTTP) to its employees, except its General Manager, is not subject to tax (fringe benefit tax for those holding managerial position and compensation tax for those in the rank and file position), as this is granted by LTTP for its convenience and benefit. In reply, please be informed that under Section 32(B)(7)(e)(iv) of the Tax Code of 1997, "other benefits" include all benefits other than the 13th month pay, such as, the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits and refer to those benefits received by an official or employee for one (1) calendar year, the total amount of which including the 13th month pay does not exceed P30,000.00.

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The performance bonus to be given by LTTP to its employees can be equated to a productivity incentive bonus which may be considered as falling within the contemplation of "other benefits" provided for under Section 32(B)(7)(e)(iv) of the Tax Code of 1997, and therefore, need not form part of the employees' taxable compensation income subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997, provided, however, that such "other benefits," inclusive of the above allowances/benefits, shall not, in the aggregate, exceed P30,000.00 when added to the 13th month pay. Accordingly, the performance bonus is not subject to the fringe benefits tax also since it addresses LTTP's concern in encouraging its employees/instructors not to leave the company and achieve the annual company target, as approved by the Head Office, which in effect redounds to the convenience of the employer. The amount of "de minimis" benefits conforming to the ceiling prescribed shall not be considered in determining the P30,000.00 ceiling of "other benefits" provided under Section 32(B)(7)(e) of the Code. However, if the employer pays more than the ceiling prescribed by the Regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling. Provided, further, that any amount given by the employer as benefits to its employees, whether classified as "de minimis" benefits or fringe benefits, shall constitute as deductible expense upon such employer pursuant to Section 2.78.1(A)(3) of

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Rev. Regs. No. 8-2000, as amended. Section 2 of Rev. Regs. No. 8-2000, as amended, clarifies that "de minimis" benefits and "other benefits" are not the same. For purposes of determining the P30,000.00 ceiling in "other benefits," the two are treated differently in that "de minimis" benefits are not considered in computing the P30,000.00 ceiling in "other benefits." The regulations did not provide for a ceiling in "de minimis" benefits. However, it provided for a limit in the amount of each "de minimis" benefit (e.g., rice subsidy should not exceed P1,000.00 per month). Both "other benefits" and "de minimis" benefits do not form part of the employees' taxable compensation income and are, therefore, not subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997. BIR Ruling No. DA-280-06 (DSWD) This refers to your undated letter requesting for a ruling on whether or not your performance bonus and other Collective Negotiation Agreement (CNA) benefits are subject withholding tax. In reply, please be informed that the following rules shall generally apply in considering the tax consequences of certain benefits given by employers to their employees, whether rankand-file, supervisory or managerial: 1. Facilities or privileges that are categorized as de minimis benefits under pertinent rules and regulations shall not be included as items of gross income for income tax purposes. They shall not also be included in the computation of the P30,000

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threshold for a determination of the items of income that are to be excluded from income under Section 32(B)(7)(e) of the Tax Code of 1997. 2. Corollary to this, de minimis benefits are neither to income tax on compensation nor to the fringe benefits tax. Furthermore, no withholding tax thereon shall be imposed in view of their exclusion and exemption from tax. 3. The gross benefits granted to rank-andfile, supervisory or managerial employees of entities, to the extent of the threshold of P30,000.00 mandated by Section 32(B) (7)(e) of the Tax Code of 1997, shall not be included as items of gross income and shall, therefore, be exempt from income taxation. Accordingly, such benefits given in excess of the threshold amount shall be taxable to the recipient employee. 4. The "other benefits" referred to in Section 32(B)(7)(e)(iv) of the Tax Code of 1997 include all benefits, other than the 13th month pay, such as, the annual Christmas bonus given by private entities, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits and refer to those benefits received by an official or employee for one (1) calendar year, the total amount of which including the 13th month pay does not exceed P30,000.00 5. Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 82000 and 10-2000 are illustrative and nonexclusive in the enumeration of what constitute de minimis fringe benefits.

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Accordingly, we have ruled that the meal and food benefits granted, although not intended to be used for overtime work, may still be added in the enumeration of de minimis fringe benefits. However, in terms of the de minimis threshold for regular meal and food benefit, the ceiling for benefits of similar nature under Revenue Regulations No. 8-2000 should be used as guidelines. Such being the case, meal and food benefits not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit, and therefore, tax exempt. The amount of "de minimis" benefits conforming to the ceiling prescribed shall not be considered in determining the P30,000.00 ceiling of "other benefits" provided under Section 32(B)(7)(e) of the Code. However, if the employer pays more than the ceiling prescribed by the Regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling. Provided, further, that any amount given by the employer as benefits to its employees, whether classified as "de minimis" benefits or fringe benefits, shall constitute as deductible expense upon such employer pursuant to Section 2.78.1(A)(3) of Rev. Regs. No. 8-2000, as amended. Accordingly, the excess of the meal and food allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed Php30,000 (BIR Ruling No. 23-2002 dated June 21, 2002).

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6. In keeping with the spirit of the rules and regulations on de minimis benefits, we have ruled that there can be no aggregation of the values set for each item of benefit stated in Revenue Regulations Nos. 2-98 and 3-98, as amended by Revenue Regulations Nos. 82000 and 10-2000. The intent of the Regulations is to treat each item of de minimis benefit independently of each other, and we have to give life to that intent. Thus, the Regulations separately provide maximum values for rice allowance and for meal allowance. Accordingly, there can be no aggregation of de minimis values for rice and meal and food benefits (BIR Ruling No. 23-2002 dated June 21, 2002). In addition to the foregoing, it is the rule that the fringe benefits tax is a final tax on the employee, other than a rank-and-file employee, that shall be withheld and paid by the employer on a calendar quarterly basis as provided under Section 57(A) of the Tax Code of 1997. Being a final tax, however, the amount of fringe benefits given shall not be reported as income in the concerned employee's annual tax return consolidation. Section 2 of Rev. Regs. No. 8-2000, as amended, clarifies that "de minimis" benefits and "other benefits" are not the same. For purposes of determining the P30,000.00 ceiling in "other benefits," the two are treated differently in that "de minimis" benefits are no considered in computing the P30,000.00 ceiling in "other benefits." The regulations did not provide for a ceiling in "de minimis" benefits. However, it provided for a limit in the amount of each "de minimis" benefit (e.g.,

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rice subsidy should not exceed P1,000.00 per month). Both "other benefits" and "de minimis" benefits do not form part of the employees' taxable compensation income and are, therefore, not subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997. The term "de minimis" benefits which are exempt from the fringe benefits tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. The following shall be considered as "de minimis" benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees: 1. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees; 2. Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month; 3. Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,000.00; 4. Uniform and clothing allowance not exceeding P3,000.00 per annum; 5. Actual yearly medical benefits not exceeding P10,000.00 per annum; 6. Laundry allowance not exceeding P300.00 per month; 7. Employees achievement awards, e.g. for

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length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; DaACIH 8. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum; 9. Flowers, fruits, books or similar items given to employees under special circumstances e.g. on account if illness, marriage, birth of a baby, etc., and 10. Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic minimum wage. The performance bonus given to DSWD employees can be equated to a productivity incentive bonus which may be considered as falling within the contemplation of "other benefits" provided for under Section 32(B)(7) (e)(iv) of the Tax Code of 1997, and therefore, need not form part of the employees' taxable compensation income subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997, provided, however, that such "other benefits," inclusive of the above allowances/benefits, shall not, in the aggregate, exceed P30,000.00 when added to the 13th month pay. Accordingly, the performance bonus is not subject to the fringe benefits tax also if it redounds to the convenience of the employer. It appears that you were paid "other benefits" in the amount of PhP33,971 which is PhP3,971 over and above the threshold.

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In view of the foregoing, this Office finds that the amount in excess of PhP30,000 or PhP3,971 was correctly subjected to withholding tax on compensation. BIR Ruling No. DA-026-05 (Lufthansa Technik) This refers to your letter dated September 9, 2004 requesting for a confirmation of your opinion that the performance bonus (bonus) given by Lufthansa Technik Philippines, Inc. (LTP) to its employees, except those holding the position of Vice President, Senior Vice President and President, is not subject to tax. In reply, please be informed that under Section 32(b)(7)(e)(iv) of the Tax Code of 1997, "other benefits" include all benefits other than the 13th month pay, such as, the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentives bonus, gifts in cash or in kind and other similar benefits and refer to those benefits received by an official or employee for one (1) calendar year, the total amount of which including the 13th month pay does not exceed P30,000.00. The performance bonus to be given by LTP to its employees can be equated to a productivity incentive bonus which may be considered as falling within the contemplation of "other benefits" provided for under Section 32(B)(7)(e)(iv) of the Tax Code of 1997, and therefore, need not form part of the employees' taxable compensation income subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997, provided, however, that such "other benefits," inclusive of the

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above allowances/benefits, shall not, in the aggregate, exceed P30,000.00 when added to the 13th month pay. Moreover, Section 33(C) of the Tax Code of 1997 as implemented by Section 2.33(C) of Revenue Regulations (Rev. Regs.) No. 3-98, as amended by Rev. Regs. No. 8-2000 and 102000, provides, viz: "(C) Fringe Benefits Not Subject to Fringe Benefits Tax The following benefits are not taxable under this Section: (1) Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; (4) De Minimis benefits as defined in these Regulations; (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of the fringe benefit is for the convenience of the employer." (Emphasis supplied.) Accordingly, the performance bonus is not subject to the fringe benefits tax also since it addresses the employer's concern in achieving certain targets and avoiding the payment of penalties arising from delays in the delivery of its services under the service contract agreement between LTP and its customer, which in effect redounds to the convenience of the employer.

