Most companies would agree that in order to maintain a good work force, it is essential to keep workers motivated. Motivation, which is the reason for one’s engaging in a particular behavior, may be intrinsic (those internal to the person, such as satisfaction one feels from the job) or extrinsic (those external, such as money or rewards).

Though employers may have no control over intrinsic motivators of their employees, they may provide, to a certain extent, extrinsic motivation.  

One way by which employers can motivate their workers is by coming up with incentive programs for employees who meet certain performance goals.  In addition to the 13th month pay, which is required by law to be given, companies can come up with incentives such as Christmas bonuses and productivity bonuses.

An employee whose performance was exceptional for the specific period may be given rewards. These perks or awards may be given in the form of cash or in kind, such as gift certificates, cell-phone cards, meal passes, parking subsidies, massage/spa-treatment vouchers and others.

The plus side to these incentives is that they are tax-free! Or, are they really?

Our Tax Code provides that gross benefits received by officials and employees of public and private entities are excluded from the computation of gross income, provided, however, that the total exclusions shall not exceed P30, 000. “Gross benefits” include 13th month bonus and “other benefits,” among others. Under Revenue Regulation 2-98, as amended, these benefits include Christmas bonuses, productivity or incentive bonuses, loyalty awards, gifts in cash or in kind and other benefits of a similar nature actually received by officials and employees of both government and private offices.

Also, facilities and privileges of relatively small value or de minimis benefits are excluded from the computation of gross income. These are monetized unused vacation-leave credits of employees not exceeding 10 days during the year; medical cash allowance to dependents of employees not exceeding P750 per employee per semester, or P125 per month; rice subsidy of P1,500, or one sack of 50-kg rice per month amounting to not more than P1,500; uniforms and clothing allowance not exceeding P4,000 per annum; actual yearly medical benefits not exceeding P10,000 per annum; laundry allowance not exceeding P300 per month; 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 which does not discriminate in favor of highly paid employees; gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; flowers, fruits, books or similar items given to employees under special circumstances, e.g., on account of illness, marriage, birth of a baby, etc.; and daily meal allowance for overtime work not exceeding 25 percent of the basic minimum wage.

In the computation of the P30,000 ceiling, the “13th month and other benefits” and the de minimis benefits are treated separately. Although there is no ceiling for the de minimis  benefits, the regulations provide for a limit in the amount of each de minimis  benefit. Any excess over the de minimis ceiling shall be considered in the computation of “other benefits.” Also, any benefit that is not within the enumeration, having no threshold, is generally considered as “other incentives” and is, therefore, subject to the P30, 000 ceiling.

In all, what are excluded from gross income are de minimis benefits up to certain limits and 13th month and other bonuses up to P30,000. Amounts in excess of the limits form part of the employees’ taxable income and are, therefore, subject to income tax.

We could only hope that our authorities would push for the total exemption of these incentives, or at least increase the threshold of exclusion. After all, the Tax Code does provide that the ceiling may be increased through rules and regulations issued by the finance secretary upon recommendation of the internal revenue commissioner after considering, among other things, the effect on the same of the inflation rate at the end of the taxable year. With the seemingly unstoppable increase in the prices of oil and, consequently, of other basic commodities, every peso of increase in the take-home pay of a worker is useful. 

Many regard as noble the effort of our legislators to alleviate the condition of the working class through the latest amendment of our income-tax law. A revamp of our rules on incentives and bonuses on top of the basic wages would be most welcome. Somehow, with these measures, as more workers become more motivated, they become more productive. In the end, what is achieved is a rise in the standard of living and an improved quality of life for all. 

The author is an associate of BDB Law.

Editorial: The SSS transition

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Tax Law for Business: Taxability of productivity incentive bonuses and ‘de minimis’ benefits

Most companies would agree that in order to maintain a good work force, it is essential to keep workers motivated. Motivation, which is the reason for one’s engaging in a particular behavior, may be intrinsic (those internal to the person, such as satisfaction one feels from the job) or extrinsic (those external, such as money or rewards).

Alálaong bagá: God’s word and us

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Reflections from the Mirror: A million thanks!

I believe it is now the best time for me to express my appreciation and gratitude to those kind-hearted individuals and groups that, without being asked, voluntarily gave valuable support to our efforts to provide assistance to all those who suffered loss of property and even lives as a result of killer Typhoon Frank.