Employee Benefits and Business Owner Planning
What the domain tests
Employee benefits and business owner planning tests mandatory benefits, retirement pay, tax exemptions, and succession or continuity tools for owners.
Core rules
- Mandatory benefits include SSS, PhilHealth, Pag-IBIG, 13th month pay, service incentive leave, and retirement pay under the Labor Code for covered employees.
- Minimum retirement pay for employees without a plan: one-half month salary per year of service, where one-half month equals 22.5 days (15 days + 5 days SIL + 1/12 of 13th month).
- 13th month pay and other benefits are exempt from income tax up to P90,000 per year; the excess is taxable.
- Business owners should use buy-sell agreements, key person insurance, a succession plan, and separate personal and business finances.
Worked example
An employee receives P80,000 13th month pay and P20,000 other benefits, total P100,000. The exempt portion is P90,000; P10,000 is taxable. Reasoning: the P90,000 cap is a combined cap, not a per-benefit cap.
Traps
Treating the P90,000 exemption as per benefit; ignoring the 22.5-day formula; failing to fund a buy-sell agreement; mixing business and personal cash flow; forgetting estate tax on business interests.