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The amount of "de minimis" benefits conforming to the ceiling prescribed shall not be considered in determining the P30,000.00 ceiling of "other benefits" provided under Section 32(B)(7)(e) of the Code. However, if the employer pays more than the ceiling prescribed by the Regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling. Provided, further, that any amount given by the employer as benefits to its employees, whether classified as "de minimis" benefits or fringe benefits, shall constitute as deductible expense upon such employer pursuant to Section 2.78.1(A)(3) of Rev. Regs. No. 8-2000, as amended. Section 2 of Rev. Regs. No. 8-2000, as amended, clarifies that "de minimis" benefits and "other benefits" are not the same. For purposes of determining the P30,000.00 ceiling in "other benefits," the two are treated differently in that "de minimis" benefits are not considered in computing P30,000.00 ceiling in "other benefits." The regulations did not provide for a ceiling in "de minimis" benefits. However, it provided for a limit in the amount of each "de minimis" benefit (e.g., rice subsidy should not exceed P1,000.00 per month). Both "other benefits" and "de minimis" benefits do not form part of the employees' taxable compensation income and are, therefore, not subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997. x------------------------------------x 5. TAX TREATMENT OF STOCK OPTION PLANS & OTHER STOCK INCENTIVE PLANS

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BIR Ruling No. 003-07 (San Miguel Corporation) This refers to your letter dated September 14, 2006 requesting confirmation of your opinion on the tax consequences arising from the Employees Stock Purchase Plan (ESPP) granted by San Miguel Corporation (SMC) to the employees of the San Miguel Group of Companies (SMG). SMG consists of SMC and its domestic subsidiaries. In view of the foregoing, it is your opinion that the subscription to the SMC shares by the SMG employees participating in the ESPP at a price 15% less than the price thereof quoted in the stock exchange does not give rise yet to a taxable event at the time of subscription because the said 15% difference is a reduction of the cost of their subscriptions to the SMC shares, therefore, it is not yet a realized income. The taxable event will arise when the ESPP participants sell the SMC shares and collect the proceeds thereof. The economic and/or financial benefit of the 15% price difference is actually realized at the time of sale of the SMC shares by the ESPP participants. The gain that the ESPP participants will realize is the excess of the selling price over the subscription costs, which is less by 15% than the price at which the SMC shares were quoted at the time of subscription. In reply, please be informed that under Section 32 (A) of the 1997 Tax Code, as amended, gross income includes compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions and similar items. The term "compensation" as defined

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under Sec. 2.78.1 of Revenue Regulations ("RR") No. 2-98, as amended, means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded under Section 32 (B) [Exclusions from Gross Income] of the Tax Code. It is provided further under the same regulations that the name by which remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, bonuses, allowances (e.g., transportation, representation, entertainment and the like), fees including directors' fees, if the director is at the same time an employee of the employer/corporation, taxable bonuses and fringe benefits (except those which are subject to the FBT under Section 33 of the Tax Code), taxable pensions, and retirement pay, and other income of a similar nature constitute compensation income. In the case at hand, the 15% reduction on premium relative to the subscriptions of the SMG employees participating in the ESPP could not be considered as income forming part of their compensation in accordance with Section 32 (A) of the 1997 Tax Code, as amended. It is noted that SMC's main objectives in conceptualizing the ESPP were to generate additional capital for the company through the additional subscription and to motivate the employees toward greater productivity, loyalty and concern for the Company's well-being by allowing the SMG employees to participate directly in the growth of the company. Moreover, the participation in the ESPP is neither automatic nor compulsory on the part of the SMG employees, thus, the same could be

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appropriately characterized as an investment portfolio created for the benefit of SMC and for the participating SMG employees only. By that characterization, said reduction on premium could not be treated as an additional compensation granted to the SMG employees as the same negates the very nature of a compensation as defined in Revenue Regulations No. 2-98. The reduction on premium is not given as a remuneration for services performed by the SMG employees under the employer-employee relationship, rather it is given based on a mutual contractual relationship arising from the subscription by the SMG employees to the authorized capital stock of SMC. In the event, however, that the participating SMG employees sell the SMC shares, the gain, if any, derived from the exercise of the stock options granted under the ESPP is subject to capital gains tax. The gain that the ESPP participants will realize is the excess of the selling price over the subscription costs, which is less by 15% than the price at which the SMC shares were quoted at the time of subscription. BIR Ruling No. DA-255-05 (Globe Telecom) This refers to your letter dated April 11, 2005 stating that Globe Telecom, Inc. (Globe) is a corporation organized and existing under the laws of the Philippines; that Globe's common shares are listed and traded at the Philippine Stock Exchange (PSE); that as an incentive to its executives, to encourage loyalty and continued tenure and as a retention strategy for key talents, Globe established in 2003 an Executive Stock Option Plan (ESOP) under which selected senior personnel of Globe

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(comprising of managers, directors and heads of the corporate divisions and groups) were granted an option to subscribe to a fixed number of Globe common shares at an exercise price determined at the price at which the shares were traded at the time of the grant of the option (the Option Grant Date); that ESOP provides for a three year accrual or vesting period; that no option may be exercised prior to the lapse of the second anniversary of the Option Grant Date; that thereafter one-half (1/2) of the stock option becomes exercisable with the other half becoming exercisable upon the lapse of the third anniversary; that the option grantee may exercise in whole or in part the option that has vested at any time prior to the lapse of the tenth anniversary of the Option Grant Date except that in cases of resignation, termination other than for cause, or retirement, the option grantee may exercise any vested option on or before the effective date of the resignation, or within ninety (90) days from date of termination, or within three (3) years from date of retirement, as the case may be and that in case of termination for cause, all unexercised options shall be forfeited. Based on the foregoing representations, you now request confirmation of your opinion that 1. The difference between the exercise price and the market value of the Globe common shares at the time of exercise constitutes taxable fringe benefits as defined under Section 33(B) of the Tax Code of 1997; 2. Upon the exercise of the option, Globe is liable to pay the 32% fringe benefits tax on

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the grossed-up monetary value of the difference between the exercise price and the market value of the Globe common shares at the time of exercise pursuant to Section 33(A) of the Tax Code of 1997; and 3. Under Section 34(A)(1)(i) of the Tax Code of 1997, and as amplified in Section (D) of Revenue Regulations No. 3-98, Globe can claim as ordinary and necessary expense for income tax purposes the grossed-up monetary value of the fringe benefit that accrues to its senior personnel upon the exercise of the option." In reply thereto, please be informed that your opinion is hereby confirmed as follows: (1) Section 2.33(A) of Revenue Regulations No. 3-98 provides that a final withholding tax is hereby imposed on the grossed-up monetary value of fringe benefit furnished, granted or paid by the employer to the employee, except rank and file employees, whether such employer is an individual, professional partnership or a corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalities except when: (1) the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer; or (2) when the fringe benefit is for the convenience or advantage of the employer. The term "fringe benefit" means any good, service, or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an individual employee (except rank and file employee).

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In the instant case, the stock option, although granted pursuant to an employer-employee relationship, is not given to the employees (managers, directors or heads of the company's business divisions and groups) for free. The option grantee clearly benefits from the lower exercise price. This is so because if the grantee for instance bought the shares at market, he would have been made to pay for the shares at the prevailing market price. Thus, by exercising his option he realizes a benefit equivalent to the difference between the exercise price and the market value of the shares at the time of exercise. Accordingly, this benefit qualifies under the term fringe benefit as defined under Section 33(B) of the Tax Code of 1997 which is subject to the fringe benefit tax. Such being the case, while the grant of the stock option is not per se a fringe benefit subject to the fringe benefit tax, there is a fringe benefit subject to the fringe benefit tax to the extent that the exercise price is lower than the fair market value of the underlying shares at the time of the exercise of such option by the employee. 2. Section 33(A) of the Tax Code of 1997 provides as follows: "(A) Imposition of Tax. A final tax of thirty-four percent (34%) effective January 1, 1998; thirty-three percent (33%) effective January 1, 1999; and thirty-two percent (32%) effective January 1, 2000 and thereafter, is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and the employees as defined herein) by the employer, whether an individual or a

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corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is or the convenience or advantage of the employer). The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57(A) of the said Code. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by sixty-six percent (66%) effective January 1, 1998; sixty-seven percent (67%) effective January 1, 1999; and sixtyeight percent (68%) effective January 1, 2000 and thereafter. . . " It is clear from the above-quoted provision, that the employer, Globe, is liable to pay a final tax of 32% based on the grossed-up value of the benefit granted, which represents the actual monetary value of the aforesaid benefit equivalent to the difference between the exercise price and the market value of the shares at the time of exercise. Accordingly, the 32% tax is payable upon the exercise of the option which is the time that any benefit from the option is actually realized. 3. Section 34(A)(1) of the Tax Code of 1997 provides that "(a) In General. There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession, including:

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(i) A reasonable allowance for salaries, wages, and other forms of compensation from personal services actually rendered, including the grossed-up monetary value of fringe benefit furnished or granted by the employer to the employee: Provided, That the final tax imposed under Section 33 hereof has been paid. xxx xxx xxx" The following are the requisites for deductibility of business expenses from gross income: (1) The expense must be ordinary and necessary; (2) It must be paid or incurred during the taxable year; (3) It may be paid or incurred in carrying on the trade or business; (4) It must be supported by receipts, vouchers or documents. (see Zamora vs. Collector, L15280, May 31, 1953) For this purpose, it is clear that the deduction shall be made in the year when the related expense is incurred which in this case at the time of the exercise of the option when the senior personnel realizes the benefit as Globe effectively foregoes the difference between the market price and exercise price of the shares. Such being the case, Globe can claim as deduction from gross income the grossed-up monetary value of the benefit that is furnished to its senior personnel under the ESOP, or an amount equivalent to the sum of (i) the difference between the exercise price and market value of the shares at the time of exercise; and (ii) the 32% fringe benefit tax paid. BIR Ruling No. DA-353-07 (Synnex)

