Hazard Pay Sample Computation During COVID-19 Pandemic

Hazard pay is one of the items of income of employees that is being pushed to be paid to those who are in the frontline of COVID-19 defense.

There is no law that mandates the payment of hazard pay in the private sector. However, there is an incentive to employers who pay hazard pay to their minimum wage earners (MWE).

For the public health workers, there is DMB and DOH Joint Circular 01, Series of 2016. Under Section 21 of RA No. 7305 (Magna Carta for Health Workers), Hazard Pay may be granted to PHWs if the nature of their duties and responsibilities, their actual services, and location of work expose them to great danger, occupational risks, perils to life, and physical hardships, as determined by the Secretary of Health, or by the Head of the Agency or the Local Chief Executive, with the approval of the Secretary of Health.

However, companies may grant hazard pay when the situation warrants. If so, the wage given to a Minimum Wage Earner (MWE) is exempted from tax.

Hazard pay shall mean the amount paid by the employer to MWEs who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or isolated stations and camps, which expose them to great danger or contagion or peril to life. (Section 6, B, 13, RR 11-2018; See also Tax Solutions on Employee Compensation and Benefits, 2^nd Edition, by Atty. Elvin B. Villanueva).

The regulation provides that aside from the SMW, the holiday pay, overtime pay, night shift differential pay, and hazard pay, earned by the aforementioned MWE shall likewise be covered by the above exemption.

In case of hazardous employment, the employer shall indicate in the Alphabetical List of Employees, the MWEs who received the hazard pay, the period of employment, the amount of hazard pay, and the justification for such payment as certified by the concerned DOLE/allied agency, which certification is part of the attachment in the filing of the Annual Information Return (BIR Form 1604-C).

In the case of employees under the public sector, the document to be attached is the Department of Budget Management (DBM) Circular related to such payment of hazard pay.

Assuming that X, a minimum wage worker in NCR, is granted an additional 30% of his wage representing hazard pay, the following shall be the computation:

Daily wage –                 PhP537.00

Hazard Pay 30% –         PhP161.10

Total Daily Pay              PhP698.10

Pay for the period March 17 to 31, 2020 (13 days)

PhP698.10 x 13 = PhP9,075.30

Pay for the period April 1 to 13, 2020 (11 days)

Regular compensation

PhP698.10 x 7 = PhP7,679.10

Supplementary Compensation

April 9, 2020 (2 reg. holidays)

PhP537.00 x 2 = PhP1,074.00

April 10, 2020 (1 reg. holiday)

PhP537.00 x 1 = PhP537.00

Total Pay During COVID-10 Quarantine

PhP7,679.10 + PhP1,074.00 + PhP537.00 = PhP9,290.10

Sample Tax Computation:

X contributes to the social welfare benefits (SWB) such as SSS, Philhealth, and HDMF amounting to ₱5,000.00 and has received 13th month pay of PhP14,006.75. His income tax liability will be computed as follows:

SSS – PhP560.00 x 12 =        PhP6,720.00

PhilHealth –                           PhP   420.20

HDMF –                                 PhP   100.00

TOTAL SWB                           PhP7,240.20

Total Compensation Income                                                PhP168,081.00

Less: Mandatory Contributions      PhP 7,240.20

Non-taxable benefits                 14,006.75                 21,246.95

Taxable income                                                            PhP189,327.95

Add: hazard pay                                                                           2,303.73

Total Income                                                                    PhP191,631.68

Less: Mandatory Contributions               PhP 7,240.20

Non-taxable benefits                          14,006.75               21,246.95

Net Taxable income                                                         PhP170,384.73

Tax due                                                                                    EXEMPT

The taxpayer  is tax exempt as an  MWE. The statutory minimum wage as well as the holiday pay, overtime pay, night shift differential pay and  hazard pay received by such MWE are specifically exempted from income tax under the law.