In the Philippine employment landscape, the distinction between what is "discretionary" and what is "mandatory" often forms the crux of legal disputes. While the Labor Code of the Philippines establishes a baseline for worker protection, the nuances of bonuses and incentives are shaped heavily by Supreme Court jurisprudence and Department of Labor and Employment (DOLE) regulations.

1. The 13th Month Pay: The Only Mandatory Bonus

Under Presidential Decree No. 851, the 13th-month pay is the only bonus strictly mandated by law for all rank-and-file employees, regardless of their designation or the method by which their wages are paid.

Eligibility: Employees must have worked for at least one (1) month during the calendar year.
Calculation: The minimum amount is 1/12 of the total basic salary earned by an employee within a calendar year.
Deadline: It must be paid on or before December 24 of every year.
Exclusions: "Basic salary" typically excludes overtime pay, night shift differentials, holiday pay, and unused vacation/sick leave cash conversions, unless these are integrated into the basic salary by company practice or agreement.

2. Discretionary vs. Non-Discretionary Bonuses

Outside of the 13th-month pay, bonuses are generally considered gratuities—acts of generosity by the employer. However, a discretionary bonus can become a legal obligation under two conditions:

A. Contractual Obligation

If a bonus is stipulated in an Employment Contract, a Collective Bargaining Agreement (CBA), or an established Company Policy, it becomes an enforceable right.

B. The Principle of Non-Diminution of Benefits

Under Article 100 of the Labor Code, benefits granted to employees cannot be unilaterally withdrawn or reduced by the employer. For a bonus to be protected by this principle, it must meet the following criteria:

It has been given over a long period (usually years).
It is given consistently and deliberately.
It is not dependent on a specific condition (like hitting a profit target) that has not been met.

3. Performance-Based Incentives and Productivity Incentives

The Productivity Incentives Act of 1990 (Republic Act No. 6971) encourages business enterprises to establish productivity incentives programs.

Voluntary Nature: These are generally voluntary and result from a mutual agreement between the Labor-Management Committee.
Tax Incentives: Employers who provide such incentives may be entitled to a special tax deduction from their gross income equivalent to 50% of the total productivity bonuses given to employees.
Performance Metrics: Unlike the 13th-month pay, these can be tied strictly to Key Performance Indicators (KPIs), company revenue targets, or individual output.

4. De Minimis Benefits and Tax Implications

To optimize employee take-home pay, many employers utilize "De Minimis" benefits. These are small-value facilities or privileges offered by an employer for the promotion of health, goodwill, or efficiency.

As per BIR Revenue Regulations, common De Minimis benefits include:

Rice subsidy (up to ₱2,500/month).
Uniform and clothing allowance (up to ₱6,000/year).
Laundry allowance (up to ₱300/month).
Medical cash allowance to dependents (up to ₱1,500/semester or ₱250/month).
Achievement awards (in the form of tangible personal property, not cash).

Note: Bonuses and benefits (including 13th-month pay) are tax-exempt up to a combined ceiling of ₱90,000 per year. Amounts exceeding this threshold are subject to regular income tax.

5. Bonuses Upon Resignation or Termination

A common point of contention is whether a resigned or terminated employee is entitled to a pro-rated bonus.

13th Month Pay: Always pro-rated. An employee who resigns or is terminated before December is entitled to the 13th-month pay in proportion to the time they worked during that year.
Discretionary Bonuses: Generally, if the bonus is conditioned on "being employed at the time of payout," a resigned employee loses the claim unless company policy or CBA states otherwise. However, if the bonus was already "earned" (e.g., a performance bonus for a period already completed), courts often rule in favor of the employee.

6. Management Prerogative

Employers retain the "Management Prerogative" to regulate all aspects of employment. This includes the right to limit or withhold bonuses based on:

Financial Losses: If the company is experiencing dire financial straits, it may justify the non-payment of non-mandatory bonuses.
Employee Discipline: While you cannot withhold 13th-month pay as a penalty, other discretionary incentives can be tied to an employee’s disciplinary record or attendance.

Key Takeaway: While the law mandates very little beyond the 13th-month pay, "Company Practice" is a powerful legal concept in the Philippines. Once a bonus becomes a regular part of the compensation package through habit or contract, it transitions from a gift to a demandable right.