COMPENSATION INCOME

Course Material 5

EMPLOYER
Refers to any person for whom an individual performs any service of whatever nature as employee of such person

ELEMENTS
1. Selection and engagement of employee
2. Payment of Wages
3. Power of Dismissal
4. Power of Control

EMPLOYEE
Refers toa any individual who is a recipient of wages and includes officer, employee or elected official of the
Government or any political subdivisions, agency or instrumentality thereof. The term also includes an office of a
corporation.

The following are not considered employee

1. Consultants
2. Director without management function
3. Talents and Artists on TV shows or radio broadcast. (Sonza vs ABS-CBN GR 138051)

TYPES OF EMPLOYEES AS TO FUNCTION

1.) MANAGERIAL EMPLOYEES

Those who are given powers or prerogatives to lay down and execute managerial policies and/or to hire, transfer,
suspend, layoff, recall, discharge, assign or discipline employees

2.) SUPERVISORY EMPLOYEES

Those who effectively recommend such managerial actions if the exercise of such authority is not merely routinary
or clerical in nature but requires the use of independent judgment

3.) RANK & FILE EMPLOYEES

Those who hold neither managerial nor supervisory functions

TYPES OF EMPLOYEES AS TO TAXABILITY

1. MINIMUM WAGE EARNERS
Employees who are recipients of minimum wage. They are exempt from income tax on their compensation.
2. REGULAR EMPLOYEES
Employees who are subject to the regular progressive income tax.

NOTE: SPECIAL ALIEN CLASSIFICATION was removed into law by virtue of a presidential veto to the TRAIN LAW. The
special alien under the old law must be treated as regular employees.

GROSS COMPENSATION INCOME

Generally includes all remunerations received under an employer-employee relationship

NON-TAXABLE COMPENSATION
1. Mandatory Deductions
Includes mandatory contribution to GSIS, SSS, Philhealth, HDMF, and Union dues
2. Exempt benefits
a. Benefits excluded and/or exempted under the NIRC, & Special laws
b. Benefits exempt under treaty or international agreements
c. Benefits necessary to the trade, business or conduct of profession of the employer
d. Benefits for the convenience or advantage of the employer