Claiming Unpaid Allowances and Reporting Tax Evasion in Philippine Employment
A comprehensive legal guide (as of 29 July 2025)
Disclaimer: This article is for general information. It is not a substitute for formal legal advice. Labor‑related money claims and tax cases involve strict deadlines and specialized procedures—always consult a licensed Philippine lawyer or a Bureau of Internal Revenue (BIR) examiner for case‑specific guidance.
1. Key Concepts and Legal Sources
| Topic | Primary Authority | Notes |
|---|---|---|
| Wages, allowances, money claims | Labor Code of the Philippines (Presidential Decree 442, as amended); Rules to Implement the Labor Code; Regional Wage Orders | Labor Code Art. 102–106 (payment of wages), Art. 116 (withholding), Art. 288 (criminal penalties), and Art. 306 (old 291) on prescription |
| Statutory allowances & benefits | Presidential Decree 851 (13‑month pay); Wage Order COLA provisions; RA 11210 (Expanded Maternity); RA 11861 (service incentive leave increase, pending IRR) | COLA applies only in regions with existing wage orders; certain allowances are tax‑exempt under the NIRC |
| Tax compliance & evasion | National Internal Revenue Code (NIRC, RA 8424, as amended) esp. §§24, 33–34, 232, 255, 256–257, 267; Revenue Regulations (RRs) and BIR Revenue Memorandum Circulars (RMCs) | Failures to withhold/remit are both civil and criminal violations; BIR’s RUN AFTER TAX EVADERS (RATE) program handles prosecution |
| Whistle‑blower rewards | RA 10963 (TRAIN) §290, amending NIRC §282 B | Up to 10 % of recovered revenue for information “not yet in BIR’s possession” |
2. Understanding “Allowances” in Philippine Labor Law
Statutory Allowances (Non‑negotiable)
Allowance/Benefit Basis Typical Amount/Formula Tax Status* Cost‑of‑Living Allowance (COLA) Latest Regional Wage Order ‑ Tax‑Exempt (treated as “de minimis” if within ₱2,000/mo; excess taxable) 13‑Month Pay PD 851 & DO #10‑2016 ≥ 1/12 of basic pay earned in a calendar year Tax‑Exempt up to ₱90,000/yr (NIRC §32(B)(7)(e)) Service Incentive Leave (SIL) Conversion Labor Code Art. 95 5 unused SIL days paid at year‑end (expanded to 10 days by RA 11861 once IRR issued) Taxable as regular salary Night Shift Differential Labor Code Art. 86 +10 % of hourly rate (10 PM–6 AM) Taxable Holiday Pay / Premium Pay / Overtime Pay Arts. 87–94 Statutory percentages Taxable Contractual or Company‑Granted Allowances
- Transportation, meal, representation, relocation, laundry, tech allowances etc.
- Binding when: Stipulated in an employment contract, CBA, company handbook, or established by company practice (consistent grant ≥ 3 years).
Tax Treatment Quick‑Look
- De minimis benefits (RR 11‑2018): specific small amounts (e.g., ₱3,000/quarter rice subsidy, ₱1,500/mo laundry) are non‑taxable.
- Excess amounts & most discretionary allowances must be added to taxable compensation and subjected to withholding.
* Tax‑status assumes employer compliance with BIR rules; failure to withhold triggers penalties (see § 6).
3. Claiming Unpaid Allowances
3.1 Prescription Periods
| Claim Type | Prescriptive Period | Counting From |
|---|---|---|
| Money claims (wages/allowances) | 3 years | When each allowance became due (Art. 306) |
| Illegal deductions / non‑payment of 13‑month | 3 years | Same |
| Enforcement of final NLRC decision | 5 years (Civil Code) | Finality of judgment |
Tip: File as early as possible; each missed allowance installment has its own 3‑year clock.
3.2 Jurisdiction & Procedures
₱5,000 and below (per employee)
- File at the DOLE Regional/Field Office (Visitorial & Enforcement power, Art. 128).
- Single‑Entry Approach (SEnA): Mandatory 30‑day conciliation prior to formal complaint.
Above ₱5,000 or involving dismissal, collective claims, or CBA issues
- File a Complaint‑Affidavit at the National Labor Relations Commission (NLRC) Regional Arbitration Branch.
- Flow: SEnA → RAB filing → Mandatory Conciliation-Mediation → Submission of Position Papers → Hearings (optional) → Decision → Appeal to NLRC Commission → Court of Appeals → Supreme Court.
Alternative Fora
- DOLE’s Small Money Claims (Art. 129)—rarely used since 2018 when threshold lowered.
- Voluntary Arbitration if covered by CBA stipulation.
Evidence
- Pay slips, vouchers, payroll summaries
- Company policies/CBA
- Witness statements that allowance is a company practice
- Wage Orders / BIR rulings (for COLA or tax components)
Monetary Awards
- Principal + Legal Interest (commonly 6 % p.a. from demand/filing until satisfaction, per Nacar v. Gallery Frames, G.R. 189871, 2013).
- 10 % attorney’s fee (Art. 2208 Civil Code) when employees “compelled to litigate.”
3.3 Criminal & Administrative Sanctions vs. Employer
| Violation | Criminal Provision | Penalty |
|---|---|---|
| Willful refusal to pay statutory allowances | Art. 288 Labor Code | Fine ₱40,000–₱500,000 &/or 3 months–3 years jail; closure possible |
| Obstruction during DOLE inspection | Art. 289 | Same fine/jail range |
| Contempt / non‑compliance with NLRC writ | Art. 277(b) | Indirect contempt; possible arrest |
Employees cannot directly file the criminal wage case; DOLE or NLRC refers to the prosecutor after finding prima facie violation.
