Dear Atty. Joji,

Our company recently announced that the 14th and 15th month pay will no longer be provided due to the company’s current income status. Although these payments are not part of our employment contract, we have been receiving them for the past few years. Can the company legally withdraw from providing these bonuses?

Apple

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Dear Apple,

As a general rule, the granting of a bonus is a management prerogative, something given in addition to what is ordinarily received by or strictly due to the recipient. Thus, a bonus is not a demandable and enforceable obligation, except when it is made part of the wage, salary, or compensation of the employee. (Producers Bank of the Philippines v. NLRC, Producers Bank Employees Association, G.R. No. 100701, 28 March 2001)

However, the following are exceptions to the rule that the grant of a bonus or special incentive, being a management prerogative, is not a demandable and enforceable obligation, except when the bonus or special incentive is:

Made part of the wage, salary, or compensation of the employee.

Promised by the employer and expressly agreed upon by the parties.

A company’s long and regular practice.

Thus, a bonus or special incentive, such as the 14th and 15th month pays, is demandable if it is integrated into the employee’s wage, salary, or compensation. This is similar to regular allowances received by employees, which are thus considered part of their pay.

Whether or not a bonus forms part of wages depends on the circumstances and conditions for its payment. If it is additional compensation that the employer promised and agreed to give without any conditions imposed for its payment, such as the success of the business or greater production or output, then it is part of the wage. But if it is paid only if profits are realized or if a certain level of productivity is achieved, it cannot be considered part of the wage. Where it is not payable to all but only to some employees, and only when their labor becomes more efficient or more productive, it is merely an inducement for efficiency, a prize and not part of the wage. (Metro Transit Organization Inc. v. NLRC, SEAM, G.R. No. 116008, 11 July 1995)

Moreover, for a bonus to be enforceable, it must have been promised by the employer and expressly agreed upon by the parties, or it must have had a fixed amount and been a long and regular practice by the employer.

Hope this helps.

Atty. Joji Alonso