Taxwise Or Otherwise
By Renz Anthony K. Boaloy
Republic Act (RA) No. 11210, or the Expanded Maternity Leave Law, was signed by President Rodrigo R. Duterte on Feb. 20. Female workers in the private and public sectors can now enjoy a total of 105 days’ paid maternity benefit for live childbirth, regardless of the mode of delivery, with an option to extend for another 30 days without pay. Qualified solo parents are entitled to an additional 15 days’ paid leave. The law also provides 60 days’ paid leave for miscarriage and emergency termination of pregnancy.
Apart from the expanded 105 leave days, another significant improvement in the law is payment of salary differential. Female workers in the private sector shall now receive full pay which consists of the SSS maternity benefit based on their average daily salary credit plus salary differential to be paid for by the employer, if any.
The salary differential represents the difference between the SSS benefits and the employee’s basic pay; an amount to be shouldered by the employer. This ensures that the employee still receives the equivalent of her full pay while on maternity leave.
EXEMPTIONS TO PAYMENT OF SALARY DIFFERENTIAL
Nonetheless, certain enterprises may be exempt from the payment of salary differential upon submission of proof and other necessary documents to the Department of Labor and Employment (DoLE). These include: 1. Retail/service establishments and other enterprises employing not more than 10 workers; 2. Micro-business enterprises and those engaged in the production, processing, or manufacturing of products or commodities including agro-processing, trading, and services under the Barangay Micro Business Enterprises Act of 2002, whose total assets do not exceed P3,000,000; 3. Enterprises already providing similar or higher benefits under an existing Collective Bargaining Agreement (CBA), company practice or policy; and 4. Operating distressed establishments.
The law provides the criteria for distressed establishments. In the case of a sole proprietorship or partnership or non-stock, non-profit organizations, this is when the accumulated net losses for the last two full accounting periods immediately preceding the application for exemption amounts to 20% or more of the total invested capital, fund balance or member’s contribution at the beginning of the period under review or when the enterprise registers capital deficiency. For a corporation or cooperative, it’s when the actual net loss amounts to 25% of total assets or when the corporation/cooperative registers capital deficiency. In the case of banks and quasi-banks, it’s when there is a certification from the Bangko Sentral ng Pilipinas that it is under receivership or liquidation as provided in Section 30 of RA 7653, otherwise known as the New Central Bank Act.
To continue enjoying the exemption, employers must annually submit their justifications for the approval of DoLE.
GUIDELINES FOR COMPUTING SALARY DIFFERENTIALS
For easy reference, below are the step-by-step guidelines for calculating the salary differential:
1. Compute the amount of full pay based on the following formula:
Full pay = [(daily rate x factor rate)/12 months] x maternity period in months
Assuming the company adopts a working period of six days with one rest day in a week, the employer’s factor rate is 313. The calculation, however, will differ for companies using other factor days.
For our example, assuming a daily rate of P1,500; Factor rate of 313 days; and Maternity Leave of 105 days = 3.5 months, the full pay would thus be P136,937.50 = [(P1,500 x 313 days)/12 months] x 3.5 months.
2. Ascertain the employee’s premium contribution share for SSS, Philippine Health Insurance Corp.(PhilHealth), and Home Development Mutual Fund or Pag-IBIG covering the maternity period.
Based on the compensation in our example, the total employee share in the contributions would be P5,075. This consists of P2,800 for SSS, P1,925 for PhilHealth, and P350 for Pag-IBIG.
3. Determine the amount of SSS maternity leave benefit based on the prescribed formula and computation of the SSS:
SSS maternity benefit = [(monthly salary credit x 6)/180] x 105 days
Following our example, the monthly salary credit would be P20,000. Thus, the total SSS Maternity Benefit would be P70,000 = [(P20,000 x 6)/180] x 105.
4. Deduct the amount of SSS maternity leave benefit from the amount of full pay, net of social contributions.
In our example, the salary differential would be P61,862.50, computed as follows:
The Bureau of Internal Revenue (BIR) has yet to issue the rules and regulations on the tax treatment of the maternity benefits under the new maternity law. Nonetheless, based on the laws, I believe the salary differential will be treated as taxable income of the female worker and will be included in the basic pay for purposes of computing the 13th month pay. The income tax exemption under Section 32 of the Tax Code only covers the SSS maternity benefits, i.e., the amount reimbursed by SSS to the employer. Unfortunately, there is nothing in the Expanded Maternity Leave Law or the Tax Code that provides for tax exemption of the salary differential.
It is worth mentioning also that with the new maternity benefits computation, the female employee can continue to pay her social contributions with SSS, PhilHealth, and HDMF without interruption.
With the enactment of RA 11210, mothers can fully enjoy their right to health and decent work. By protecting and promoting the welfare of women, the law accords ample transition time for mothers to regain good health and overall wellness before returning to work. The additional maternity leave of 27 to 60 days grants an opportunity for mothers to nurture and bond with their newborn, fundamental in creating a caring environment within the Filipino family.
When we stop to reflect how far mothers go to sacrifice their lives in protecting their children, we then realize that extended maternity leave is long overdue. It’s the least benefit society can provide for the most selfless person in the family.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Renz Anthony K. Boaloy is a manager with the Client Accounting Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.
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