MANILA — Invoking the mandate of the 1987 Constitution for the State to advance the welfare of labor, House Deputy Majority Leader and Makati City Rep. Mar-Len Abigail Binay is batting for new legislation that will free all night shift differential and overtime pay received by salaried employees from income taxes.
Binay, author of House Bills 2836 and 4682 said all overtime and graveyard shift wages shall be expressly excluded from the computation of the gross taxable income of all workers, regardless of their hourly pay rate.
“Our measure intends to give greater meaning to the dictates of the Constitution for the State to push for a living wage, a rising standard of living, and improved quality of life for all,” Binay said in her explanatory note.
She played down the potential unfavorable impact of the proposed labor benefit on national government coffers.
“The extra cash we put in the pockets of workers on account of the reprieve will simply be spent by them on taxable consumption anyway — whether they buy goods or services invariably subject to sales levies,” Binay said.
“Exempting all night differential and overtime pay from taxes will also put in check the rapid erosion of real wages, and build up the purchasing power of workers amid rising consumer prices,” she added.
At present, the overtime and third shift premiums of workers receiving more than the statutory minimum wage are slapped up to 32 percent in withholding taxes, depending on the employee’s tax bracket.
The nation’s growing number of business process outsourcing (BPO) staff, who provide high-value services to global firms without interruption regardless of time or day, stand to gain from Binay’s bills in a big way.
“Right now, many BPO employees are being paid above-minimum wages, so their overtime and third shift premiums are sadly still subject to withholding income taxes,” Binay explained.
Overtime pay refers to the additional 25 to 30 percent compensation received by an employee for labor rendered in excess of the required maximum eight hours a day.
The night shift premium is the extra 10 percent remuneration for work delivered between 10:00pm and 6:00am.
Under the Labor Code, if the overtime work falls inside the graveyard shift, the extra reward for overtime labor is first added to the employee’s regular hourly rate before computing the night differential pay.
The country’s highly labor-intensive BPO and information technology-enabled services industry includes contact centers, back offices, data transcription, animation, software development, engineering design, and digital content.
The sector’s 904,000-strong labor force at the end of 2013 is projected to hit 1,028,000 by yearend.
Women comprise more than half, or 54.9 percent of all BPO staff, according to the Philippine Statistics Authority’s latest annual survey of business and industry.
The IT and Business Processing Association of the Philippines sees the sector generating up to billion in annual revenues and directly employing some 1.3 million Filipinos by 2016.
Of the 40 BPO firms in the country’s Top 1,000 corporations by gross revenue, 21 have established their head offices in Makati.