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This refers to your letter dated June 1, 2007 requesting for a ruling on the tax implication, if any, of the discounted purchase of shares of stock pursuant to a Stock Purchase Plan. It is represented that Intel Corporation ("Intel") is a corporation organized and existing under the laws of the United States of America and is the ultimate parent company of ITPI; that ITPI is a corporation registered and existing under Philippine laws and a PEZA registered enterprise/locator in Cavite; that under Intel Group's Stock Purchase Plan ("SPP"), employees of Intel and Intel participating subsidiaries such as ITPI, are given the opportunity to purchase common stock of Intel, which are traded at the NASDAQ Stock Exchange; that the SPP was designed as additional incentive to attract, retain, and motivate employees by providing the opportunity to purchase common stock shares of Intel at a discount; that at present, stock purchases are made twice a year, in February and August. In reply, please be informed as follows: Section 32 (A) of the Tax Code of 1997, as amended, defines gross income as all income derived from whatever source, including compensation for services in whatever form paid, including but not limited to, fees, salaries, wages, commissions and similar items. As implemented, compensation includes payment in some form of medium other than money. In the instant case, the SPP incentive is provided to all qualified or eligible employees,

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including rank and file employees. On the "Purchase Date", ITPI employee-participants will be able purchase Intel Corporation common shares of stock at a discount of not less than 15% of the market price, based on the SPP's current designated discount. That portion of the purchased price for the Intel Corporation (a United States company) common stock funded from payroll deductions represents an investment activity of ITPI employee-participants, which does not have any Philippine tax implication. However, the discount provided under the SPP is a realized benefit actually received by the employee-participants upon exercise or purchase of the Intel Corporation common stock. If the employee-participants bought the shares at market, they would have been made to pay for the shares at prevailing market price. Consequently, the discount is considered compensation under Section 32 of the Tax Code, as amended, implemented by Revenue Regulation No. 2-98, as amended, mentioned above. That the discount is a realized benefit considered as additional compensation for the services of employeeparticipants becomes more evident by the fact that ITPI expensed out the discount. Consequently, to the extent that ITPI employee-participants exercise to purchase Intel common stock under the SPP, ITPI should accordingly act as the withholding agent of the government and impose the appropriate withholding tax on compensation on the discount received by ITPI employee-SPP participants, pursuant to Chapter XIII, Withholding on Wages, of the Tax Code, as amended. (BIR Ruling No. 135-97 dated December 11, 1997)

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x------------------------------------x 6. SPECIAL TAX TREATMENT OF THE MINIMUM WAGE National Internal Revenue Code 32 (GG) & (HH) (amended by RA 9504) (GG) The term 'statutory minimum wage' shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board, as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). (HH) The term 'minimum wage earner' shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the nonagricultural sector where he/she is assigned. National Internal Revenue Code 24(A) (last paragraph inserted by RA 9504) (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. (1) An income tax is hereby imposed: (a) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within and without the Philippines be every individual citizen of the Philippines residing therein;

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(b) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual citizen of the Philippines who is residing outside of the Philippines including overseas contract workers referred to in Subsection(C) of Section 23 hereof; and (c) On the taxable income defined in Section 31 of this code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual alien who is a resident of the Philippines. (2) Rates of Tax on Taxable Income of Individuals. - The tax shall be computed in accordance with and at the rates established in the following schedule: Not over P10,000 = 5% Over P10,000 but not over P30,000 = P500+10% of excess over P10,000 Over P30,000 but not over P70,000 = P2,500+15% of the excess over P30,000 Over P70,000 but not over P140,000 = P8,500+20% of the excess over P70,000 Over P140,000 but not over P250,000 = P22,500+25% of the excess over P140,000 Over P250,000 but not over P500,000

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= P50,000+30% of the excess over P250,000 Over P500,000 = P125,000+32% of the excess over P500,000 For married individuals, the husband and wife, subject to the provision of Section 51 (D) hereof, shall compute separately their individual income tax based on their respective total taxable income: Provided, that if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. Provided, That minimum wage earners as defined in Section 22 (HH) of this Code shall be exempt from the payment of income tax on their taxable income: Provided, further, That the holiday pay, overtime pay, night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax. RR 10-2008 1 (amending RR 02-98 2.78.1(B)) (B) Exemptions from Withholding Tax on Compensation.- The following income payments are exempted from the requirements of withholding tax on compensation: xxx xxx xxx

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(13) Compensation income of MWEs who work in the private sector and being paid the Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage and Productivity Board (RTWPB) / National Wages and Productivity Commission (NWPC), applicable to the place where he/she is assigned. The aforesaid income shall likewise be exempted from income tax. Statutory Minimum Wage (SMW) shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board (RTWPB), as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). The RTWPB of each region shall determine the wage rates in the different regions based on established criteria and shall be the basis of exemption from income tax for this purpose. Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned MWE shall likewise be covered by the above exemption. Provided, however, that an employee who receives/earns additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and night shift differential pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income tax and, consequently, from withholding tax.

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MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except income subject to final tax, in addition to compensation income are not exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from withholding tax. For purposes of these regulations, hazard pay shall mean the amount paid by the employer to MWEs who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or isolated stations and camps, which expose them to great danger of contagion or peril to life. Any hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to income tax and consequently, to withholding tax. In case of hazardous employment, the employer shall attach to the Monthly Remittance Return of Withholding Tax on Compensation (BIR Form No. 1601C) for return periods March, June, September and December a copy of the list submitted to the nearest DOLE Regional/Provincial Offices Operations Division/Unit showing the names of MWEs who received the hazard pay, period of employment, amount of hazard pay per month; and justification for payment of hazard pay as certified by said DOLE/allied agency that the hazard pay is justifiable. The NWPC shall officially submit a Matrix

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of Wage Order by region (Annex A), and any changes thereto, within ten (10) days after its effectivity to the Assistant Commissioner, CollectionService, for circularization in the BIR. Any reduction or diminution of wages for purposes of exemption from income tax shall constitute misrepresentation and therefore, shall result to the automatic disallowance of expense, i.e. compensation and benefits account, on the part of the employer. The offenders may be criminally prosecuted under existing laws. (14) Compensation income of employees in the public sector with compensation income of not more than the SMW in the non-agricultural sector, as fixed by RTWPB/NWPC, applicable to the place where he/she is assigned. The aforesaid income shall likewise be exempted from income tax. The basic salary of MWEs in the public sector shall be equated to the SMW in the non-agricultural sector applicable to the place where he/she is assigned. The determination of the SMW in the public sector shall likewise adopt the same procedures and consideration as those of the private sector. Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned MWE in the public sector shall likewise be covered by the above exemption. Provided, however, that a public sector employee who receives

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additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, night shift differential pay and hazard pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income tax and, consequently, from withholding tax. MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except income subject to final tax, in addition to compensation income are not exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from withholding tax. For purposes of these regulations, hazard pay shall mean the amount paid by the employer to MWEs who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or isolated stations and camps, which expose them to great danger of contagion or peril to life. Any hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to income tax and consequently to withholding tax. In case of hazardous employment, the employer shall attach to the Monthly Remittance Return of Withholding Tax on Compensation (BIR Form No. 1601C) for return periods March, June, September

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and December a copy of Department of Budget and Management (DBM) circular/s, or equivalent, as to who are allowed to receive hazard pay. BASIS FOR COMPUTATION MINIMUM WAGE RR 10-2008 2 (inserting 2.78.5 in RR 02-98) Sec. 2.78.5. Computation of Wages. The basis of the computation of the minimum wage rates prescribed by law shall be the normal working time of eight (8) hours a day. The computation of wages shall be in accordance with the Collective Bargaining Agreement (CBA), if any, or the provisions of the Labor Code as implemented. Unless otherwise amended or repealed by subsequent pertinent laws, rules and regulations, the holiday pay, overtime pay, night shift differential and hazard pay shall be understood to be computed based on such agreement or labor law provisions. In the determination of the minimum wage on a monthly basis, the withholding agent shall be guided by the prevailing minimum wage as reflected in the latest Matrix of Wage Order and its own policy on whether employees are (a) not considered paid on Saturdays and Sundays or rest days, (b) not considered paid on Sundays or rest days, (c) considered paid on rest days, special days and regular holidays, or (d) required to work everyday including Sundays or rest days, special days and regular holidays. The resulting number of days in the above enumerated categories are OF STATUTORY

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referred to as the factor or number of working/paid days in a year. (Annex B) On the first classification, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 261 days and divide the same by twelve; the semi-monthly at one-half (12) of the monthly rate and the weekly SMW is arrived at by spreading the annual minimum basic wage over fifty-two (52) weeks. Thus, on a P382.00 minimum daily wage in Metro Manila, the monthly SMW is P8,308.00, the semi- monthly at P4,154.00 and weekly at P1,917.00. On the second category, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 313 days and divide the product by twelve. Hence, on a P382.00 minimum daily wage, the monthly SMW is P9,964.00, the semi- monthly at P4,982.00 and weekly at P2,300.00. On the third classification, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 365 days, divided by twelve. Thus, on a 382 minimum daily wage, the monthly SMW is P11,619.00, the semi-monthly at P5,810.00 and weekly at P2,681.00. On the fourth classification, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 392.5 days, divided by twelve. Hence, on a 382 minimum daily wage, the monthly SMW is P12,495.00, the semi- monthly at P6,247.00 and weekly at P2,883.00. x------------------------------------x

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7. PERSONAL EXEMPTIONS National Internal Revenue Code 35 (A) & (B) (amended by RA 9504 4 & NIRC 35 (C) & (D)) SEC. 35. Allowance of Personal Exemption for Individual Taxpayer. (A) In General. - For purposes of determining the tax provided in Section 24(A) of this Title, there shall be allowed a basic personal exemption amounting to Fifty thousand pesos (P50,000) for each individual taxpayer. In the case of married individuals where only one of the spouses is deriving gross income, only such spouse shall be allowed the personal exemption. (B) Additional Exemption for Dependents. There shall be allowed an additional exemption of Twenty-five thousand pesos (P25,OOO) for each dependent not exceeding four (4). The additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals. In the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children: Provided, That the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions herein allowed.

