Salary Differential

Salary Differential under the New Law

On February 20, 2019, President Rodrigo R. Duterte signed an act (R.A. 11210) increasing the maternity leave periods from 60 and 78 days to 105 days with pay regardless of mode of delivery for live childbirth with an option to an additional 30 days without pay. In case of miscarriage or emergency termination of pregnancy, the law provides 60 days maternity leave with pay. If the female employee is a solo parent, the law also provides an additional 15 days maternity leave with pay in addition to the previously stated leave periods.

Female employees from private sectors availing the maternity leave shall receive SSS maternity benefit based on the prescribed computation of SSS itself and the salary difference, if any, between the average regular wages rate for the entire duration of maternity leave and SSS benefits. The employer of the availing worker is required by the law to pay the salary differential with the following exceptions, subject to the guidelines to be issued by the Department of the Labor and Employment (DOLE):

  1. Those operating distressed establishments;
  2. Those retail/service establishments and other enterprises employing not more than ten (10) workers;
  3. Those considered as micro-business enterprises and engaged in the production, processing, or manufacturing of products or commodities including agro-processing, trading, and services, whose total assets are not more than Three million pesos (₱3,000,000.00); and
  4. Those who are already providing similar or more than the benefits herein provided.

Here are the steps on how to compute salary differential:

  1. Compute the total maternity benefits.

    For monthly wages
    Total benefits = monthly rate x maternity period in months [1]

    For weekly wages
    Total benefits = ((weekly rate/no. of working days in a week [2]) x no. of working days in a month[3]) x maternity period in months [1]

    For daily wages
    Total benefits = (daily rate x no. of working days in a month [3]) x maternity period in months [1]

  2. Deduct the actual amount of SSS maternity benefits received by the female employee.
  3. Deduct the total mandatory government contributions of the female employee for the entire maternity period.

    1. As provided in Article 13 of the Civil Code of the Philippines, a month shall be understood as thirty (30) days.
    2. As provided in Article 91 of Labor Code of the Philippines, the normal working days in a week is six (6) days.
    3. Since a month is understood as thirty days (30) days, the number of weeks in a month is 4.3 weeks (30/7). And by multiplying the number of weeks in a month to the normal working days in a week (4.3 x 6), the total normal working days in a month is twenty six (26) days.

To summarize:

Total Maternity BenefitsXXXX
Actual SSS Benefits(XXXX)
Gov’t Contributions(XXXX)
Salary differential(XXXX)

Given the longer leave, female employees can continue to pay their mandatory government contributions without interruption by deducting such from the salary differential or what was agreed by the employer and female employee.

Since the new law has been expanded from the SSS maternity benefits to full pay or salary which includes now the salary differential as its component, it is clear that the salary differential is part basic salary which will be part of the gross income of the female employee as per Sec. 32 (A) (1) of the National Internal Revenue Code (NIRC) and included in the computation of 13th month pay as per Department Advisory No. 01-2019 of DOLE. The question now is the taxability of the salary differential. To clarify such tax treatment pursuant to the new law, the Bureau issued Revenue Memorandum Circular (RMC) No. 105-2019. This circular hereby ordered that the salary differential is exempt from income tax and likewise from withholding taxes. The SSS maternity benefits remain excluded from the computation of 13th month pay and from the gross income of the female employee as per NIRC Sec. 32 (B) (6).

Under this new law, the female employees can fully enjoy an ample transition time to regain health and overall wellness as well as to assume maternal roles before resuming paid work and give opportunity to form bonds with their newborn as it’s the fundamental for creating firm Filipino family.