Special Problems in Business Law Prac Module 1

Business Law Practice
Atty. Jose Cochingyan III
Noel | Pangcog
AY 2011-2012
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.
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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should not be unilaterally withdrawn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practice & as such, cannot be unilaterally withdrawn?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.
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:

a.
b.
c.
d.
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:
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AY 2011-2012
The test or rationale of this rule on long practice requires
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

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
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.
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There was also no company practice violated despite SDPI
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 13 th 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 13 th 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

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why mistakes were made in the computation despite clarity

in 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 13th 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

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.
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
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benefits were not granted in the past to those who did not
render a full year of service, insteadof just showing an
affidavit from the head of the manufacturing department.
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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
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,
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himself, opted to terminate his own employment when he
purposely failed to report for work.
Philippine American Life v Gramaje
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
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
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
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CA affirmed NLRC
Issue: W/N petitioner was constructively dismissed?

Held: No. Petitioner was not constructively dismissed.
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.
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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
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
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,
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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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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

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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.
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
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.
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1.1.1.5 Right to a Bonus

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
NLRC reversed
for
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

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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).
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
unworked Sundays from 366 (total number of days per
year). The factor used merely complies with the basic rule,
no work, no pay.
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1.1.1.7 Consultancy
Arrangements
on
Employment with Related Company
Top
of
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.
10

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
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
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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
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
11

over the majority of the business activities of ETSI and,
consequently, became Domingos employer.
x------------------------------------x
1.1.2
Forms of Payment:
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:
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(a) There is a bank or other facility
encashment within a radius of one
kilometer from the workplace;
for
(1)
(b) The employer or any of his agents or

representatives does not receive any
pecuniary benefit directly or indirectly from
the arrangement;
(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;
12

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;
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

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
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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.
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
13

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.
x------------------------------------x
1.1.4
Place 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.
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
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(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
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
14

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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. 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

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
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.
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 the establishment of rates for
piece, output or contract work shall be the
15

performance of an ordinary
minimum skill or ability.
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worker
of
(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
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
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-of-kin.
The affidavit shall be presented to the employer
who shall make payment through the 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. 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;
16

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.
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.
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consideration of a promise
retention in employment.
of
employment
or
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.
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.
BOOK III, RULE VIII, SEC 9-11
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
17

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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
What is a Wage Order;

Minimum Wage Fixing
1.2.3
Wage Distortion
Standards/Criteria
for
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
Facts:
Issue:
Held:
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
18

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It is enough that there is a SEVERE CONTRACTION of the

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
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.
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
19

-
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
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
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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
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
20

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
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)
(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.
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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 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 noncompliance 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
21

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
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
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.
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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
officer, general manager, managing director or
partner.
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
22

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;
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,
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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
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
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this Order shall be considered automatically

modified insofar as their wage clauses are
concerned to reflect the new wage rates.
Art. 83. Normal hours of work. The normal hours

of work of any employee shall not exceed eight (8)
hours a day.
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.
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
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.
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. 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.
24

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.
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;
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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
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
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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
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.
regular working hours of any person covered by
Rule shall not be more than eight (8) hours in
one day nor more than forty (40) hours in any
week.
The
this
any
one
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
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
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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.
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 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.
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
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.
RULE II
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
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
27

(24) consecutive hours after
consecutive normal work days.
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every
six
(6)
Art. 93. Compensation for rest day, Sunday or

holiday work.
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.
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
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. 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. 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
28

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.
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
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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
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
29

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;
(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
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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
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.
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
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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
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
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
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.
31

(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
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.
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(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,
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.
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.
32

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
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
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
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(g) Those employed in establishments regularly
employing less than ten employees.
SECTION 2. Right to service incentive leave.
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.
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.
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
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SECTION 1. Short Title. - This Act shall be known as the

"Paternity Leave Act of 1996".
president, chief executive officer, general manager,

managing director or partner directly responsible therefor.
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.
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.
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,
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, vice-
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
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;
34

(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.
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;
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parenthood while the spouse is detained or is serving
sentence for a criminal conviction for at least one (1)
year;
parenthood due to physical and/or mental incapacity
of spouse as certified by a public medical
practitioner;
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;
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;
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
35

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
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
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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
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
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.
36

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
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.
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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
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
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leaves under the Labor Code and Civil Service Rules

and Regulations, extendible when the necessity
arises as specified in the protection order.
days that she has to attend to medical and legal

concerns. Leaves not availed of are noncumulative
and not convertible to cash.
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.
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.
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
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
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
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
38