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For purposes of this Subsection, a 'dependent' means a legitimate, illegitimate or legally adopted child chiefly dependent upon apd living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect. (C) Change of Status. - If the taxpayer marries or should have additional dependent(s) as defined above during the taxable year, the taxpayer may claim the corresponding additional exemption, as the case may be, in full for such year. If the taxpayer dies during the taxable year, his estate may still claim the personal and additional exemptions for himself and his dependent(s) as if he died at the close of such year. If the spouse or any of the dependents dies or if any of such dependents marries, becomes twenty-one (21) years old or becomes gainfully employed during the taxable year, the taxpayer may still claim the same exemptions as if the spouse or any of the dependents died, or as if such dependents married, became twenty-one (21) years old or became gainfully employed at the close of such year. (D) Personal Exemption Allowable to Nonresident Alien Individual. A nonresident alien individual engaged in trade, business or in the exercise of a profession in the Philippines shall be entitled to a personal exemption in the

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amount equal to the exemptions allowed in the income tax law in the country of which he is a subject - or citizen, to citizens of the Philippines not residing in such country, not to exceed the amount fixed in this Section as exemption for citizens or resident of the Philippines: Provided, That said nonresident alien should file a true and accurate return of the total income received by him from all sources in the Philippines, as required by this Title. x------------------------------------x 8. WITHHOLDING TAX ON COMPENSATION INCOME 8.1 Compensation National Internal Revenue Code 78 (A) SEC. 78. Definitions. - As used in this Chapter: (A) Wages. - The term 'wages' means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash, except that such term shall not include remuneration paid: (1) For agricultural labor paid entirely in products of the farm where the labor is performed, or (2) For domestic service in a private home, or (3) For casual labor not in the course of the employer's trade or business, or (4) For services by a citizen or resident of the Philippines for a foreign government organization. or

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an international

If the remuneration paid by an employer to an employee for services performed during onehalf (1/2) or more of any payroll period of not more than thirty-one (31) consecutive days constitutes wages, all the remuneration paid by such employer to such employee for such period shall be deemed to be wages; but if the remuneration paid by an employer to an employee for services performed during more than one -half (1/2) of any such payroll period does not constitute wages, then none of the remuneration paid by such employer to such employee for such period shall be deemed to be wages. RR 02-98 2.78.1(A) paragraphs 1-4 SECTION 2.78.1. Withholding of Income Tax on Compensation Income. (A) Compensation Income Defined. In general, the term "compensation" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code. The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g. transportation, representation, entertainment and the like); fees including director's fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax under

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Sec. 33 of the Code; taxable pensions and retirement pay; and other income of a similar nature constitute compensation income. The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation. Thus, it may be paid on the basis of piece-work, or a percentage of profits; and may be paid hourly, daily, weekly, monthly or annually. Remuneration for services constitutes compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them. (1) Compensation paid in kind. Compensation may be paid in money or in some medium other than money, as for example, stocks, bonds or other forms of property. If services are paid for in a medium other than money, the fair market value of the thing taken in payment is the amount to be included as compensation subject to withholding. If the services are rendered at a stipulated price, in the absence of evidence to the contrary, such price will be presumed to be the fair market value of the remuneration received. If a corporation transfers to its employees its own stock as remuneration for services rendered by the employee, the amount of such remuneration is the fair market value of the stock at the time the services were rendered.

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(2) Living quarters or meals. If a person receives a salary as remuneration for services rendered, and in addition thereto, living quarters or meals are provided, the value to such person of the quarters and meals so furnished shall be added to the remuneration paid for the purpose of determining the amount of compensation subject to withholding. However, if living quarters or meals are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income. (3) Facilities and privileges of a relatively small value. Ordinarily, facilities and privileges (such as entertainment, medical services, or so called "courtesy" discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as compensation subject to withholding if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. Where compensation is paid in property other than money, the employer shall make necessary arrangements to ensure that the amount of the tax required to be withheld is available for payment to the Commissioner.

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(4) Tips and gratuities. Tips or gratuities paid directly to an employee by a customer of the employer which are not accounted for by the employee to the employer are considered as taxable income but not subject to withholding. x------------------------------------x 8.2 Duty to withhold taxes on the part of the employer National Internal Revenue Code 22 (K) (K) The term "withholding agent" means any person required to deduct and withhold any tax under the provisions of Section 57. National Internal Revenue Code 57 (A) & (B) (A) Withholding of Final Tax on Certain Incomes. - Subject to rules and regulations the Secretary of Finance may promulgate, upon the recommendation of the Commissioner, requiring the filing of income tax return by certain income payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D) (1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E), 27(D)(!), 27(D)(2), 27(D)(3), 27(D) (5), 28 (A)(4), 28(A)(5), 28(A)(7)(a), 28(A) (7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5) (b), 28(B)(5)(c); 33; and 282 of this Code on specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 58 of this Code. (B) Withholding of Creditable Tax at Source. -

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The Secretary of Finance may, upon the recommendation of the Commissioner, require the withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by payor-corporation/persons as provided for by law, at the rate of not less than one percent (1%) but not more than thirty-two percent (32%) thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year. National Internal Revenue Code 79 (A) & (B) (A) Requirement of Withholding.-Except in the case of a minimum wage earner as defined in Section 22(HH) of this Code, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. (B) Tax Paid by Recipient. - If the employer, in violation of the provisions of this Chapter, fails to deduct and withhold the tax as required under this Chapter, and thereafter the tax against which such tax may be credited is paid, the tax so required to be deducted and withheld shall not be collected from the employer; but this Subsection shall in no case relieve the employer from liability for any penalty or addition to the tax otherwise applicable in respect of such failure to deduct and withhold. National Internal Revenue Code 80 (A)

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(A) Employer. - The employer shall be liable for the withholding and remittance of the correct amount of tax required to be deducted and withheld under this Chapter. If the employer fails to withhold and remit the correct amount of tax as required to be withheld under the provision of this Chapter, such tax shall be collected from the employer together with the penalties or additions to the tax otherwise applicable in respect to such failure to withhold and remit. x------------------------------------x 8.3 Employer-Employee National Internal Revenue Code 78 (C) & (D) (C) Employee. - The term 'employee' refers to any individual who is the recipient of wages and includes an officer, employee or elected official of the Government of the Philippines or any political subdivision, agency or instrumentality thereof. The term "employee" also includes an officer of a corporation. (D) Employer. - The term "employer" means the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person, except that: (1) If the person for whom the individual performs or performed any service does not have control of the payment of the wages for such services, the term "employer" (except for the purpose of Subsection (A) means the person having control of the payment of such wages; and (2) In the case of a person paying wages

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on behalf of a nonresident alien individual, foreign partnership or foreign corporation not engaged in trade or business within the Philippines, the term "employer" (except for the purpose of Subsection (A) means such person. RR No. 02-98 2.78.3 & 2.78.4 SECTION 2.78.3. Employee. The term "employee" is an individual performing services under an employer-employee relationship. The term covers all employees, including officers and employees, whether elected or appointed, of the Government of the Philippines, or any political subdivision thereof or any agency or instrumentality. In general, the relationship of the employer and employee exists when the person for whom services were performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished. An employee is subject to the will and control of the employer not only as to what shall be done, but how it shall be done. In this connection, it is not necessary that the employer actually directs or controls the manner in which the services are performed. It is sufficient that he has the right to do so. The right to dismiss an employee is also an important factor indicating that the person possessing that right is an employer. Other factors or characteristics of an employer, which may not be necessarily present in every case, are furnishing the tools and furnishing of a place to work, to the individual who performs the services.

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In general, an individual is not considered an employee if he is subject to the control or direction of another merely on to the result to be accomplished by the work, and not on to the means and methods for accomplishing the result. In general, individuals who follow an independent trade, business, or profession, in which they offer their services to the public, are not employees. The measurement, method or designation of compensation is also immaterial if the relationship of employer and employee in fact exists. No distinction is made between classes or grades of employees. Thus superintendents, managers, and others belonging to similar levels are employees. An officer of a corporation is an employee of the corporation. An individual, performing services for a corporation, both as an officer and director, is an employee subject to withholding on compensation, including director's fees. SECTION 2.78.4. Employer. The term employer means any person for whom an individual performs or performed any service, of whatever nature, under an employer-employee relationship. It is not necessary that the services be continuing at the time the wages are paid in order that the status of employer may exist. Thus for purposes of withholding, a person for whom an individual has performed past services and from whom he is still receiving compensation is an "employee". (A) Person for whom the services are or were performed does not have control. The term "employer" also refers to the person having control of the payment of the compensation in cases where the services are or were

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performed for a person who does not exercise such control. For example, where compensation, such as certain types of pensions or retirement pay, are paid by a trust and the person for whom the services were performed has no control over the payment of such compensation, the trust is deemed to be the "employer". (B) Person paying compensation on behalf of a nonresident. The term "employer" also means any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines. It is the responsibility of the employer to withhold, pay, or refund the tax and furnish the statements required under these Regulations. The term "employer" as defined in (A) and (B) above is intended to determine who is the withholding agent. As a matter of business administration, certain mechanical details of the withholding process may be handled by representatives of the employer. Thus, in the case of a corporate employer with branch offices, the branch manager or other representative may actually, as a matter of internal administration, withhold the tax or prepare the statements required under the law. Nevertheless, the legal responsibility for withholding, paying and returning the tax and furnishing such statements rests with the corporate employer. An employer may be an individual, a corporation, a partnership, a trust, an estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture, or other

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unincorporated organization, group or entity. A trust or estate, rather than the fiduciary acting for or on behalf of the trust or estate, is generally the employer. The term "employer" embraces not only an individual and an organization engaged in trade or business, but it also includes an organization exempt from income tax, such as charitable and religious organizations, clubs, social organizations and societes, as well as the Government of the Philippines, including its agencies, instrumentalities, and political subdivisions. (C) Compensation paid on behalf of two or more employers. If a payment of compensation is made to an employee by an employer through an agent, fiduciary, or other person who has the control, receipt, custody, or disposal of, or pays the compensation payable by another employer to such employee, the amount of tax required to be withheld on each compensation payment made through such agent, fiduciary, or person shall, whether the compensation is paid separately on behalf of each employer or paid in lump-sum on behalf of all such employers, be determined based on the aggregate amount of such compensation payment or payments in the same manner as if such aggregate amount had been paid by one employer. Hence, the tax shall be determined based on the aggregate amount of the compensation paid. In any such case, each employer shall be liable for the return and payment of a pro-rata portion of the tax so determined in accordance with the ratio of the amount contributed by each employer relative to the aggregate of such compensation.

