9 EMPLOYEE BENEFITS AND SERVICES

INTENDED LEARNING OUTCOMES

By the end of the learning experience, students must be able to:

1. Identify the tax advantages of benefits;
2. Discuss the nontaxable benefits under the code; and
3. Enumerate and discuss the classification of employee benefits and services.

Indirect financial compensation is called benefits and services. It represents an important part of just
about every employee's pay. Benefits are generally available to all the firms and include such things as
time off with pay, health and life insurance, and retirement funds.

Employees should take note of the fact that these benefits are not free, even if workers are not charged
for them. Employee benefits are substantial cost to employers. Most employees do not realize the
market value and high cost of their benefits to the employers, so the latter only gives benefits that are
mandated by law. Benefits are given over and above the basic compensation to serve as employee's
rewards for belonging to an organization. These are given not based on performance but intended to
augment employees' income especially in cases of sickness, injury, death, or calamity.

Snell and Bohlander (2011) in the book Principles of Human Resource Management aptly described
benefit as an indirect form of compensation given to help improve the quality of work and personal lives
of employees. The concept of giving employee benefits voluntarily has changed in recent years when
the government through legislation required private firms to give certain benefits to their employees.
These benefits have been expanded in scope, by means of including the members of the employees'
families.

Today, employee benefits fall under two categories:

1. Benefits voluntarily given by the company depending on management generosity
2. Benefits required by government legislation.

TAX ADVANTAGES OF BENEFITS

One of the major driving forces behind the growth of employee benefits is the tax advantage. The
Bureau of Internal Revenue or BIR ruled that employers could deduct the costs of benefits as a business
expense and the employees do not need to include the value of health benefits in their taxable income.
Hence, employers provided benefits that are much less costly than the benefits workers could purchase
on their own because of tax exemptions of benefits which can also serve as incentives for employers to
give more benefits. Today, benefits constitute a major portion of labor costs.

NONTAXABLE BENEFITS UNDER THE CODE

 1. Compensation for sickness or injury
2. 13th month pay and other bonuses not to exceed P30, 000. 00 per year
3. Allowances and benefits given for the convenience of the employer
4. Allowances and benefits given which are in the nature of or necessary to the taxpayer's
business, trade, or profession
5. SSS, PhilHealth, and Pag-IBIG contributions, as well as union dues
6. contributions of the employer for the benefit of the employee including retirement,
hospitalization, and health insurance

The BIR sets a limit on the value of tax-exempt de minimis benefits. Under RR 8-2000, as amended by
RR 10-2000, the BIR considers the following as de minimis benefits:

De minimis benefits are benefits which are in the nature of facilities or privileges furnished or offered by
an employer to his/her 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 its
employees.

De minimis benefits are excluded from the gross income of employees for income tax purposes. The
benefits are also excluded in the computation of the P30, 000.00 ceiling of other benefits which are
exempt from income tax. This means that de minimis benefits are neither subject to withholding tax on
compensation nor to the fringe benefits tax.

The following are considered as de minimis benefits:

a. Monetized unused vacation leave credits of employees not exceeding 10 days during the
year and the monetized value of leave credits paid to government officials and employees
b. Medical cash allowance to dependents of employees not exceeding P750.00 per employee
per semester or P125.00 per month
c. Rice subsidy of P1, 500.00 or one sack of 50-kg rice per month amounting to not more than
P1, 500. 00
d. Uniforms and clothing allowance not exceeding P4, 000. 00 per annum
e. Actual yearly medical benefits not exceeding P10, 000. 00 per annum
f. Laundry allowance not exceeding P300. 00 per month
g. 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
h. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000. 00
per employee per annum celebrations not
i. 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
j. Daily meal allowance for overtime work. Not exceeding 25 percent of the basic minimum
wage.

Indeed, the huge effect of taxes on the employees' take home pay has forced many employers to take a
hard look at the compensation package of employees with the view of maximizing employees'
enjoyment of the benefits within the parameters of Philippine tax laws.
EMPLOYEE ALLOWANCE

"Employee allowance is a universal benefit awarded to employees in the various levels in an

organization."