-
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.
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
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
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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,
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
39

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
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
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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
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:
40

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)
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
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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)
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
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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).
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
NLRC reversed
for
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 13th 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
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
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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
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
un-worked 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)
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
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;
x------------------------------------x
43

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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
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.
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.
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.
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 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
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 effective 1 May 1987 or earlier the
44

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.
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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
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.
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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
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
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
46

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.
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
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AY 2011-2012
(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
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
47

Noel | Pangcog
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collective agreement, company practice or policy,

the same are treated as part of the basic salary of
the employees.
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.
(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.
6. 13th Month Pay of Resigned or Separated

Employee.
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.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
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
reduction
or
elimination of benefits. chan robles virtual law
library
48

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 13 th
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 abandoned the previous decision
in Petitioners case?
Held: No. Boie-Takeda issue is not the same as Petitioners.
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 13 th 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.
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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 2 nd 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
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 13 th month
pay
- PAL stated that its equivalent referred to the Christmas
bonus already given
49

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 13 th 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.
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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.
Although PD851 exempts those already paying 13th 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 13 th 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 13 th month pay to its

employees
Such was computed by dividing total basic annual salary by
12.
Basic salary included basic monthly salary, 1 st 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 13 th 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
Issue: W/N Petitioners are liable for the wage differential in 13th
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 13 th 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.
50

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;
(b) On the taxable income defined in
income
subject
to
tax
under
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
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(c) On the taxable income defined in
Section 31 of this code, other than
income
subject
to
tax
under
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
= P2,500+15% of the excess over
P30,000
P70,000
= P22,500+25% of the excess
over P140,000
over P250,000
Over P500,000
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
51

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
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
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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%
(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
52

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 coventurer:
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
shares of stock in a domestic corporation,
except shares sold, or disposed of through the
stock exchange.
5%
Not over P100,000........
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
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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
(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
53

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
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
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(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
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.
54

(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 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.
(b) Any amount received by an official or
employee or by his heirs from the
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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.
(c) 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.
(d) 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.
(e) Benefits received from or enjoyed
under the Social Security System in
accordance with the provisions of
Republic Act No. 8282.
(f) Benefits received from the GSIS under
Republic Act No. 8291, including
retirement
gratuity
received
by
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
55

(b)
(c)
(d)
(e)
regional
financial
institutions
established by foreign governments.
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.
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.
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.
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
government pursuant to Republic
Act No. 6686;
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(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
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
56

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
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
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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;
(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:
57

(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
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
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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
34%
33%
32%
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
(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:
58

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-
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,
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
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
59

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%).
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
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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
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;
rate to the extent of the difference
60

between the market rate and actual
rate granted;
(6) Membership fees, dues and other
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
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
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
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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
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
pursuant to Section 6(E) of the
61

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
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
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
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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
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
62

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
the benefits shall be the amount of
cash received by the employee.
The monetary value of the fringe
the benefit regardless of whether
of his employer, unless the same
was subjected to a withholding tax
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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
the benefit regardless of whether
of his employer. Cdpr
(e) If
the
employer
owns
and
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
63

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
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,
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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.
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
his employee, in social and athletic
clubs or other similar organizations.
These expenditures shall be treated as
taxable
fringe
benefits
of
the
employee in full.
(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
64

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
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
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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
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
65

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
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:
(1) Fringe benefits which are authorized
and exempted from income tax under
the Code or under any special law;
insurance and hospitalization benefit
plans;
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(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
furnished by the employer merely as a
means of promoting the health, goodwill,
contentment,
or
efficiency
of
his
employees such as the following:
66

(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,
etc.
(D) Tax Accounting for the Fringe Benefit
Furnished to the Employee and the Fringe
Benefit Tax Due Thereon. As a general
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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
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:
67

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Monthly rental for the residential house

P66,000.00
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
P66,000
Debit: Fringe Benefit Tax
P17,000
Credit: Cash P83,000
Expense
Expense
To record fringe benefit expense and

fringe benefit tax paid on rental of the
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
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
Fringe Benefit tax due thereon (34%)
P10,732.32
=========
68

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
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
Noel | Pangcog
AY 2011-2012
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
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
69

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
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)
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
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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. 398. 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
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
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
70

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
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
Noel | Pangcog
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on compensation
managerial
and
employees:
income of both
rank
and
file
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
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
71

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 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,
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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
exempted from income tax.
likewise
be
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
72

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,
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
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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.
(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,
73