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A fiduciary, agent, or other person acting for two or more employers may be authorized to withhold the tax under these regulations with respect to the wages of the employees of such employers. Such fiduciary, agent, or other person may also be authorized to make and file returns of the tax withheld at source on such compensation and to furnish the receipts required under these Regulations. Application for the authorization to perform such act should be addressed to the Commissioner or his duly authorized representative. If such authority is granted by the Commissioner, all provisions of the law (including penalties) and regulations prescribed in pursuance of the law applicable in respect of an employer for whom such fiduciary, agent or other person acts shall remain subject to all provisions of law (including penalties) and regulations prescribed in pursuance of the law applicable in respect of employers. x------------------------------------x 8.3.1 Application of Rules on Responsibility as Withholding Agent vis--vis Employer-Employee Scenarios

BIR Ruling 128-99 (De la Salle University) INCOME TAX - Section 2.79 of Revenue Regulations No. 2-98, provides that every employer must withhold from compensation paid, an amount computed in accordance with these regulations. Provided, that no withholding of tax shall be required where the total compensation income of an individual does not exceed the statutory minimum wage of five thousand pesos (P5,000.00) monthly or sixty thousand pesos (P60,000.00) a year,

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whichever is higher. The term "employer" is defined as any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines pursuant to Section 2.78.4(B) of the said Revenue Regulations. The income earned by the project staff of the De La Salle are compensation income wherein the University has the responsibility of withholding the tax as an employer paying compensation on behalf of a non- resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines. The incentive given to faculty members of De La Salle University who are doing research projects for the University can be equated to a productivity incentive and a productivity incentive is a fringe benefit. For supervisory and managerial employees, one of the fringe benefits that is not subject to the fringe benefits tax are "de minimis benefits." The productivity incentive given is no longer subject to the P12,000.00 threshold but the same, plus the 13th month pay not exceeding P30,000.00 are excluded from gross income and therefore exempt from taxation pursuant to Section 32 (B)(7)(e) of the Tax Code of 1997. In excess thereof there shall be imposed a final tax of 34% beginning January 1, 1998, 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits pursuant to Section 33 of the Tax Code of 1997 and its implementing regulations.

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In general, the relationship of the employer and employee exists when the person for whom services were performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished. An employee is subject to the will and control of the employer not only as to what shall be done, but how it shall be done. In this connection, it is not necessary that the employer actually directs or controls the manner in which the services are performed. It is sufficient that he has the right to do so. The fact however that the Coaches and ROTC Commandant do not enjoy the benefits of a bona-fide employee of De La Salle University does not at all affect DLSU being the withholding agent of the Bureau of Internal Revenue because it is in fact the income payor of the said coaches and commandant and is fully responsible for the services performed by them on its behalf. Therefore, if the qualified faculty member is an overseas contract worker which work contract passes thru the Philippine Overseas Employment Agency (POEA), the income that will be received by the said qualified faculty members are considered income not within the Philippines, not subject to tax, hence, the University is not under obligation to withhold income tax. On the other hand, if the qualified faculty member is considered as a non-resident citizen, then he is taxable only on income derived from sources within the Philippines. Thus, income earned by a non-resident citizen abroad is exempt from income tax.

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An employer may be an individual, a corporation, a partnership, a trust, an estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture, or other unincorporated organizations, group or entity. A trust or estate, rather than the fiduciary acting for or behalf of the trust or estate, is generally the employer. It can be inferred that a trust had been created between the University and the local companies in favor of the faculty members, and between the University and the graduate school students in favor of the said faculty. Hence, it is the trust that is the employer and not the University which only acts as an agent or fiduciary. Nonetheless, being the agent, fiduciary or other person who has the control, receipt, custody or disposal of, or pays the compensation payable by another employer to such employee, the amount of tax required to be withheld on each compensation payment made through an agent, fiduciary, or person shall, whether the compensation is paid separately on behalf of all such employers, be determined based on the aggregate amount of such compensation payment or payments in the same manner as if such aggregate amount had been paid by one employer. Since the University has the control, receipt, custody or disposal of or is the one who pays the compensation payable by another employer, the University is under obligation to withhold the corresponding income tax and remit the same to the Bureau of Internal Revenue on behalf of the said employers. (BIR Ruling No. 128-99 dated August 18, 1999)

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x------------------------------------x 8.3.2 Board of Directors Fees

RMC No. 34-2008 (Tax Treatment of Directors Fees for Income Tax and Business Tax Purposes) REVENUE MEMORANDUM CIRCULAR NO. 34-2008 issued on April 18, 2008 clarifies the tax treatment of directors fees for Income Tax and business tax purposes. Under section 79, in relation to Section 24(A), both of the National Internal Revenue Code (Tax Code), as amended, directors fees are subject to the withholding tax on wages. The said tax treatment applies whenever it is established that the director and the corporation has an employer-employee relationship (i.e President of a corporation sitting as a member of the Board of Directors). Revenue Regulations (RR) No. 2-98 provides that the term compensation means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code. Thus, fees including directors fees, if the director is, at the same time, an employee of the employer/corporation constitute compensation income (Section 2.78.1, RR No. 2-98). Accordingly, the directors fees received by employees are exempt from the Value -Added Tax (VAT) under Section 109 of the Tax Code. However, if these fees are paid to a director who is not an employee of the corporation paying such fees (i.e. whose duties are

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confined to the attendance of and participation in the meetings of the board of directors), such fees are not treated as compensation income because of the absence of employer-employee relationship, but rather, the same should squarely fall under Section 32(A)(2) of the Tax Code under the caption Gross income derived from the conduct of trade or business or exercise of a profession. The fees received by the director who is not an employee of the payor/ corporation are subject to ten percent (10%) creditable withholding tax if his gross income for the current year do not exceed P 720,000.00 or fifteen percent (15%) if his gross income exceeds P 720,000.00 pursuant to RR No. 30-2003. These payments fall under Professional Fees, talent fees, etc., for services rendered by individuals which include under its purview Fees of directors who are not employees of the company paying such fees, whose duties are confined to attendance at and participation in meetings of the board of directors. (Section 2.57.2(A) (9), RR No. 2-98). It is also emphasized that the amount subject to the 10% or 15%creditable withholding tax is not only confined to fees, but also per diems, allowances and any other form of income payment made to the director. Aside from being liable to the payment of the Income Tax imposed under Title II of the Tax Code, these directors who are not employees, having received fees which had been subsequently reported in their annual Income Tax Returns as part of their gross income should likewise be liable to pay business tax on account of such receipt of income. They fall under the category of sellers of services under Title IV of the Tax Code who are liable

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to pay the 12% VAT on their gross receipts pursuant to Section 108 thereof, or to the three percent (3%) Percentage Tax imposed under Section 116, should they fail to meet the VAT threshold. x------------------------------------x 8.3.3 Donations to Missionaries

BIR Ruling No. DA-306-04 In reply thereto, please be informed that the Superintendent of the Norwegian missionaries who does not receive any fixed salary but only gifts and free-will offerings from abroad and from individuals and churches, is exempt from the payment of income tax and consequently from the filing of the corresponding income tax return. (BIR Ruling No. 082-94 dated April 4, 1994) Similarly situated is BIR Ruling No. DA196-00 dated March 30, 2000, where this Office ruled that ". . . that since the financial support being received by the foreign missionaries are not compensation and/or salary but mere donations, said financial support are not, therefore subject to Philippine income tax." On the other hand, the term "fringe benefit" means any good, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salary, to an individual employee (except rank and file employee). (see Sec. 33(B), Tax Code of 1997) It is clear that the aforesaid benefits are given to employees who are holding managerial and supervisory positions. Inasmuch as foreign missionaries are not

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employees in the strict sense of the law, as the financial support being received by them are not compensation or salary but mere donations, the benefits received by the Norwegian missionaries in the Philippines should therefore not be subject to the fringe benefit tax prescribed in Section 33(B) of the Tax Code of 1997. IN VIEW OF THE FOREGOING, this Office holds that the basic monthly support and other benefits received by the Norwegian missionaries are exempt, from the payment of income tax and the filing of the corresponding income tax return, as well as from the fringe benefit tax. x------------------------------------x 8.4 Duties of the Employee with respect to withholding taxes RR 02-98 2.79.1 & 2.79.2 (as amended by RR 10-2008 4) SECTION 2.79.1. Application for Registration for Individuals Earning Compensation Income (BIR Form No. 1902). The application for registration of employees shall be accomplished by both employer and employee relating to the following information and other requirements: (A) Employee. (1) Name/Taxpayer's Identification Number (TIN)/Address of employee/other information required by the form; (2) Status of employee whether SINGLE/legally separated/widow or widower with no dependent child, married, or head of the family;

