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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

AT A GLANCE

• As a general rule, the giving of a bonus is not a demandable right of an employee. It is a benefit given ex-gratia by an employer because the latter recognizes the efforts given by his employees which ultimately generated the increase in the profits earned by the employer. It is a reward for a job well done given to employees. However, it must be noted that the giving of bonus is a management prerogative, it depends on the will of the employer. An employee may have contributed for the success of the business but it does not mean that he will automatically receive a bonus for his great job performance. It is still up to the employer whether or not he is willing to give such bonus. It is a privilege, not a right, to receive a bonus. An employee cannot demand to his employer to give him a bonus every time he does a great job. It is part of an employee’s job to do his best, and deliver satisfactory work.
  

Bonus is an extra amount of money given as a reward to employees by reason of satisfactory work performance. It may be in a form of mid-year bonus, performance-based bonus, or Christmas bonus. Bonuses are a great tool to boost the work attitude of employees for them to improve their work performance making them more competent. Also, employees look forward to receiving bonuses as a reward for their hard work, and commitment to their job. However, is bonus a demandable right of an employee?

As a rule,  bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the success of the employer’s business and made possible the realization of profits. It is an act of generosity of the employer for which the employee ought to be thankful and grateful. It is also granted by an enlightened employer to spur the employee to greater efforts for the success of the business and realization of bigger profits. And the occasion for its grant and payment is usually during the time of the year when people are more generous and inclined to give (Philippine Education Co., Inc. v. Court of Industrial Relations, et.al., G.R. L-5103, dated December 24,1952).

By definition, a “bonus” is a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right. It is something given in addition to what is ordinarily received by or strictly due the recipient. The granting of a bonus is basically a management prerogative which cannot be forced upon the employer who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the employee’s basic salaries or wages, especially so if it is incapable of doing so (Manila Banking Corporation v. NLRC et.al., G.R. 107487, dated September 29,1997).

As a general rule, the giving of a bonus is not a demandable right of an employee. It is a benefit given ex-gratia by an employer because the latter recognizes the efforts given by his employees which ultimately generated the increase in the profits earned by the employer. It is a reward for a job well done given to employees. However, it must be noted that the giving of bonus is a management prerogative, it depends on the will of the employer. An employee may have contributed for the success of the business but it does not mean that he will automatically receive a bonus for his great job performance. It is still up to the employer whether or not he is willing to give such bonus. It is a privilege, not a right, to receive a bonus. An employee cannot demand to his employer to give him a bonus every time he does a great job. It is part of an employee’s job to do his best, and deliver satisfactory work.

However, there are exceptions to the afore-stated general rule. The granting of a bonus may become a right of an employee that can be demanded and enforced against the employer under any of the following circumstances:

1. When it is stipulated in an employment contract or Collective Bargaining Agreement (CBA);
2. When the grant of bonus is a company policy or practice; or
3. When it is granted as an additional compensation which the employer agreed to give without any condition such as the success of business or more efficient or more productive operation, and thus, must be deemed part of the wage or salary.

As for the first exception, a bonus becomes a demandable right if it is stipulated in the employment contract of an employee, or in the CBA agreed upon by a legitimate labor organization and the employer. As a rule, a contract entered into by parties become the law between said parties, and they are obliged to comply in good faith with its provisions. When the grant of bonus is integrated in the CBA, it is no longer just a mere act of generosity on the part of the employer, but becomes a contractual obligation that the latter must undertake.

With regard to the second exception, to be considered a “regular practice,” however, the giving of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate.The test or rationale of this rule on long practice requires an indubitable showing that the employer agreed to continue giving the benefits knowing fully well that said employees are not covered by the law requiring payment thereof (Philippine Appliance Corporation v. Court of Appeals, et.al., G.R. No. 149434, dated June 3,2004).

Lastly, as for the third exception, bonus only becomes a demandable and enforceable obligation only when it is made part of the wage or salary or compensation. When considered as part of the compensation and therefore demandable and enforceable, the amount is usually fixed. If the amount would be a contingent one dependent upon the realization of the profits, the bonus is also not demandable and enforceable (Protacio v. Laya Mananghaya & Co., G.R. No 168654, dated March 25,2009). When the bonus is paid only if profits are realized or a certain amount of productivity achieved, it cannot be considered part of wages (Id). If an employer agrees to give bonus without any conditions, such as increase in profits earned or greater production, said bonus becomes part of the wage or salary of an employee. Hence, such bonus is considered a demandable right of an employee.

Related article: Effects of Employee’s Absences on Holiday Pay

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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