1. They are nontaxable. Allowances for employees, such as clothing, mileage, or meal allowances are
exempt from tax.
2. They come in different forms. Among the most common are clothing allowances, meal allowances,
and transportation allowances, while extravagant companies can offer discounts on health insurances,
and give fringe benefits to executives, such as private use of the company jet, grand vacations, use of
company fitness facilities, and other such privileges.
3. Employee allowances are exempt from tax if they do not exceed the price ceilings set by law.
4. Fringe benefits that exceed the price limit on benefits are no longer tax-exempt, and the benefactor
will shoulder the tax imposed on it.
5. 0nly the "de minimis" benefits with small value and limited only to facilities and privileges furnished
by companies to promote goodwill, health, efficiency, and contentment to employees are exempt from
tax.
6. Employee allowance is given at a company's discretion and goodwill. It is not a law-mandated
benefit. Thus, one cannot demand it from the company if it does not provide any to its employees.
Many companies, on the other hand, use employee allowance to compensate for lower pays and to
appease employee demands for higher wages.

Not all companies furnish employees with employee allowance, and other companies use it as a
scheme to delay or forestall any wage increases. There should be a clear distinction between mandated
benefits and employee allowances.

CLASSIFICATION OF EMPLOYEE BENEFITS AND SERVICES

MANDATORY EMPLOYEE BENEFITS/LEGALLY REQUIRED BENEFITS IN THE PHILIPPINES

1. Social Security System (SSS) – The SSS was created to provide private employees and their
families with protection against disability, sickness, old age, and death. Benefits Given to SSS
Members
a. Sickness Benefit
• Daily cash allowance paid for the number of days a member is unable to work due to
sickness or injury
• Confinement either in a hospital or at home for at least four days
• At least three months of contributions within the 12-month period
b. Maternity Benefit
• Daily cash allowance granted to a female member who was unable to work due to childbirth
or miscarriage
• Failure to observe the rule on notification may result to the denial of the maternity claim
• The maternity benefit is equivalent to 1oo percent of the member's average daily salary
credit multiplied by 6o days for normal delivery or miscarriage and 78 days for caesarean
section delivery.
• The maternity benefit shall be paid only for the first four (4) deliveries or miscarriages.
 c. Retirement Benefits
• Cash benefit either in monthly pension or lump sum paid to a member who can no longer
work due to old age
• A member, who is 6o years old, must be separated from employment or ceased to be self-
employed, and has paid at least 120 monthly contributions prior to the semester of
retirement.
• A member who is 65 years old whether employed or not must have paid at least 120
monthly contributions prior to the semester of retirement.
• Monthly pension depends on the member'8 paid contributions, including the credited years
of service (CYS) and the number of dependent minor children but not to exceed 5.
• 40 percent of the average monthly salary credit or
• P1, 200. 00, provided that the credited years of service (CYS) is at least 10 or more but less
than 20, and P2, 000. 00 if the CYS is 20 or more. The monthly pension is paid for not less
than 60 months.
d. Disability Benefit. The World Health Organization defines disability as any restriction or lack
(resulting from impairment) of ability to perform an activity in the manner or within the range
considered normal for a human being."

A member who suffers partial or total disability with at least one monthly contribution paid to the SSS
prior to the semester of contingency is qualified.

Permanent total disabilities include:

▪ complete loss of sight of both eyes
▪ loss of two limbs at or above the ankles or wrists
▪ permanent complete paralysis of two limbs
▪ brain injury resulting to incurable imbecility or insanity and
▪ such cases as determined and approved by the SSS.

e. Death Benefit. This includes cash benefit either in monthly pension or lump sum paid to the
beneficiaries of a deceased member.
f. Funeral Grant. A funeral grant of P20, 000.00 (effective September 1, 2000) is given to whoever
pays the burial expenses of the deceased member or pensioner.

2. Government Service Insurance System (GSIS) - The Government Service Insurance System (GSIS)
is the equivalent of SSS for Philippine government employees.

Benefits Given to GSIS Members:

► Life insurance
► Retirement benefits
► Disability benefits - granted to a member due to the loss or reduction in earning capacity
caused by a loss or impairment of the normal functions of the employee's physical and/or
mental faculties as a result of an injury or disease.
► Beneficiaries are entitled to a P20, 000. 00 funeral benefit payable upon the death of a
member or old age pensioner.
► Survivorship benefit - When a member or pensioner dies, Ms or her
 beneficiaries are entitled to cash and/or pension benefits. Beneficiaries who qualify for
survivorship pension are entitled to fifty percent (50%) of the basic monthly pension of the
member or pensioner.

3. Home Development Mutual Fund (HDW) 67 - The HDMF is a provident savings system providing
housing loans to private and Philippine government employees, and to self-employed persons who
elect to join the fund. This is through the Pag-IBIG Program of the government. Pag-IBIG stands for
Pagtutulungan sa Kinabukasan, Ikaw, Bangko, Industriya at Gobyerno. Employers are also required to
contribute, on behalf of their employees, to the Home Development Mutual Fund based on R. A. 7835.
This provides the lowest interest housing and land acquisition loans to its members that are payable for
up to 30 years. This gives every Filipino worker an opportunity to own a house in easy payment plans
that can directly be deducted from their monthly wages.