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(3) Status of spouse of the employee. If the employee is legally married, the Name/TIN, if any, of the spouse and whether said spouse is employed, unemployed, employed abroad, or is engaged in trade or business should be indicated on the application; (4) Qualified dependents. Name and date of birth of qualified dependent/s (children, parent/s, brother/s, sister/s or senior citizens); (5) Claimant of exemption for children. The husband is the proper claimant of additional exemptions for qualified children. However, the wife shall claim full additional exemption for children in the following cases: (a) Husband is unemployed; (b) Husband is a non-resident citizen deriving income from foreign sources; (c) The husband waives his right to claim the exemptions of children (waiver should be for all children) in a sworn statement to be attached to his application form for registration (1902) and that of his wife's, in accordance with the procedures prescribed in this Section; (6) Required forms and attachments Upon filing the Application for Registration (BIR Form No. 1902) or Certificate of Update of Exemption and of Employers and Employees Information (BIR Form No. 2305), whichever is applicable, the taxpayer is required to attach any of the

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following documents to establish the status of the taxpayer, if applicable, to the application: (a) Marriage Contract; (b) Birth Certificate of each qualified dependent child(ren), certified by the Local Civil Registry Office/National Statistics Office (NSO)/equivalent document issued by a government office previously requiring certified copy showing the name of parent/s and the name of the QDC with birthdate (e.g. passport of QDC as certified by companys Human Resource Officer ); (c) Certificate of employment of the husband if he is working abroad; (d) Sworn Declaration and Waiver of Right to Claim Exemptions of Qualified Dependent Child(ren) by the Husband (Annex F) in case wife is claiming the additional exemptions of the children; (e) Medical Certificate of qualified dependent child, if physically/mentally incapacitated; (f) Court decision of legal adoption of children; (g) Death Certificate; and (h) Other documentary evidence, where the above documents are not available. (7) Concurrent multiple employments. An employee who is employed concurrently by two or more employers within the same period of time during the taxable year shall file the Application for Registration (BIR Form No. 1902) with his main

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employer (employer to whom the said employee renders his services for most of his time during the taxable year) and shall furnish a copy of the duly received Application with his secondary employers (2nd, 3rd, etc. employers). The employed husband and wife shall each file a separate application with their respective employers; (8) Successive multiple employment An employee who transferred to another employer during the taxable year, shall furnish his new Employer with a Certificate of Update of Exemption and of Employers and Employees Information (BIR Form No. 2305) indicating therein his previous employments during the taxable year (name of employer/s, address/es, TIN/s and the date/s of his separation) and attach to the said certificate, a copy of the Certificate of Compensation Payment /Tax Withheld (BIR Form No. 2316) for compensation payment with or without withholding tax for the calendar year issued by previous employer/s. For an employee with successive employment beginning July 6, 2008 to December 31, 2008, the employer/s for the second semester shall apply the pro-rated exemption prevailing for the first semester ending July 5, 2008 based on BIR Form No. 2316 issued by the previous employer which was submitted by the employee and the pro-rated exemption prevailing for the second semester ending December 31,

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2008 in the computation of year-end adjustment; (9) Mixed income. An individual receiving a combination of compensation and business/professional income shall first deduct the allowable personal and additional exemptions from compensation income only the excess therefrom can be deducted, from business or professional income. In the case of husband and wife, the husband shall be the proper claimant of the exemptions unless he waives it in favor of his wife. (B) Employer. The employer with whom the Application for Registration (Form No. 1902) is filed, must indicate the date of receipt thereon and accomplish Part V of the said Application pertaining to Employer's Information such as TIN, Employer's Registered Name, and other relevant information. (C) Procedures for the Application for Registration (Form No. 1902) (1) All employers shall require their employees to accomplish in triplicate the Application for Registration BIR Form 1902 (Original copy- RDO; Duplicateemployer; Triplicateemployee) described above as follows: (a) New employee /s shall accomplish and file the Application for Registration for Individuals Earning Compensation Income (BIR Form No, 1902) within ten (10) days from the date of employment; (b) In case of changes in the

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information data in the Application for Registration (BIR Form No. 1902) previously submitted by the employee, consisting of changes in status and personal and additional exemptions, employment/working status of the spouse of the employee, multiple employment status and amount of compensation income, a Certificate of Update of Exemption and of Employer's and Employee's Information (BIR Form No. 2305) reflecting the changes, together with the required documents/ evidence of changes must be submitted to the employer within ten (10) days after such change. The employer shall then make the necessary adjustments on the withholding tax of the employee based on the new information; (2) The employer shall transmit all copies of the Application for Registratio n (BIR Form No. 1902) or Certificate of Update of Exemption and of Employers and Employees Information (BIR Form No. 2305), whichever is applicable, (after accomplishing the portion of Employers information of either forms) to the RDO where the employer is registered within thirty (30) days following its receipt from the employee. The RDO or his duly authorized representative, where the employer is registered, shall receive and stamp the three copies. The triplicate copy duly stamped received by the BIR shall be given to the

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employee. (3) The employer shall review the exemptions of the employees and shall, in the computation of taxes required to be withheld on the compensation of employees, apply the correct and applicable exemptions as provided in these regulations. (4) In case the husband waives his right to claim the additional exemptions of children in favor of his wife, he shall accomplish a Sworn Declaration and Waiver of Right to Claim Exemptions of Qualified Dependent Child(ren) by the Husband (Annex F) in accordance with the following procedures: (a) Fill up three (3) copies of the prescribed waiver form (BIR Form No. ____) (b) Submit the waiver form together with the BIR Form No. 1902 to his employer within ten (10) days from employment, for acknowledgement in the space provided for that purpose. The employer of the husband shall: (i) After filling up the acknowledgment portion of the waiver form, retain the duplicate copy of the form and furnish the employee the original and triplicate copies for submission to the employer of the wife and for file of the employee, respectively. (ii) Stop deductions of additional exemptions for qualified dependent children from the

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husband's compensation income starting the following month. The employer of the wife shall: Upon receipt of copy of the waiver form duly acknowledged by the employer of the husband, start deducting exemptions for children from the wife's income on the month when the employer of the husband stopped deducting the exemptions of children from the husband's income. (c) The employed husband and wife shall apply the waiver in the computation of their respective taxable income in the income tax return required to be filed by them following the procedure for filing the waiver under Section 2.79.1 (C)(4) of these regulations, that is, the husband shall not deduct exemptions of children from his compensation income because he has waived the same (exemptions of children) in favor of his wife who will now deduct said exemptions from her income in computing her tax due. Waiver exercised during the calendar year shall be made only once in a calendar year and shall take effect for the present calendar year and succeeding year/s until revoked by the husband. Any waiver/revocation of such waiver shall take effect only starting the succeeding calendar year. In no case should an employer of the wife deduct exemptions of children from the wife's income unless the waiver by the husband has been duly

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acknowledged by the employer of the husband. Registration of employees receiving purely compensation income shall be at the RDO having jurisdiction over the employees place of assignment considering that the employee submits application for registration/exemption updates to their employer. In cases of multiple employment, it shall be at the RDO where the main employer is registered. Sec. 2.79.2 Failure to file Application for Registration (BIR Form No. 1902) or Certificate of Update of Exemption and of Employers and Employees Information (BIR Form No. 2305). Where an employee, in violation of these regulations either fails or refuses to file an Application for Registration (BIR Form No. 1902) together with the required attachments, the employer shall withhold the taxes prescribed under the Schedule for Zero Exemption of the Revised Withholding Tax Table. In case of failure to file the Certificate of Update of Exemption and of Employers and Employees Information (BIR Form No. 2305) together with the attachments, the employer shall withhold the taxes based on the reported personal exemptions existing prior to the change of status and without reflecting any change. Any refund or underwithholding that shall arise due to the violations shall be covered by the penalties prescribed in Section 80 of the NIRC, as amended. National Internal Revenue Code 79(D) & 80(B) (D)Personal Exemptions. -

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(1) In General. - Unless otherwise provided by this Chapter, the personal and additional exemptions applicable under this Chapter shall be determined in accordance with the main provisions of this Title. (2) Exemption Certificate. (a) When to File. - On or before the date of commencement of employment with an employer, the employee shall furnish the employer with a signed withholding exemption certificate relating to the personal and additional exemptions to which he is entitled. (b) Change of Status. - In case of change of status of an employee as a result of which he would be entitled to a lesser or greater amount of exemption, the employee shall, within ten (10) days from such change, file with the employer a new withholding exemption certificate reflecting the change. (c) Use of Certificates. The certificates filed hereunder shall be used by the employer in the determination of the amount of taxes to be withheld. (d) Failure to Furnish Certificate. Where an employee, in violation of this Chapter, either fails or refuses to file a withholding exemption certificate, the employer shall withhold the taxes prescribed under the schedule for zero exemption of the withholding tax table determined pursuant to Subsection (A) hereof.