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applicable to the place where he/she is

assigned.
The aforesaid income shall
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.
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
income are not exempted from income tax on
their entire income earned during the taxable
year. This rule, notwithstanding, the SMW,
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.
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
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
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
74

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
3.3.2
Rice
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
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.
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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
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.
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
75

Noel | Pangcog
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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)
and managers; and that on a quarterly basis,

you will include in the employees payroll the
P1,300.00 as rice allowance.
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.
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?
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).
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
Based on the foregoing, you now request for a

ruling on the following:
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
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
76

the
health,
goodwill,
contentment,
efficiency of his employees.
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or
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
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
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)
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
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
x------------------------------------x
3.3.4
Projects
Incentive given to Faculty Members doing Research
BIR Ruling No. 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
77

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 nonresident
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
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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.
On the other hand, if the qualified faculty
member is considered as a non-resident
citizen, then he is taxable only on income
78

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
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
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employers. (BIR Ruling No. 128-99 dated
August 18, 1999)
x------------------------------------x
3.3.5
Medical Benefits
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,
service or other benefit furnished or granted
in cash or in kind by an employer to an
employees) such as life or health insurance
and other non-life insurance premiums or
79

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
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
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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
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
80

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.
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
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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
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
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
81

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
employee's annual tax return consolidation.
On the basis of the foregoing and according to
the pertinent Revenue Regulations on the
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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
The rice allowance benefit in the amount of
P92.00 per month is within the limitation set
by Revenue Regulations No. 3-98, as
82

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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.
amount of other benefits, shall not exceed

P30,000.00 (BIR Ruling No. 23-2002 dated
June 21, 2002).
c. Meal Allowance
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.
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
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
d. Christmas Gift Check
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
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
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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
Income.
vis--vis
Compensation
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
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
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
expenses shall constitute taxable
income if such amount is not returned
to the employer. Reasonable amounts
are pre-computed on a daily basis and
84

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
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
(6) If the grant of the fringe benefit is for the
convenience of the employer."
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"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
granting ear plan to the managers and sales
executive; that the company buys the car and
retains the title for five years; that sixty
85

Noel | Pangcog
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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.
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.
The fringe benefit in this particular case is to

be computed as follows:
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:
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.
It is represented that you are a company
engaged in the manufacture and distribution
"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
3.4.2 Tuition Waiver Benefit; Educational Assistance to
Faculty
members children
86

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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
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
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.
2.33 (B)(10) of Revenue Regulations No. 3-98.
The facts, as represented, are as follows:
87

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
HMO premiums covering their dependents
and collects the same through salary
deductions over a period of one year.
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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.
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.
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
such HMOs are akin to the service provided by
insurance companies.
88

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
The premiums initially paid by NEC Tokin to
Health Maintenance, Inc. on behalf of the
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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
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
kilometer distance was for purposes of
complying with the state policies on the
promotion of the health and welfare of
89

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. 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
providing of living quarters can be considered
as for the employers convenience can be
determined on who will benefit more if living
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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
Revenue Regulations No. 16-86. (BIR Ruling
No. 596-88 dated December 23, 1988).
x------------------------------------x
3.4.7
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
90

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
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
3.4.8
Housing Loan
BIR Ruling No. DA-170-04 (Sony Life Insurance)
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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
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,
where the house is required by the nature of,
or necessary to the trade, business or
91

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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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
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
and consequently to the withholding tax
prescribed under Section 79 of the Tax Code
of 1997.
3.4.9 Transportation Allowance & other benefits at call

centers
92

Moreover, any amount paid specifically, either
as advances or reimbursements for traveling,
and
necessary
expenses
incurred
or
(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. 298, as amended. Moreover, since the
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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,
in terms of de minimis threshold for regular
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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
allowance being
Office
given
holds that
across all
meal
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 day. This
Office has ruled in the said case that
94

". . . fringe benefits means any goods, service
or other benefit furnished or granted by an
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
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
employee (except rank and file employees) by
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the employer,
corporation.
whether
an
individual
or
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
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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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)
tax shall not be imposed on the following

fringe benefits:
xxx
xxx
xxx
employee is required by the nature of, or
of the employer; or
employee is for the convenience of the
employer."
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
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.
"(6)
Fixed
or
variable
transportation,
representation and other allowances.
xxx
xxx
xxx
(b) Any amount paid specifically, either as
advances or reimbursements for traveling,
and
necessary
expenses
incurred
or
(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
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
reimbursements/advances for traveling and
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)
Benefit Tax. In general, the fringe benefits
Corollarily, Section 2.78.1 (A) (6) (b) of