SERVICES

a. Multipurpose Loan
This program aims to provide financial assistance to Pag-IBIG members for purposes of minor
home improvement, livelihood, medical, educational, purchase of appliance and furniture, and
other needs.
b. Calamity Loan
This program aims to provide financial assistance to Pag-IBIG Fund members who are victims
in. calamity-stricken areas, as declared by the Office of the President or the Sangguniang
Bayan.
c. Housing Loan

4. Philippine Health Insurance Corporation (PhilHealth) 68 - PhilHealth is administered by the

Philippine National Health Corporation, which is designed to provide employees with a
practical means of paying for adequate medical care in the Philippines. All employees are
required to be contributors of this service based on R. A. 7875. Members are given health and
hospitalization subsidies should they or a dependent be hospitalized. Monthly contributions are
based on actual employee monthly salaries and the amount of employee contribution is
matched equally by the employer.

Benefits:
a. Inpatient benefits - subsidy for room and board, drugs and medicines, laboratories, operating
room, and professional fees for confinements of not less than 24 hours.
b. Outpatient benefits - Day surgeries, dialysis, and cancer treatment procedures such as
chemotherapy and radiotherapy in accredited hospitals and free-standing clinics.
c. Lifetime Membership - After having reached the age of retirement and have paid at least 120
months premium to the program (including those made during the former Medicare Program),
PhilHealth members are granted lifetime coverage. As lifetime members, they are also entitled
to full benefits together with their qualified dependents.

Dependents of a PhilHealth member include the following:

•Legal spouse
 •Child/children-legitimate, legitimated, acknowledged and illegitimate (as appearing in birth
certificate), adopted, or below 21 years of age, unmarried and unemployed
•Parents (non-members or membership is inactive) who are 60 years old, including
stepparents (biological parents already deceased) and adoptive parents (with adoption
papers)

5. Employees' Compensation - The employees' compensation (EC) benefits or disability benefits

is a compensation-package for public and private sector employees and their dependents in the
event of work-related injury, sickness, disability, or death. The EC is a purely employer-based
contribution benefit. Thus, the employee is not required to contribute a following options
amount to the program. The employee compensation benefits are in the following options:
a. Cash income benefits for disability or death
b. Medical and related services for injury or sickness
c. Rehabilitation services (in addition to monthly cash income benefits for permanent
disability.

The benefits given to employees or their beneficiaries are in the form of:
a. Daily cash income benefit for temporary total disability (TTD)
b. Monthly cash income benefit for permanent total disability (PTD) of a lifetime basis
c. Monthly cash income benefit for permanent partial disability (PPD)
d. Monthly Cash income benefit for death, also on a lifetime basis, except for benefit paid to
secondary beneficiaries, which is a monthly Pension not to exceed 60 months but not less
than fifteen thousand pesos
e. Medical services, appliances, and supplies for injury or sickness
f. Rehabilitation services for permanent disability
g. Career allowance for permanent disability

Benefits under the employees' compensation program include:

a. Temporary total disability or sickness. An income cash benefit equivalent to 90 percent of the
average daily salary credit with a minimum of P10. 00 and a maximum of P200. 00 (effective
November 1, 1996). It is payable for a period not longer than 120 consecutive days. If the injury
requires more treatment, the period may be extended up to 240 days. If it persists after this
period, the injury will be considered as permanent total disability. This benefit is advanced by
the employer every regular payday. The amount legally paid by the employer is reimbursed
100 percent by the SSS in the form of check or through the bank.
b. Permanent total disability (loss of two limbs, permanent complete paralysis of two limbs,
etc.). This benefit is a monthly pension paid for as long as the injured lives plus 10 percent for
each of the five dependent children beginning with the youngest and without substitution.
c. The monthly pension is guaranteed for live years but will be suspended if the employee is
gainfully employed, recovers from permanent total disability, or fails to present
himse1£lherself for examination at least once a year upon notice by the SSS or fails to submit a
quarterly medical report certified by the attending physician as required under Section 5, Rule
IV of the EC law.
d. The minimum monthly income benefit is P2, 000. 00. From May 1, 1993, the supplemental
allowance is P575. 00 a month. Upon the death of a permanent total or permanent partial
disability pensioner, the SSS will pay to the primary beneficiaries 100 percent of the monthly
pension. In addition, the dependents will be paid the dependent's pension. If the deceased
 pensioner has no primary beneficiaries, the SSS will pay to the secondary beneficiaries the
remaining balance of the five-year guaranteed period, excluding the dependent's pension.
e. Permanent partial disability (such as loss of one thumb, linger, or leg). A monthly pension is
provided to the member equivalent to the pension for permanent total disability but limited to
the number of months designated by law for a particular disability. The minimum monthly
pension is P2, 000. 00. However, if the period of permanent partial disability pension is less
than a year, the benefit may be paid in lump sum.
f. Death. A monthly pension is provided to the deceased member’s primary beneficiaries, plus 10
percent of such benefit for each of five dependent children, subject to some limitations. In the
absence of primary beneficiaries, the secondary beneficiaries are entitled to the monthly
pension but not to exceed 60 months. The minimum monthly pension for the death benefit is
P2,000.00. under the EC program, a funeral benefit of P10,000.00 will also be paid to any
person who actually shouldered the burial expenses of the deceased member.

