I received this question in my inbox today:
Hi Ed,
We want to convert some earnings of our employees to de minimis benefits in order for them to have a bigger take home pay. Is it possible to just make the policy and procedures and implement or do we need particular tax documentation because certainly, the withholding tax to be paid would be less than what was previously remitted.
Any input would be highly appreciated.
Regards,
Cutie
Cutie, if my understanding is correct, you want to DECLARE EXISTING benefits as de minimis benefits because they are not taxable, is this correct?
The finance manager of one of my clients wanted to do the same thing and I stopped him for two major reasons:
1. It's not legal, therefore... it's illegal, nuff said.
2. Even if it's legal, it's not a good idea because it defeats the purpose of giving these benefits for people to appreciate and enjoy.
What I did with ExeQserve and another company that outsourced their HR to us is take advantage of the tax-free benefit provisions by offering them as is. This means that ExeQserve Employees are enjoying meal allowance,clothing allowance, rice subsidy, laundry allowance, medical expense reimbursement and communication allowance exactly within the limits and instruction provided by the law. These make them happy ( I hope!)
What I did was offer these on top of their regular salaries and benefits (i.e., service incentive leaves, HMO, group insurance and performance based incentives). This makes their compensation a little bit more competitive compared to others who don't enjoy the same set of benefits.
So what's my recommendation? My recommendation is that you follow my example or if you intend to save and then at the same time give your employees more, offer to give them the tax-free benefits as a reward in their next salary review instead of giving the conventional salary adjustments. That's the legal way. It also reflects that your company offers competitive benefits package.
Hope this helps.
P.S. keep receipts!
27 Leave a Comment:
Great post! interesting topic, thanks for sharing.
Fat Binder
Really awesome blog. I enjoyed reading this review from you. I found that you really update your site regularly that made me more interesting. I've bookmarked your site for my future use.
Thank you
sagar
Download free CSS templates
Hi. I read your piece and it hit me. Our company is doing the very opposite of what you recommend. In lieu of the fixed monthly allowance (or part of it), the ff allowances shall apply:Rice allowance(1000), Laundry(300), clothing(2400) and christmas cash gift allowance(5000). I, for example, was given 1,800 allowance when i was regularized,this means, I am only entitled for rice allowance and laundry. This also means that these deminimis benefits are not on top of the beneifits. I'd like to know your take on this. Thanks.
@anonymous, I don't think your company is doing the opposite of what I recommend here.
There is no minimum to what your company can give you in terms of de minimis benefits. This means that your employer may give you all the de minimis benefits at lower rates. In one of my clients, there are two levels of de minimis benefits, one when the person is regularized, another level which is the maximum allowed by law is given after an employee worked in the company for one year.
A fixed allowance is part of a compensation scheme and should be taxable after hitting the maximum allowed by law. An employee may or may not have fixed allowances. The law does not require company to pay it. If a company gives de minimis allowances but does not give fixed allowances, they do not violate anything. If they do not give any allowances at all, they do not violate anything either, because it is not mandated by law. These benefits are given to attract talents, not to comply with the law.
My issue with the inquiry in this post is their intention to convert already existing compensation to de minimis benefits to avoid tax payment. That to me is circumventing the law. Unless your company did the same thing, I don't think they did anything wrong.
We too are planning to do it that way, to extract part from our regular pay certain amount for the de minimis benefits. The reason for this is to lower our withholding taxes upon learning this recently. But the basis for our premiums, 13th month and retirement pay will still be the gross amount before the de minimis benefit. Is this possible? our employees agreed on this when we float this plan. Hoping for your immediate response on this matter, thank you very much and more power!
@St. John the Evangelist, If you are talking about converting existing compensation and turn them into de minimis benefits for tax reduction purposes, I'm not sure about the legality of that. It can be a tax audit issue against you. This is because, if you convert parts of people's salaries into de minimis benefits, you will suddenly be reporting lower salaries for them. Your tax auditor might wonder what happened. I'm not an expert on taxes or the law so you might want to do more research on this. If what you want to do is offer de minimis benefits instead of salary increase in the near future so you can take advantage of the tax free feature of these benefits, then that I believe is perfectly legal.
we are also planning to practice what st. john evangelist do. we have no plans to increase the salaries of employees but we want to lower their compensation tax. however, we cannot implement the said policy because we are still reviewing all the implications of this action. We are not expert in tax. want to ask from you if what particular revenue regulation will apply for this.
Hi. Sir Ed, are there tax documentations required or clearance from BIR before you could provide the De Minimis benefits to employees? Thank you.
@nguerra, no need for clearance from BIR prior to implementation.All you need to do is report the details of your de minimis benefits expenses so that they will not be taxed.