Revenue Regulations No. 8-2000 provides that
96

entertainment expenses which are precomputed on a daily basis and are paid to an
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
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
Outstation Allowance which may be incurred
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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
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
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
97

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
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
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interpretation. Hence, the duty of this Office is
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. 82000 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.
98

In view of the foregoing, the performance
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
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
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"IN VIEW OF THE FOREGOING, this Office
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
99

which including the 13th month pay does not
exceed P30,000.00.
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.
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
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constitute as deductible expense upon such
employer pursuant to Section 2.78.1(A)(3) of
Rev. Regs. No. 8-2000, as amended.
amended, clarifies that "de minimis" benefits
and "other benefits" are not the same. For
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
100

purposes. They shall not also be included
in the computation of the P30,000
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 non-
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exclusive in the enumeration of what
constitute de minimis fringe benefits.
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.
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
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
101

benefits, shall not exceed Php30,000 (BIR
Ruling No. 23-2002 dated June 21, 2002).
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.
differently in that "de minimis" benefits are no
considered in computing the P30,000.00
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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;
102

6. Laundry allowance not exceeding P300.00
per month;
7. Employees 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 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
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.
subject to the fringe benefits tax also if it
redounds to the convenience of the employer.
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It appears that you were paid "other benefits"
in the amount of PhP33,971 which is PhP3,971
over and above the threshold.
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)
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.
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
103

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.
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)
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;
insurance and hospitalization benefit plans;
whether granted under a collective bargaining
agreement or not;
(4) De Minimis benefits as defined in these
Regulations;
employee is required by the nature of, or
of the employer; or
(6) If the grant of the fringe benefit is for the
convenience of the employer." (Emphasis
supplied.)
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
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contract agreement between LTP and its
customer, which in effect redounds to the
convenience of the employer.
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
constitute as deductible expense upon such
employer pursuant to Section 2.78.1(A)(3) of
Rev. Regs. No. 8-2000, as amended.
differently in that "de minimis" benefits are
not considered in computing P30,000.00
x------------------------------------x
104

5. TAX TREATMENT OF STOCK OPTION PLANS & OTHER
STOCK INCENTIVE PLANS
BIR Ruling No. 003-07 (San Miguel Corporation)
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.
Section 32 (A) of the 1997 Tax Code, as
amended,
gross
income
includes
compensation for services in whatever form
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paid, including, but not limited to fees,
salaries, wages, commissions and similar
items. The term "compensation" as defined
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
105

participation in the ESPP is neither automatic
nor compulsory on the part of the SMG
employees, thus, the same could be
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
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for key talents, Globe established in 2003 an
Executive Stock Option Plan (ESOP) under
which selected senior personnel of Globe
(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;
106

2. Upon the exercise of the option, Globe is
liable to pay the 32% fringe benefits tax on
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
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
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to basic salaries, to an individual employee
(except rank and file employee).
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
107

the employee (except rank and the
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 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.
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conduct of the trade, business or exercise of a
profession, including:
(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)
3. Section 34(A)(1) of the Tax Code of 1997

provides that
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.
"(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
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
108

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)
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.
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In the instant case, the SPP incentive is
provided to all qualified or eligible employees,
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,
109

Withholding on Wages, of the Tax Code, as
amended. (BIR Ruling No. 135-97 dated
December 11, 1997)
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
income
subject
to
tax
under
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from all sources within and without the
Philippines be every individual citizen
of the Philippines residing therein;
(b) On the taxable income defined in
income
subject
to
tax
under
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
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%
= P500+10% of excess over
P10,000
P30,000
P70,000
110

= P22,500+25%
over P140,000
Over P250,000 but not
= P50,000+30%
over P250,000
Over P500,000
= P125,000+32%
over P500,000
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of
the
excess
over P500,000
of the excess
of the excess
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
compensation:
xxx xxx xxx
tax
on
(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
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.
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
111

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.
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
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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.
(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
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.
differential pay and hazard pay earned by
112

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 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.
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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.
BASIS FOR COMPUTATION
MINIMUM WAGE
OF
STATUTORY
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
113

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
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,
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the semi- monthly at P6,247.00 and weekly at
P2,883.00.
x------------------------------------x
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:
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Provided, That the total amount of
additional exemptions that may be
claimed by both shall not exceed the
maximum additional exemptions herein
allowed.
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.
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(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
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
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(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
or
an
international
organization.
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,
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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
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
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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.
(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
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
property other than
is paid in
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.
(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.
(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
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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. 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.
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)
(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.

