In the Philippine labor landscape, the distinction between a "right" and a "privilege" often dictates whether an employee can legally demand a bonus or incentive. While the Labor Code provides a baseline for compensation, much of what constitutes "extra" pay falls under the categories of management prerogative, contractual obligation, or established company practice.
1. The General Rule: Management Prerogative
As a general principle, the grant of a bonus is a management prerogative. It is an act of generosity by the employer and is not a demandable enforceable obligation.
Under Philippine jurisprudence, a bonus is an amount granted to an employee for their industry and loyalty which contributed to the success of the employer's business. Because it is essentially a "gift," an employer cannot be compelled to pay it if the company is experiencing losses or if the conditions for the bonus have not been met.
2. When Bonuses Become Demandable
A bonus or incentive ceases to be a mere "gift" and becomes a legal obligation in the following instances:
- Contractual Stipulation: If the bonus is specifically written into an Employment Contract, a Collective Bargaining Agreement (CBA), or an appointment letter without any qualifying conditions (like "subject to company performance").
- Company Policy: When the incentive is part of a written policy or employee handbook that creates a reasonable expectation of payment upon fulfillment of certain criteria.
- Established Company Practice: Under the principle of Non-Diminution of Benefits, if a bonus has been given consistently over a long period (usually years) and has become a matter of "usage" or "practice," the employer may be barred from unilaterally withdrawing it.
3. The 13th Month Pay vs. Bonuses
It is crucial to distinguish between discretionary bonuses and the 13th Month Pay.
| Feature | 13th Month Pay | Discretionary Bonus |
|---|---|---|
| Legal Basis | Presidential Decree No. 851 | Management Prerogative/Contract |
| Mandatory? | Yes, for all rank-and-file employees | No, unless stipulated/practiced |
| Requirement | Must have worked at least 1 month | Depends on company criteria |
| Computation | 1/12 of the total basic salary earned | Varies (Fixed or Performance-based) |
4. Productivity Incentives
The Productivity Incentives Act of 1990 (Republic Act No. 6971) encourages business enterprises to establish productivity incentives programs.
- Voluntary Nature: These programs are generally voluntary and result from a mutual agreement between the Labor-Management Committee and the employees.
- Tax Incentives: Employers who provide these incentives are entitled to special tax deductions, provided the program is ratified by at least a majority of the employees.
5. Performance-Based Incentives (KPIs)
Many modern Philippine workplaces use Key Performance Indicators (KPIs) to determine incentives.
Legal Note: If an employee meets the specific, objective criteria set out in a performance-based incentive scheme, the employer is legally obligated to pay that incentive. Failure to do so may be considered a breach of contract or an illegal deduction from wages.
6. The Principle of Non-Diminution of Benefits
Article 100 of the Labor Code protects employees from having their existing benefits reduced or eliminated by the employer. For a bonus to fall under this protection, it must meet the following criteria:
- The benefit is given to the employees consistently and deliberately.
- It is not dependent on a specific condition (like reaching a profit target) unless that condition is met.
- The practice has been consistent over a considerable period of time.
7. Pro-Rata Entitlement
If an employee resigns or is terminated before the scheduled distribution of a bonus, are they entitled to a pro-rated share?
- 13th Month Pay: Yes, pro-rated payment is mandatory regardless of the reason for separation.
- Other Bonuses: Generally, no, unless the company policy or contract specifically allows for pro-rated bonuses. If the bonus is tied to "being an active employee at the time of payout," a resigning employee typically loses the entitlement.
Summary of Legal Recourse
If an employer fails to pay a bonus that has become a demandable right (via contract or long-standing practice), the employee may file a money claim with the National Labor Relations Commission (NLRC) or the Department of Labor and Employment (DOLE). The burden of proof lies with the employee to show that the bonus was not merely discretionary but had become a part of their regular compensation package.