The compensability conditions are the following:

a. Injury must be the result of accident arising out of and in the course of employment.
b. Sickness must be listed/considered an "occupational disease"; or even if not listed as one, it
must be shown that the risk of contracting the sickness is increased by the working conditions.
c. Disability/death is caused by work-connected injury or sickness.

6. 13th Month Pay-Based on P. D. 851, all Filipino employees are entitled to a year-end bonus
equivalent to one (1) month salary regardless of the nature of their employment. The 13th month pay is
to be given not later than December 24 of every year a worker is employed.
To compute for 13th month pay, the following formula must be used
Basic Monthly Pay + 12 × Number of Months worked within the Calendar Year:
Assuming the employee's basic monthly pay is p25, 000. 00 and the employee has only worked for 8
months due to being on leave without pay for 4 months, his/her 13th month pay is computed as follows
P25, 000. 00 + 12 × 8 = P16, 666. 67 (computed 13th month pay)

7. Service Incentive Leave (SIL)-Based on the Labor code, an employee who has worked for at least one
(1) year in a company is entitled to five (5) days leave of absence, with pay, every year. If the employee
does not avail of these paid leaves, the company may opt to have them do a mandatory leave of
absence, with pay, or convert these un-availed paid leaves to their cash equivalents, to be given at the
end of each year.

Illustration

An employee who is hired on January 1, 2010 and resjgned on March 1, 2011, assuming he has not used
or commuted any of Ms accrued SIL, is entitled upon his resignation to the commutation of his accrued
SIL as follows:
SIL earned as of December 31, 2010 = 5 days
proportionate SIL for January and February 1998-(2/12) × 5 days=0. 833 day
Total as of March 1, 2011 = 5. 833 days
8. Paternity Leave-Paternity leave is described by law through R. A. 8187 granting every married male
employee seven (7) working days of leave after his legitimate wife's childbirth, or any miscarriage.
Paternity leave shall be paid in full, equivalent to seven days, up to the first four deliveries.

9. Meal and Rest Periods-Based on Article 83 of the Labor Code, employees are entitled to one (1) hour
break for meals on an eight-hour workday. Employees are also entitled to adequate rest periods in the
morning and afternoon, of short durations, that will be counted as hours worked. These rest periods
normally last for 15 minutes and can be used by employees as coffee or snack breaks.

10. Right to Holiday Pay under Article 94 of the Labor Code:

a) 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
b) 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
c) The following are the 11 regular holidays in the Philippines under

Executive Order 292 as amended by R. A. 9492

 New Year's Day-January 1
 Araw ng Kagitingan-April 9
 Maundy Thursday-movable date
 Good friday-movable date
 Labor Day-May 1
 Independence Day-June 12
 National Heroes Day-iaeo Monday of August
 Bonifacio Day-November 30
 Christmas Day-December 25
 Rizal Day-December 30
 Observance of Eid'1 Fit, and Eidul Adha-movabl date determined in accordance with the Islamic
calendar

SPECIAL DAYS

During special days, the principle of "no work, no pay) 'applies and on such other special days as may be
proclaimed by the President or by the Congress.

Workers who were not required or permitted to work on those days are not by law entitled to any
compensation. This, however, is without prejudice to any voluntary practice or provision in the
Collective Bargaining Agreement (CBA) providing for payment of wages and other benefits for days
declared as special days even if unworked.