(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
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:
118

(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
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
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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.
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
119

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
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,
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
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the statements required under the
Nevertheless, the legal responsibility
withholding, paying and returning the tax
furnishing such statements rests with
corporate employer.
law.
for
and
the

unincorporated organization, group or entity.
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
120

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.
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)
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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,
whichever is higher. The term "employer" is
defined as any person paying compensation
on behalf of a non-resident alien individual,
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 nonresident
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
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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.
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
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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.
unincorporated organizations, group or entity.
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
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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)
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
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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
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.
123

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
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."
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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
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 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.
124

(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;
(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
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procedures
Section;
prescribed
in
this
(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
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
125

(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 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
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.
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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,
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
126

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
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
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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
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:
127

(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
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.
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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
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
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
128

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. (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
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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.
(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
129

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
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
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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
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
130

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 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
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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:
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;
ME
Married
legally
separated;
employee
who
is
not
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
131

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.
RR 02-98 2.78.2
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.
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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)
(1) Use of Withholding Tax Tables. In 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:
For the purpose of determining the tax, an

employee can have but one payroll period
132

(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
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.
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(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
Commissioner.
Any excess of the taxes withheld over
the tax due from the taxpayer shall be
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
133

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
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
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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
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,
134

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
- 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
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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
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.
135

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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.
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.
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
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.
The taxes deducted and withheld by

employers shall be held in a special fund in
trust for the Government until the same are
paid to the said collecting officers.
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.
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
136

Noel | Pangcog
AY 2011-2012
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.
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.
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
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
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
on
(B) Annual Information Returns. - Every

employer required to deduct and withhold
the taxes in respect of the wages of his
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
137

and submit the statements and returns
required under this Section.
RR 02-98 2.83.1 & 2.83.2
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
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
Noel | Pangcog
AY 2011-2012
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 governmentowned
or
controlled
corporation,
the
statement shall be signed by the duly
designated officer or employee.
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,
138

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,
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
Noel | Pangcog
AY 2011-2012
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
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.
139

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Special Problems in Business Law Prac Module 1

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Business Law Practice

Atty. Jose Cochingyan III

MODULE 1: HUMAN RESOURCE ISSUES ON COMPENSATION

No proof was presented that there has been a long company

Business Law Practice

Two months Christmas bonus;

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possessed by non-government entities, devoted to

Issue: W/N there was a diminution of benefits based on alleged

Business Law Practice

why mistakes were made in the computation despite clarity

Petitioners contention that this is the same case as Globe

In this case, however, the Petitioners knew fully well that

Wage Order # 8 was implemented on October 2000, raising

Issue: W/N Petitioners decision to deduct overpayment from the

Business Law Practice

Business Law Practice

Business Law Practice

Issue: W/N petitioner was constructively dismissed?

Business Law Practice

Business Law Practice

to determine whether or not work was actually done in

Although management has the prerogative to lessen the

1.1.1.5 Right to a Bonus

Issue: W/N respondents are entitled to bonuses?

Business Law Practice

Issue: W/N Respondents are liable for holiday pay?

where 52 = # of weeks in a year

Issue: W/N there was a diminution in benefits due to respondent

Siemens Philippines v Domingo

Business Law Practice

Business Law Practice

(b) The employer or any of his agents or

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Distinction between facilities and supplement

OMNIBUS RULES IMPLEMENTING LC

Business Law Practice

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wages and other benefits of their employees through

OMNIBUS RULES IMPLEMENTING LC

majeure or circumstances beyond the employer's

Business Law Practice

(c) An ordinary worker of minimum skill or ability

Direct Payment of Wages

Prohibition regarding Wages

LC ART. 112 119

Business Law Practice

Art. 118. Retaliatory measures. It shall be

Art. 115. Limitations. No deduction from the

Business Law Practice

1.2 Key Provisions in the Wage Rationalization Act (RA 6272)

What is a Wage Order;

Business Law Practice

It is enough that there is a SEVERE CONTRACTION of the

Issue: W/N RA 6727 mandating an increase in pay of P25 created a

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Petitioners claimed that since CBA was signed

Issue: W/N implementation of RA 6640 caused wage

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Wage Rationalization Act 4 (c) & (d)

(c) Exempted from the provisions of this Act are

Business Law Practice

Wage Rationalization Act 12

Any person. corporation. trust. firm. parmersnip.