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(B) Employee. - Where an employee fails or refuses to file the withholding exemption certificate or willfully supplies false or inaccurate information thereunder, the tax otherwise required to be withheld by the employer shall be collected from him including penalties or additions to the tax from the due date of remittance until the date of payment. On the other hand, excess taxes withheld made by the employer due to: (1) failure or refusal to file the withholding exemption certificate; or (2) false and inaccurate information shall not be refunded to the employee but shall be forfeited in favor of the Government. x------------------------------------x 8.5 Basis of Computation for Withholding Tax National Internal Revenue Code 79(E) (E) Withholding on Basis of Average Wages. - The Commissioner may, under rules and regulations promulgated by the Secretary of Finance, authorize employers to: (1) estimate the wages which will be paid to an employee in any quarter of the calendar year; (2) determine the amount to be deducted and withheld upon each payment of wages to such employee during such quarter as if the appropriate average of the wages so estimated constituted the actual wages paid; and (3) deduct and withhold upon any payment of wages to such employee

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during ;such quarter such amount as may be required to be deducted and withheld during such quarter without regard to this Subsection. RR 02-98 2.79 (C) (C) Computation of Withholding Tax on Salaries and Benefits Received by Employees other than rank and file. The procedures provided herein below shall govern the computation of withholding tax on the taxable compensation income of employees other than the rank and file pursuant to Sec. 2.79 (B) of these regulations. (1) Determine the total monetary and nonmonetary compensation, segregating gross benefits which includes thirteenth (13th) month pay, productivity incentives, Christmas bonus and fringe benefits received by the employee per payroll period. When computing under the annualized computation, the total monetary and non-monetary compensation shall be that received for the calendar year. Gross benefits received by officials and employees of public and private entities shall be exempted from income tax and from withholding tax; provided that the amount of exemption shall not exceed thirty thousand pesos (P30,000); (2) Segregate the taxable from the nontaxable compensation (excluding the fringe benefits ) paid to the employee. The taxable income refers to all remuneration paid to an employee not otherwise exempted by law from income tax and consequently from

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withholding tax. The non-taxable income are those which are specifically exempted from income tax by the Code or other special laws as listed in Sec. 2.78.1 (B) of these Regulations (e.g. benefits not exceeding P30,000, non-taxable retirement benefits and separation pay); (3) Segregate the taxable fringe benefit and subject the same to withholding pursuant to Subsection D of these section of the Regulations; (4) Compute withholding tax on the taxable regular and supplementary compensation in accordance with the procedures prescribed in Sec. 2.79(B) (1)(b) of these regulations, for purposes of withholding per payroll period; and Sec. 2.79(B)(2) for purposes of computing under the cumulative average method or for the year-end adjustment. x------------------------------------x 8.6 Withholding taxes in cases of married couples and nonresident aliens National Internal Revenue Code 79 (F) & (G) (F) Husband and Wife. - When a husband and wife each are recipients of wages, whether from the same or from different employers, taxes to be withheld shall be determined on the following bases: (1) The husband shall be deemed the head of the family and proper claimant of the additional exemption in respect to any dependent children, unless he explicitly waives his right in favor of

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his wife in the withholding exemption certificate. (2) Taxes shall be withheld from the wages of the wife in accordance with the schedule for zero exemption of the withholding tax table prescribed in Subsection (D)(2)(d) hereof. (G)Nonresident Aliens. - Wages paid to nonresident alien individuals engaged in trade or business in the Philippines shall be subject to the provisions of this Chapter. RR 02-98 2.79.4 SECTION 2.79.4. Husband and Wife. Where both husband and wife are each recipients of compensation either from the same or different employers, taxes to be withheld shall be determined on the following basis: (A) The husband shall be deemed the proper claimant of the additional exemption in respect to any dependent children, unless he explicitly waives his right in favor of his wife in the application for registration or in the withholding exemption certificate. The waiver may be done any time during the year. (B) In general, taxes shall be withheld from the wages of the wife in accordance with the schedule for a married person without any qualified dependent. RR 10-2008 2.79(2)(d) (d) Legend of symbols The symbols used in the new withholding tax table represents the following:

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Z Zero exemption (a) Employee with multiple employers simultaneously, with respect to second, third, etc., employer; and (b) Employee who fails to file Application for Registration (BIR Form No. 1902); Single, legally separated spouses / widow / widower; employee who is not RR 02-98 2.78.2

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SECTION 2.78.2. Payroll Period. The term "payroll period" means the period of services for which a payment of compensation is ordinarily made to an employee by his employer. It is immaterial that the compensation is not always paid at regular intervals. EXAMPLE: if an employer ordinarily pays the weekly wages of his employees at the end of the week, but if for some reason a particular employee receives payment of his salaries for the past week in the middle of the current week and receives the remainder at the end of the same week, the payroll period is still the calendar week; or if, instead, the employee is sent on a three (3)-week trip by his employer and receives at the end of the trip a single compensation payment for three (3)-week services, the payroll period is still the calendar week, and the compensation payment shall be treated as though it were three (3) separate weekly compensation payments. For the purpose of determining the tax, an employee can have but one payroll period with respect to the compensation paid by any one employer. Thus, if an employee is paid a regular compensation for the weekly payroll and in addition thereto is paid supplemental compensation (for example taxable bonuses) determined with respect to a different period, the payroll period is the weekly payroll period. RR 02-98 2.79(B)(1) (as amended by RR 10-2008 3) (1) Use of Withholding Tax Tables. In

ME Married legally separated;

The numerals (1-4) affixed to the status symbols ME and S represent the number of qualified legitimate, illegitimate, or legally adopted children. Exemption - means the amount of exemption in thousand pesos an employee is entitled to claim as a deduction from gross compensation income in accordance with the status and number of qualified dependent children. x------------------------------------x 8.7 Payroll National Internal Revenue Code 78 (B) (B) Payroll Period. - The term 'payroll period' means a period for which payment of wages is ordinarily made to the employee by his employer, and the term "miscellaneous payroll period" means a payroll period other than, a daily, weekly, biweekly, semi-monthly, monthly, quarterly, semi-annual, or annual period.

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general, every employer making payment of compensation shall deduct and withhold from such compensation a tax determined in accordance with the prescribed Revised Withholding Tax Tables (Annex C) which shall be used starting January 1, 2009. There are four (4) withholding tax tables prescribed in these regulations, as follows: (a) Monthly Tax Table to be used by employers using the monthly payroll period; (b) Semi-Monthly Tax Table to be used by employers using the semimonthly payroll period; (c) Weekly Tax Table to be used by employers using the weekly payroll period; (d) Daily Tax Tableto be used by employers using the daily payroll period. If the compensation is paid other than daily, weekly, semi-monthly or monthly, the tax to be withheld shall be computed as follows: (a) Annually use the annualized computation referred to in Sec. 2.79(B)(5)(b) of these Regulations; (b) Quarterly and semi-annually divide the compensation by three (3) or six (6) respectively, to determine the average monthly compensation. Use the monthly withholding tax table to compute the tax, and the tax so computed shall be multiplied by three (3) or six (6) accordingly. For the year 2008, however, being the

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initial year of implementation of RA 9504, there shall be a transitory withholding tax table for the period from July 6 to December 31, 2008 (Annex D) determined by prorating the annual personal and additional exemptions under RA 9504 over a period of six months. Thus, for individuals, regardless of personal status, the prorated personal exemption is P25,000, and for each qualified dependent child (QDC), P12,500. x------------------------------------x 8.8 Refunds and Tax Credits of Taxes Withheld from Wages National Internal Revenue Code 79 (C) & (H) (C) Refunds or Credits. (1) Employer. - When there has been an overpayment of tax under this Section, refund or credit shall be made to the employer only to the extent that the amount of such overpayment was not deducted and withheld hereunder by the employer. (2) Employees. - The amount deducted and withheld under this Chapter during any calendar year shall be allowed as a credit to the recipient of such income against the tax imposed under Section 24(A) of this Title. Refunds and credits in cases of excessive withholding shall be granted under rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner. Any excess of the taxes withheld over the tax due from the taxpayer shall be

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returned or credited within three (3) months from the fifteenth (15th) day of April. Refunds or credits made after such time shall earn interest at the rate of six percent (6%) per annum, starting after the lapse of the threemonth period to the date the refund of credit is made. Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of counter-signature by the Chairman, Commission on Audit or the latter's duly authorized representative as an exception to the requirement prescribed by Section 49, Chapter 8, Subtitle B, Title 1 of Book V of Executive Order No. 292, otherwise known as the Administrative Code of 1987. (H)Year-End Adjustment. - On or before the end of the calendar year but prior to the payment of the compensation for the last payroll period, the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year in accordance with Section 24(A). The difference between the tax due from the employee for the entire year and the sum of taxes withheld from January to November shall either be withheld from his salary in December of the current calendar year or refunded to the employee not later than January 25 of the succeeding year. x------------------------------------x 8.9 Individual Returns

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National Internal Revenue Code 51(A) (A) Requirements. (1) Except as provided in paragraph (2) of this Subsection, the following individuals are required to file an income tax return: (a) Every Filipino citizen residing in the Philippines; (b) Every Filipino citizen residing outside the Philippines, on his income from sources within the Philippines; (c) Every alien residing in the Philippines, on income derived from sources within the Philippines; and (d) Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines. (2) The following individuals shall not be required to file an income tax return; (a) An individual whose gross income does not exceed his total personal and additional exemptions for dependents under Section 35: Provided, That a citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippine shall file an income tax return, regardless of the amount of gross income; (b) An individual with respect to pure compensation income, as defined in Section 32 (A)(1), derived from sources within the Philippines, the income tax on which has been

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correctly withheld under the provisions of Section 79 of this Code: Provided, That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return: Provided, further, That an individual whose compensation income derived from sources within the Philippines exceeds Sixty thousand pesos (P60,000) shall also file an income tax return; (c) An individual whose sole income has been subjected to final withholding tax pursuant to Section 57(A) of this Code; and (d) An individual who is exempt from income tax pursuant to the provisions of this Code and other laws, general or special. (3) The forgoing notwithstanding, any individual not required to file an income tax return may nevertheless be required to file an information return pursuant to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner. (4) The income tax return shall be filed in duplicate by the following persons: (a) A resident citizen - on his income from all sources; (b) A nonresident citizen - on his income derived from sources within the Philippines; (c) A resident alien - on his income derived from sources within the Philippines; and (d) A nonresident alien engaged in trade or business in the Philippines

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- on his income derived from sources within the Philippines. x------------------------------------x 8.10 Substituted Filing RR 02-98 2.83.4 (amended by RR 10-2008 6) SECTION 2.83.4. Substituted Filing of Income Tax Returns by Employees Receiving Purely Compensation Income. Individual taxpayers receiving purely compensation income, regardless of amount, from only one employer in the Philippines for the calendar year, the income tax of which has been withheld correctly by the said employer (tax due equals tax withheld) shall not be required to file BIR Form No. 1700. In lieu of BIR Form No. 1700, the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) (hard copy) filed by their respective employers, duly stamped received by the BIR, shall be tantamount to the substituted filing of income tax returns by said employees. The following individuals, however, are not qualified for substituted filing and therefore, still required to file BIR Form No. 1700 in accordance with existing regulations: (A) Individuals deriving compensation concurrently from two or more employers at anytime during the taxable year. (B) Individuals whose purely compensation income for the taxable year exceeds P60,000. (C) Minimum wage earners including

