THE Revenue Memorandum Circular (RMC) 105-2019 was issued in order to clarify the proper tax treatment of salary differential to be paid by the employer in favor of female workers in the private sector, in agreement to Republic Act (RA) 11210, the “105-day Expanded Maternity Leave Law.”
The provisions of Section 5 (c) of RA 11210 specify that:
— Workers availing of the maternity leave period and benefits must receive their full pay.
— Employers from private sector must be responsible for payment of the salary differential between the actual cash benefits received from the Social Security System (SSS) by the covered female workers and their average weekly or regular wages, for the duration of the maternity leave.
The provisions of Section 2 under the Implementing Rules and Regulations (IRR) of the said Act together issued by the Civil Service Commission, Department of Labor and Employment (Dole) and SSS specify that:
— Employed female workers must receive full pay which consists of:
- SSS maternity benefit computed based on their average daily salary credit; and
- salary differential to be paid by the employer, if any.
Under IRR, the term “full pay” is defined under section. 1.j. of Rule II as:
“j. Full pay refers to actual remuneration or earnings paid by an employer to a worker for services rendered on normal working days and hours not lower than the wage rate fixed by the Regional Tripartite Wages and Productivity Board including allowances provided for under existing company policy of collective bargaining agreement, if any. Full pay in the public, on the other hand, includes the basic salary and allowances as may be provided under existing guidelines.”
The SSS issued Circular 2019-009, otherwise known as, “Guidelines on the Payment of the Maternity Benefit Effective March 11, 2019 prescribing Section 4 on salary differential,” to all employers and female members stating that:
“Employers from the private sector shall pay for the difference between the full salary and the actual cash benefits received from SSS, xxx”
Also, the Dole issued its own Department Advisory 01, “Guidelines on the Computation of Salary Differential of Female Workers During Her Maternity Leave and its Criteria for Exemption Pursuant to RA 11210 and its Implementing Rules and Regulations,” specifying the following provisions under Item II. Computation of salary differential:
“The employer shall pay the salary differential between the full salary of female worker during her maternity leave and the actual cash benefits received from the SSS, xxx”
However, Section 2.78.1 (B)(1)(e) under Revenue Regulations (RR) 2-98, prescribes the following salary received by an employee as an incident of employment that is exempt from withholding tax:
“(e) Payments of benefits made under the SSS Act of 1954, as amended:”
Accordingly, for purposes of determining whether salary differential is taxable or not, there is a need to resolve whether or not “salary differential” is considered as a benefit under the SSS Act of 1954, as amended.
Prior to these recently issued SSS Law, Section 14-A of RA 8282, which amends RA 1161, otherwise known as the Social Security Law issued on June 18, 1954, a female member is entitled to a daily maternity benefit equivalent to 100 percent of her average daily salary credit for 60 days or 78 days in case of caesarean delivery.
The term “average daily salary credit” is defined under Section 8 of the same law as the result obtained by dividing the sum of the sic (6) highest monthly salary credit in the 12-month period immediately preceding the semester of contingency by 180.
However, based on the mentioned provisions of the new law, the implementing joint IRR and the respective issuances of SSS and Dole, the maternity benefit of the female worker has been expanded from the previous 100 percent of the average daily salary credit to a full pay or salary which included now the salary differential as its component, aside from the added duration of the maternity leave. Accordingly, it is therefore clear that salary differential is considered as a benefit.
Moreover, since the provisions of Section 2.78.1(B)(e) under RR 2-98 do not provide any qualification in granting tax exemption on payments of benefits under SSS law, the salary differential is exempt from income and withholding taxes.
Please be guided accordingly.
P&A Grant Thornton