LABOR LAW AND SOCIAL LEGISLATION

V. LABOR STANDARDS

B. Wages - Labor Code, Implementing Rules and Regulations (IRR), R.A. No. 6727, R.A. No. 9504, R.A. No. 9178

1. Definition, Components, and Exclusions

b. Bonus, 13th Month Pay

1. Definition of Bonus and 13th Month Pay

A. Bonus

A bonus is an additional benefit granted to employees that is typically based on company policy, employee performance, or profitability.
A bonus is not a demandable or enforceable obligation, except when:
- It is stipulated in an employment contract, collective bargaining agreement (CBA), or company policy.
- The employer’s established practice gives employees a reasonable expectation of receiving it.

B. 13th Month Pay

The 13th Month Pay is a mandatory monetary benefit under Presidential Decree No. 851, which applies to all employers, subject to exceptions.
It is a legally demandable right of rank-and-file employees.

2. Legal Basis

A. Labor Code of the Philippines

The Labor Code provides the general framework for wage regulation, including benefits such as the 13th month pay.

B. Presidential Decree No. 851 (13th Month Pay Law)

Signed on December 16, 1975, the decree requires employers to pay their rank-and-file employees a 13th month pay equivalent to 1/12 of the total basic salary earned by the employee within a calendar year.

C. R.A. No. 6727 (Wage Rationalization Act)

Although primarily focused on wage adjustment, it underscores the inclusion of the 13th month pay as part of labor standards.

D. R.A. No. 9504 (Tax Exemptions for Minimum Wage Earners)

This law provides that the 13th month pay and other benefits up to the statutory limit are tax-exempt for employees earning minimum wage.

E. R.A. No. 9178 (Barangay Micro Business Enterprises Act of 2002)

Barangay Micro Business Enterprises (BMBEs) registered under this law are exempted from paying the 13th month pay, subject to the rules and conditions set forth by the Department of Labor and Employment (DOLE).

3. Coverage and Exclusions

A. Coverage for 13th Month Pay

Rank-and-file employees, regardless of designation, employment status, or the manner by which wages are paid (monthly, daily, or on piecework basis).

B. Exemptions
Employers exempted from providing 13th month pay include:

Government and government-owned or controlled corporations (GOCCs), except those operating as private corporations.
Employers already paying equivalent or more than a 13th month pay in the form of a Christmas bonus, mid-year bonus, or similar benefit.
Employers of household or domestic workers.
Barangay Micro Business Enterprises (BMBEs) duly registered under R.A. No. 9178.

C. Exclusion from Computation of 13th Month Pay

Overtime pay, premium pay, holiday pay, night shift differential, and allowances are excluded from the computation of the 13th month pay.
Only the basic salary is included in the computation.

4. Components of 13th Month Pay

The 13th month pay is computed as:
[ \text{13th Month Pay} = \frac{\text{Total Basic Salary Earned During the Year}}{12} ]

Basic salary includes all regular earnings, excluding allowances, overtime, and other monetary benefits.
For employees who worked less than a year, the pay is prorated based on the number of months worked.

5. Taxation

A. Tax Exemption
Under R.A. No. 9504, the 13th month pay and other bonuses are tax-exempt up to ₱90,000.

B. Taxable Amount
Any amount exceeding ₱90,000 is subject to income tax.

6. Bonuses

A. Nature of Bonuses

Bonuses are not mandated by law unless contractually agreed upon or established as company practice.
Employers retain the discretion to determine the amount, frequency, and conditions for granting bonuses.

B. Types of Bonuses

Performance-based bonuses – Linked to individual or organizational performance.
Profit-sharing bonuses – Based on the company’s profitability.
Holiday bonuses – Typically granted during holidays, such as Christmas bonuses.

C. Legal Binding Effect

Once a bonus becomes a company policy or practice, it may acquire a legally binding effect under the principle of non-diminution of benefits.

7. DOLE Guidelines and Jurisprudence

A. DOLE Advisory on 13th Month Pay

Employers must pay the 13th month pay on or before December 24 of each year.
Non-compliance may result in administrative sanctions or penalties.

B. Jurisprudence

Mercado v. NLRC (1993)
- The bonus becomes an enforceable obligation when regularly given and employees have a reasonable expectation of its continuance.
Philippine Duplicators, Inc. v. NLRC (1991)
- A bonus voluntarily given and not integrated into the wage structure is not demandable.

8. Enforcement and Penalties

Employers failing to pay the 13th month pay are liable for penalties, including administrative sanctions and orders to pay the due amount with interest.
Employees may file a complaint with the DOLE or pursue a claim under labor arbitration proceedings.

By adhering to the laws and regulations governing bonuses and the 13th month pay, employers ensure compliance with labor standards, promoting equity and goodwill within the workplace.