4. Reporting Tax Evasion by an Employer
4.1 When Does Non‑Payment of Allowances Equal Tax Evasion?
- Employer deducts withholding tax on allowances but never remits to BIR.
- Employer under‑reports allowances in the Alphalist to reduce its fringe‑benefit tax or income‑tax deductions.
- Employer misclassifies employees as “independent contractors” to avoid tax and statutory benefits.
- Employer fails to treat taxable allowances as compensation (e.g., huge representation allowances).
4.2 Reporting Channels
| Channel | How to Initiate | Salient Points |
|---|---|---|
| BIR Hotline (155‑55) / eComplaint system | Phone or online portal | Records are assigned a TIN‑matched case number |
| RATE Program under Enforcement Service | Sworn “Information Against Tax Evasion” before BIR & DOJ | Usually for large‑scale (>₱10 M) cases |
| BIR Whistleblower Reward (NIRC §282 B) | File under Revenue Regulations 7‑2019 | Up to 10 % of actually collected deficiency tax; anonymity possible |
| DOLE‑BIR Referral | Evidence of tax violation surfaced during DOLE inspection/NLRC hearing | Inter‑agency MOA (2012, renewed 2021) allows data sharing |
Required Documents (as much as whistle‑blower can produce):
- Pay slips & BIR Form 2316 showing withheld taxes
- Payroll register vs. BIR Alphalist discrepancies
- Company communications directing under‑reporting
- Bank validation that withheld taxes weren’t debited
4.3 BIR Case Flow (Civil & Criminal)
Letter of Authority (LOA) or Tax Verification Notice (TVN) served on employer.
Audit → Pre‑Assessment Notice (PAN) → Final Assessment Notice (FAN).
Non‑payment triggers Warrant of Distraint & Levy; criminal complaint filed with DoJ.
Criminal cases fall under NIRC §255–256 (failure to file/pay/withhold) or §267 (false entries). Penalties:
- 25 %/50 % surcharge + 12 %* interest p.a. (RR 21‑2018)
- Fine up to ₱10,000,000 + imprisonment up to 10 years for fraud
*Interest subject to TRAIN‑era floating rate (currently 12 %).
4.4 Coordination with Wage Cases
- Separate but parallel: Money claim before NLRC proceeds independently of BIR audit.
- Settlement risk: Employer may offer payment of allowances if employee withdraws BIR report; note that tax violations are public offenses—BIR or DOJ can still prosecute motu proprio.
- Best practice: Include a reservation in any quitclaim that it “does not waive the right to report tax violations to the BIR.”
5. Practical Road‑Map for Employees
| Step | Action | Purpose |
|---|---|---|
| 1 | Document each missing allowance (pay slips, chat messages, peers’ affidavits) | Preserve evidence & beat 3‑year prescription |
| 2 | Send written demand to HR/Payroll (keep proof of receipt) | May start interest running; shows good faith |
| 3 | SEnA Request for Assistance at DOLE | 30‑day conciliation—often results in partial payment |
| 4 | File formal NLRC complaint if unresolved or claim > ₱5k | Toll prescription; secure docket number |
| 5 | Consider parallel BIR report if taxes withheld/remitted questionable | Enhances leverage; prevents double victimization |
| 6 | Attend hearings, submit position papers | Provide detailed computation of claim (principal + 6 % interest) |
| 7 | Enforce judgment via Writ of Execution; garnish bank accounts | Sheriff fees prepaid by employee but recoverable |
| 8 | Monitor BIR audit outcome (if whistle‑blower) | Possible reward; ensure correct tax credit |
6. Employer’s Perspective & Compliance Checklist
- Audit allowance policies annually; align with Wage Orders & Tax Regulations.
- Segregate de minimis vs. taxable allowances in payroll system; auto‑withhold.
- File forms properly: BIR 2316 to employees by 31 January; BIR 1601C/0619E monthly; BIR 1604C/Alphalist annually.
- Retain records for 10 years (NIRC §203–222).
- Conduct internal grievance mechanism to resolve allowance issues swiftly and avoid litigation.
7. Frequently Asked Questions
| Question | Short Answer |
|---|---|
| I resigned two years ago; can I still claim unpaid COLA from 2019? | Possibly—each missed COLA in 2019 is now prescribed (3 yrs) but 2023–2024 unpaid installments may still be claimable. |
| Does a “No allowance, no work” pandemic policy excuse non‑payment? | No. Statutory allowances accrue when the employee actually works; pandemic lockdowns may suspend work but not allow retroactive waiver of earned allowances. |
| Are hardship, hazard, or “live‑out” allowances taxable? | Yes, unless within BIR’s de minimis thresholds or expressly tax‑exempt under special law (e.g., public health workers’ hazard pay up to ₱3,000/mo under RA 7305). |
| Can I be terminated for reporting my employer to the BIR? | Retaliatory dismissal constitutes illegal dismissal; may entitle employee to reinstatement + backwages + moral damages. |
8. Conclusion
Unpaid allowances deprive employees of both income and the tax credits they are entitled to. Philippine law empowers workers to simultaneously (1) recover the monetary shortfall through labor proceedings and (2) trigger a tax‑evasion probe when employers falsify payroll or fail to remit withheld taxes. Success hinges on timely filing (within the three‑year prescriptive window), meticulous documentation, and strategic use of government programs such as SEnA and BIR’s whistle‑blower provisions. Whether you’re an aggrieved employee or a compliance‑minded employer, understanding the intersection of Labor Code rights and tax obligations is critical in today’s regulatory environment.