How Do I Notify My Employee of an Incoming Bonus/Incentive/Commission?
Notifying employees about bonuses, incentives, or commissions is crucial to ensure they understand that these amounts are subject to tax deductions. This transparency helps manage their expectations and allows them to anticipate the actual amount they will receive.
For Philippines Employees:
Bonuses, incentives, and commissions are subject to a 30% income tax. Employers are recommended to gross-up the payment so the employee receives the full intended amount after tax.
Grossed-Up Amount Example:
- Employee Notification:
- "You are receiving a bonus of USD 300, which will be grossed-up during disbursement to cover the 30% income tax. This means the tax has been paid on your behalf, and you will receive the full amount of USD 300."
Exclusive of Tax Example:
- Employee Notification:
- "You will be receiving a bonus of USD 300. Please note that this amount is exclusive of income tax, which will be deducted as per applicable regulations. The final amount you receive will reflect the necessary tax deductions."
For Colombia Employees:
Bonuses, incentives, and commissions are subject to income tax, but it is customary for employees to pay the tax themselves out of the bonus amount.
- Employee Notification:
- "You are receiving a bonus of USD 300. As per standard practice, this amount is subject to income tax. After the required tax deduction, the net amount you will receive depends on your applicable income tax rate."
- If this bonus exceeds 40% of the your monthly salary, it may increase the base for calculating mandatory benefits. To avoid these extra costs, we recommend that you keep bonus payouts under the 40% threshold or distribute the bonus in staggered payments over subsequent pay periods or months.
If you have any clarification, we're here to help!
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