Sir, I also have a question regarding this.We,as regular employees,are given P5,000.00 allowances per month,that is,P60,000.00 per year.This allowances covers subsidy for rice, medical, laundry and others but we do not claim tax exemption for de minimis benefits.Under the law, P30,000.00 of fringe benefits are exempt from tax.Can we still avail tax exemption for de minimis benefits on the other P30,000.00? PLease help...
hi! interesting discussion! can i also ask some question about de minimis? Is it true that the total coverage for a de minimis to be nontaxable is P30,000.00 annual? what i mean is if you will add all the specifically enumerated in the regulations (RR 8-00, as amended) like rice allowance of P1,500 a month, uniform allowance of P4,000 a year, cash gift of P5,000 a year under certain condition, medical allowances, laundry allowance, etc., this should be P30,000.00 for a year,in excess is will be taxable?
hope you can answer my query asap..
thank you very much!!!
On questions regarding limits of de minimis benefits, my answer is this; there are specific limit per de minimis benefit that if one exceeds the limit it ceases to be de minimis and shall be considered fringe benefits which will become taxable if cumulatively they exceed the 30K limit set by the government (at least that's how I understand it but do not take my word for it. Do more research. Taxation is not one of my strengths). Here's a very useful information I gathered from a Punongbayan and Aroullo that I suggest you read: De Minimis Benefits
Hi was looking for a while in the internet for the regulation about de minimis, also on the BIR HP, what is the latest version and where can i find the download? Thanks
Can I ask regarding this de minimis benefits and their relationship with ROHQ? IF ROHQ employees are subject to preferential 15% on gross income, would they be still required to provide receipts for their medicine allowance of P10,000 ( as stated in the de minimis ruling)? Thanks.
I've just received a salary increase. When I saw my payslip, the increase seems to be identified as an allowance and de minimis on top of my basic pay. I don't enjoy such benefits before. Do you think the increase is just? Thanks
I'd ask HR for clarification if I were you. Let's say that they decided to declare your salary increase as de minimis benefit, it means that they are shielding you from paying taxes from the salary increase that you are supposed to get so you can enjoy the full amount. A salary increase is a salary increase.
hi sir Ed, i just want to ask if HMO benefit paid by our employer for us is part of the de minimis, or is it part of the 30,000 ceiling? thanks
@Mark, Companies report this as part of their operating expense. Employees are usually not taxed because of this. I'm not a tax expert so I'm not sure if it's being treated right. If the tax auditor doesn't mind then I'm ok with it :) So, it's not a de minimis benefit and also not part of the 30,000.00 ceiling.
Ed, I wish to know what are the legal/allowed documents that one should submit for the medical allowance considering that we have an HMO?
Thanks
Lanie
We are a BPO company and we're planning to upgrade the benefits of our employees esp for tenure people (5yrs & up). One of the recommendations is giving loyalty reward to those who are in the company for more than 5yrs. Is this advisable? Does other small company offered this benefit? Aside from HMO, VL,SL, BL, what else can you add to our current benefits package.
Thanks!
may i ask is there a new law that stipulate all De minimis benefits are subject to tax from clothing allowance to meal allowance and all other benefits. in other words, disregard of what kind of benefits was given all compensation is subjected to 32% tax as informed by our employer thru a Memo dated September 2011?
Hello Ed,
Can you help me divide our current de minimis allowance and provide suggestions on how to allocate it? we currently have 5,000 monthly de minimis and we would like to divide it based on the allowable amount. Im thinking of Rice Subsidy and Travel Allowance.
Another thing is, if we were to multiply 5k to 12 months, that would sum up to 60k. Would this mean that in excess of the first 30k will be taxable?
I think 5K a month is more than the limit for de minimis allowance. There is a limit for every item. Check out this link for the latest update on this rule: ftp://ftp.bir.gov.ph/webadmin1/pdf/56846RR%205-2011.pdf
Hi-
Is it possible to have an allowance bigger than the salary?
I'm struggling with these points:
-I want to give my employees as much allowance as I could (even if it will cost 30k/month) So now, it is not possible to do it because of the allowance cap.
-Since I couldn't do the one above, I want to know if I could give the 30k as an incentives/bonuses?
Thanks for your help.
-shine
I am not very sure, shine, but I don't think there is a cap for allowances. If you mean cap in terms of non-taxable allowance, yes there is a cap and that is 30K total per year and not per month. If the allowances you give your employees go higher than that, they get taxed. You can definitely give your 30K as incentives or bonus but they will be taxed as well if that's what you are avoiding. If you are not avoiding it, then you shouldn't have any problem. I hope I answered your question.
Hello Sir Ed,
Just found out your blog this morning. I just want to ask, how much is the maximum amount of allowances of each employee (eg. Rice allowance, clothing, meal, uniform, medical) and also the maximum number of leave days per year.
Appreciate your feedback and thank you in advance. More power!
Post a Comment