Legal Opinion On Minimum Wage Earners Imposition of Tax
Legal Opinion On Minimum Wage Earners Imposition of Tax
:
SUBJECT
The Legal Department renders an opinion on the main issue of: WHETHER
OR NOT KMBI SHOULD ADJUST THE TAX TREATMENT OF THEIR
NEWLY HIRED EMPLOYEES FOR THE TAXABLE YEAR 2015.
This issue sprouts from the conflicting claims of some employees of KMBI
and the Human Resource Department about the taxability of minimum
wage earners. The employees who were employed from March-July 2015
and then again from September 2015 with continues employment until
June 2016, complains that since they are receiving their salary as minimum
wage earners they should be exempted from the payment of the income
tax. The Human Resource Department, on the other hand, opposes this
view by asserting that the said employees are earning 1.14% more than the
prescribed daily minimum wage which effectively puts them out of the ambit
of tax exemption.
Analyzing these conflicting issues however, the Legal Department believes
that there is a misapplication of the appropriate laws on the taxability of
daily paid employees. Hence, it thinks that the organization should adjust
the income tax treatment of the subject employees for the taxable year
2015 until the end of their employment contract.
Nevertheless, for broader perspective, this opinion still hopes to aid the
organization in the future in its interpretation of pertinent tax and labor law
provisions on minimum wage earners.
Going back to the facts of this case, the following sub-issues should be
considered in the settlement of the parties conflicting positions:
1. Whether or not the subject employees are minimum wage
earners thus exempted from the payment of the income tax;
2. Whether or not the Human Resources Department applied the
applicable legal provisions correctly in assessing the taxability
of the subject employees;
I.
The first issue to be touched is whether or not the subject employees are
minimum wage earners thus exempted from the payment of the income
tax.
This argument is based mainly on the routinary treatment of the said
employees ever since from the beginning of their employment last March
2015. At the back of their minds they have been constantly told that they
are minimum wage earners. Who can actually blame them if even their
payslips as attached in this document would even show the basis of this
treatment.
The question now is, are they correct?
The Legal Department begs to disagree. They are not minimum wage
earners.
Minimum wage earners refer to a worker in the private sector who are
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 non-agricultural sector where he/she is assigned." (Sec. 1, R.A. 9504).
Statutory Minimum Wage, on the other hand, refers 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 (Revenue Regulation 10-2008, Sec. 1 [B]).
These definitions provide parameters for the proper meaning of minimum
wage earner.application of tax laws to an employees income.
In the instant case, the
481
261 days
125, 541.00
12
Php 10,461.75
Php 10,582.00
Multiply
12
months
Annual Earnings
Divided by No. of
paid days/year
Daily Rate
12 months
126, 984.00
261
Php
486.52
(Above minimum
rate 1.14%)
As explained by the HRD in an internal letter with to the Legal Department
for the clarification of this issue, they articulated that using the 261 days as
mentioned above, the resulting equivalent number of working days in a
month equals to 21.75 and that for practical reason, KMBI rounded it off to
22 days per month since 2008. They further said that in effect, KMBIs
salary entry rate (minimum/baseline) which is Php 10, 582.00 is technically
over and above the minimum daily wage by 1.14%. They also said that as
per appointment paper issued to our concerned employees, the monthly
salary reflected is Php 10, 582.00 and not the daily rate of Php 481.00.
Finally they concluded, that based on the above explanation, the
employees concerned are considered not a minimum earner primarily
because:
1) Their equivalent monthly rate of Php 10,582.00 is over and above the
equivalent monthly rate of daily wage earner which is Php 10, 461.75;
2) The treatment for the concerned employees are monthly earners not
daily wage earners.
The position of the HRD is based only on one argument: the employees
concerned are taxable because they are not minimum wage earners.
Unfortunately, the LD thinks that this position poses several conflicts in tax
regulations. Judging from the position of the HRD, the main sub-issue in
this case that should be addressed is whether the formula used by our
organization in computing the taxable wage for the concerned employees is
in accordance with the minimum wage law and regulations.
The Legal Department has a different view on the matter. It is in a position
that in the computation of the HRD it violates the provisions of Revenue
Regulation 10-2008, the primary tax regulation governing the exemption
from income tax of minimum wage earners.
Primarily under Section 2 of the said regulation where the provision for the
computation of wages is explained, it states there that in the determination
of the minimum wage on a monthly basis, the withholding agent shall be
guided by the prevailing minimum wage as reflected in the latest Matrix of
Wage Order and its own policy on whether employees are (a) not
considered paid on Saturdays and Sundays or rest days, (b) not
considered paid on Sundays or rest days, (c) considered paid on rest days,
special days and regular holidays, or (d) required to work everyday
including Sundays or rest days, special days and regular holidays. The
resulting number of days in the above enumerated categories are referred
to as the factor or number of working/paid days in a year.
Now, it appears that there is a contradiction
Whether or not the increase is significant
Whether or not the elimination of the salary difference and reverting it to the
minimum wage is against the Law
Art. 100. Prohibition Against Elimination or Diminution of Benefits- Nothing
in this Book shall be construed to eliminate or in any way diminish
Sincerely,
HENDRICK CARLO C. GARCIA
Legal Assistant
Noted by:
MAYLANIE D. APAWAN
Legal Services Office Manager
The 481 has a specific application in the law
It uses 261 days as a factor not 264
That is why 10461 is divided by 21.75 equals to 481
But if we are going to use 22 for 10461 which uses the 481 daily rate
The resulting number would be only 475.5
That is why we do not use 481
Why not 22 on a 481 because the law specifies that 481 has a specific
factor which is 21.75 which is equivalent to 261
The proper way of computing should be why not 481 on a 22 because it
has been specified that what should be used is 21.75 which is equivalent to
261
That is why10,461 uses 21.75 as a divisor which is equivalent to 481
If we use 22 as a divisor to 10461, it will result only to 475.5 which is below
the minimum wage rate.
So as a conclusion, the 481 has a specific factor which is 261 as provided
by revenue regulation 10-2008
So what should be done?
If we are going to use 22 as a factor the minimum duly wage for daily paid
workers should be above 481.
Let us say it is 482 for instance.
The computation would be as follows:
482 x 22 = 10,604
Now let us determine if this is above the minimum wage
10, 604 x 12= ? / 261= 487.54
What about the 10582 salary?
1.
2.
3.
4.
In all these cases, the grant of benefits has been held to have
ripened into company practice or policy which cannot be
peremptorily withdrawn.
1.
http://www.bir.gov.ph/index.php/registrationrequirements/primary-registration/application-for-tin.html#one
https://www.scribd.com/doc/81916268/New-Income-Tax-ReturnBIR-Form-1701-November-2011-revised
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http://www.philippinecpa.com/2011/06/withholding-tax-rr-298.html
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