Executive Order No. 203 as amended by Republic Act No. 9492 lists down three (3) special days that
shall be observed in the country :
 Ninoy Aquino Day-August 2
 All Saint's Day-November 1
 Last day of the y. Ear-Decehber 31
The EDsA Revolution Anniversary on February is a special holiday for all schools.

11. Premium Payment -compensation for work hours rendered, exceeding the maxi mum number of
working hours which is normally 8 hours per day.

Companies are obliged by law to pay premiums when employees work on holidays, on their rest day,
and when they render extra hours on any day (overtime). Premium pays are, however, mandated by
law. In most cases, only regular employees are entitled to holiday premiums, while other companies
may pay overtime premium to probationary or contractual
employees.

COMPUTING PREMIUM PAY

The Labor Code of the Philippines sets premium rates at 25% of employees' regular wage on regular
days. This is increased to 30% if they render overtime on their rest day or on a holiday. Holidays,
meanwhile, are categorized into special and legal holiday-defferent rates apply to each category.

The law mandates that employees be paid an additional 30% on their regular daily wage on special
holidays. An additional 100% premium (equivalent to 100% of theitr daily wage) is given to qualified
employees.

Computations are done as follows:

 A special holiday (130% X basic pay)
 A special holiday that falls on a rest day (150% X basic pay)
 A regular holiday (200% X basic pay)
 A regular holiday that falls on a rest day (260% X basic pay)

12. Night Ship D, Differential -Accor ding to Article 86 of the Labor Code, every employee shall be paid
a night shift differential of not less than ten percent (10%) of his/her regular wage for each hour of work
Performed between ten o'clock in the evening and six o'clock in the morning.

B. Benefits Given Because of Management Generosity

Other company benefits that are not government mandated, but are usually given to employees are
the following:
1. Holiday/Christmas Bonus-This is given in December, on top of the 13 th month pay. This is
considered as the company's Christmas gift to their employees.
2. Midyear Bonus-This is given in June, when the country's school year starts. This is to assist
employees in school enrollment fees for their children. This is also known as an educational
assistance plan.
3. Cost of Living Allowances-Some companies provide their employees with yearly rice, medicine,
and clothing allowances.
4. Paid Holiday and Vacation Leaves-On top of the mandated 5 days per year leave with pay,
some companies give their employees additional paid holiday and vacation leaves. The number
 of days allocated for these leaves usually varies from company to company and depends on the
number of years an employee has been of service to the company
5. Sick Leave-Some companies grant sick leave aside from service incentive leave when an
employee cannot report for work due to illness or injury
6. Emergency/Bereavement Leave-This provides the 'employee with time off from work to plan
and attend a funeral and to deal with family matters surrounding a death.
7. Birthday Leave-. There are already companies that started giving their workers a present on
their birthdays such as giving day off during the actual birth date of the worker.
8. Healthcare/HMO Coverage-Aside from PhilHealth coverage, most companies provide
additional healthcare benefits through selected HMO.
9. Group Life Insurance-This provides lower rates for both the employer and the employee than if
they bought such insurance as individuals. Insurance coverage is not mandated but has become
such a standard benefit that most organizations elect to provide.
10. Pension Plans-These refer to the periodic payments to workers who are retired from the
company because of old age, illness, or other reasons as determined by the employer and as
provided for in the plan.

C. Executive Compensation

Types of Executive Compensation:

1. Cash Compensation-This is the sum of all standard cash salary compensation that the executive
receives for the year.
2. Long-term Incentive Plans (LTD Ps)-Long-term incentive plans encompass all compensations
that are tied to performance for tax purposes. Current tax laws favor pay for performance-type
compensation
3. Retirement Packages-These are packages given to executives after they retire from the
company. These are important to watch because they can contain so-called "golden
parachutes" for corrupt executives.
4. Executive Perks-These are various other perks given to executives, including the use of a private
jet, travel reimbursements, and other rewards.

D. Employee Services
1. Personal Services benefits such as credit union, counseling service, and legal service
2. Job-Related Services benefits such as free uniforms, food services or cafeteria, educational
subsidies or grants, and stock ownership options

All these benefits are equivalent to 30-50% of an employee's yearly wage, sometimes more. In the end,
companies who know how to take good care of their employees will have a lower employee turnover
rate than those that give no more, than government-required benefits.

The main body of labor laws and social legislation is found in the Labor Code of the Philippines
presidential Decree 442). Although employment laws are supposed to be balanced both for labor and
management, such is not the case in the Philippines. Labor laws and procedures are tilted in favor of
the worker under the social justice principle that those who have less in life should have more in law.
For this reason, employers must act with caution in hiring, supervision, imposing discipline, and firing of
workers.