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employees of the government of the Philippines, or any political subdivisions, agencies or instrumentalities, with Salary Grades 1 to 3 whose income were not subjected to withholding tax but subject to income tax from January 1 to July 5, 2008. (D) Employees whose total compensation income, regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly, that is, that the total withholding tax does not equal the total tax due on total compensation income for the taxable year. (E) In case of married individuals where one of the spouses received compensation income exceeding P60,000, a return shall be filed to include the income of the other spouse whose compensation is P60,000 or less. (F) Individuals receiving a combination of compensation and business income (mixed income). This includes a married individual receiving purely compensation income whose spouse derives income from business. In case of married individuals who are still required to file returns under existing provisions of the law, i.e., in those instances not covered by the substituted filing of returns, only one return for the taxable year shall be filed by either spouse to cover the income of the spouses, which return shall be signed by the husband and wife, unless it is physically impossible to do so, in which case signature of one of the spouses would suffice. Employees not qualified for substituted filing but are required to file the Income Tax Return shall file the same not later than April 15 of

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the year immediately following the taxable year. Provided, that employees with previous/successive employer/s within the taxable year shall furnish their new employer with BIR Form No. 2316 issued by the previous employer/s. x------------------------------------x 8.11 Filing of Returns for Taxes Withheld and Payment of Taxes Withheld National Internal Revenue Code 81 SEC. 81. Filing of Return and Payment of Taxes Withheld. Except as the Commissioner otherwise permits, taxes deducted and withheld by the employer on wages of employees shall be covered by a return and paid to an authorized agent bank; Collection Agent, or the duly authorized Treasurer of the city or municipality where the employer has his legal residence or principal place of business, or in case the employer is a corporation, where the principal office is located. The return shall be filed and the payment made within twenty-five (25) days from the close of each calendar quarter: Provided, however, That the Commissioner may, with the approval of the Secretary of Finance, require the employers to pay or deposit the taxes deducted and withheld at more frequent intervals, in cases where such requirement is deemed necessary to protect the interest of the Government. The taxes deducted and withheld by employers shall be held in a special fund in trust for the Government until the same are

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paid to the said collecting officers. RR 02-98 2.81 (amended by RR 06-01 4) SECTION 2.81. Filing of Return and Payment of Income Tax Withheld on Compensation (Form No. 1601). Every person required to deduct and withhold the tax on compensation, including large taxpayers as determined by the Commissioner, shall make a return and pay such tax on or before the 10th day of the month following the month in which withholding was made to any authorized agent bank within the Revenue District Office (RDO) or in places where there are no agent banks, to the Revenue District Officer of the City or Municipality where the withholding agent/employers legal residence or place of business or office is located; provided, however, that taxes withheld from the last compensation (December) for the calendar year shall be paid not later than January 15 of the succeeding year; Provided, however, that with respect to taxpayers, whether large or non-large, who availed of the EFPS, the deadline for electronically filing the aforesaid withholding tax return and paying the tax due thereon via the EFPS shall be five (5) days later than the deadlines set above. If the person required to withhold and pay the tax is a corporation, the return shall be made in the name of the corporation and shall be signed and verified by the president, vicepresident, or authorized officers. With respect to any tax required to be withheld by a fiduciary, the returns shall be made in the name of the individual, estate, or

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trust for which such fiduciary acts, and shall be signed and verified by such fiduciary. In the case of two or more joint fiduciaries the return shall be signed and verified by one of such fiduciaries. x------------------------------------x 8.12 Withholding Returns Statements and Annual Information on

National Internal Revenue Code 83 SEC. 83. Statements and Returns. (A) Requirements. - Every employer required to deduct and withhold a tax shall furnish to each such employee in respect of his employment during the calendar year, on or before January thirty-first (31st) of the succeeding year, or if his employment is terminated before the close of such calendar year, on the same day of which the last payment of wages is made, a written statement confirming the wages paid by the employer to such employee during the calendar year, and the amount of tax deducted and withheld under this Chapter in respect of such wages. The statement required to be furnished by this Section in respect of any wage shall contain such other information, and shall be furnished at such other time and in such form as the Secretary of Finance, upon the recommendation of the Commissioner, may, by rules and regulation, prescribe. (B) Annual Information Returns. - Every employer required to deduct and withhold the taxes in respect of the wages of his

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employees shall, on or before January thirty-first (31st) of the succeeding year, submit to the Commissioner an annual information return containing a list of employees, the total amount of compensation income of each employee, the total amount of taxes withheld therefrom during the year, accompanied by copies of the statement referred to in the preceding paragraph, and such other information as may be deemed necessary. This return, if made and filed in accordance with rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, shall be sufficient compliance with the requirements of Section 68 of this Title in respect of such wages. (C) Extension of time. - The Commissioner, under such rules and regulations as may be promulgated by the Secretary of Finance, may grant to any employer a reasonable extension of time to furnish and submit the statements and returns required under this Section. RR 02-98 2.83.1 & 2.83.2 (as amended by RR 10-2008 6) SECTION 2.83.1. Employees Withholding Statements (BIR Form No. 2316). In general, every employer or other person who is required to deduct and withhold the tax on compensation including fringe benefits given to rank and file employees, shall furnish every employee from who se compensation taxes have been withheld the Certificate of Compensation Payment /Tax Withheld (BIR Form No. 2316) on or before January 31 of the

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succeeding calendar year, or if employment is terminated before the close of such calendar year, on the day on which the last payment of compensation is made. Failure to furnish the same shall be a ground for the mandatory audit of payors income tax liabilities (including withholding tax) upon verified complaint of the payee. Employers of MWEs are still required to issue BIR Form No. 2316 (June 2008 Encs version) to the MWEs on or before January 31 of the following year. The employer shall furnish each employee with the original and duplicate copies of BIR Form No. 2316 showing the name and address of the employer; employers TIN; name and address of the employee; employees TIN; amount of exemptions claimed amount of premium payments on health and/or hospitalization insurance not exceeding P2,400.00, if any; the sum of compensation paid including the non-taxable benefits; the amount of statutory minimum wage received by MWEs; Overtime pay, holiday pay, night shift differential pay and hazard pay received by MWEs; the amount of tax due; the amount of tax withheld during the calendar year and such other information as may be required. The statement must be signed by both the employer or other authorized officer and the employee, and shall contain a written declaration that it is made under the penalties of perjury. If the employer is the Government of the Philippines, its political subdivision, agency or instrumentality or government-owned or controlled corporation, the statement shall be signed by the duly designated officer or employee.

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The Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) shall conta in a certification to the effect that the employers filing of BIR Form No. 1604-CF shall be considered as a substituted filing of the employees income tax return to the extent that the amount of compensation and tax withheld appearing in BIR Form No. 1604CF as filed with the BIR is consistent with the corresponding amounts indicated in BIR Form No. 2316. It shall be signed by both the employee and employer attesting to the fact that the information stated therein has been verified and is true and correct to the best of their knowledge. However, the withholding agents/employers are required to retain copies of the duly signed BIR Form No. 2316 for a period of three (3) years as required under the NIRC. Where the employee is a MWE defined under RA 9504 whose income is exempt from income tax and, consequently, from withholding tax, BIR Form No. 2316 shall show the sum of non-taxable SMW paid including the non-taxable benefits such as holiday pay, overtime pay, night shift differential pay and hazard pay earned during the calendar year and such other information as may be required. Provided, that the applicable box for MWEs under BIR Form No. 2316 (June 2008 Encs. version) are sufficiently filled-up. This serves as proof of financial capacity for purposes of loans, and for other purposes with various government agencies. Separated/terminated employees within the period from January 1 to July 5, 2008, where the total exemptions (e.g. married-P32,000) used in the annualized computation were likewise shown in the issued BIR Form 2316,

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shall be reported by the employer under the alphalist of terminated employees with date of termination/separation. For those with changes in exemptions, such as that of having an additional dependent child, or for those with successive employment for taxable year 2008, the applicable apportioned exemption for January 1 to July 5, 2008 shall be applied for the first semester and the applicable apportioned exemption for July 6 to December 31, 2008 shall be applied for the second semester. The employee who is qualified for substituted filing of income tax return under these regulations shall no longer be required to file income tax return (BIR Form No. 1700) since BIR Form No. 1604-CF with alphalists of employees shall be considered a substituted return filed by the employer. BIR Form No. 2316, duly certified by both employee and employer, shall serve the same purpose as if a BIR Form No. 1700 had been filed, such as proof of financial capacity for purposes of loan, credit card, or other applications, or for the purpose of availing tax credit in the employees home country and for other purposes with various government agencies. This may be used for purposes of securing travel tax exemption, when necessary. However, information referring to the certification, appearing at the bottom of BIR Form No. 2316, shall not be signed by both the employer and the employee if the latter is not qualified for substituted filing. In which case, BIR Form No. 2316 furnished by the employer to the employee shall be attached to the employees Income Tax Return (BIR Form Nos. 1700 or 1701 in the case of mixed

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income earners ) to be filed on or before April 15 of the following year. In case of successive employments during the taxable year, an extra copy of BIR Form No. 2316 shall be furnished by the employee, duly certified by his previous employer/s and by him, to his new employer. Section 2.83.2. Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) Every employer or other persons required to deduct and withhold the tax is required to file with the Large Taxpayers Assistance Division (LTAD)/ Large Taxpayers District Office (LTDO)/RDO where the payor/employer is registered as Withholding Agent on or before January 31 of the following year an Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF, to be submitted with the alphabetical list of employees/payees.

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