I. Legal Framework Governing Minimum Wage and Employee Compensation
The Philippines adopts a regionalized, floor-wage system under Republic Act No. 6727 (Wage Rationalization Act of 1989). Regional Tripartite Wages and Productivity Boards (RTWPBs) issue Wage Orders that prescribe minimum wage rates applicable to private sector workers in their respective regions. Each Wage Order is published, undergoes public hearing, and takes effect 15 days after publication in a newspaper of general circulation.
Current Wage Orders (as of December 2025) integrate all previous Cost of Living Allowances (COLA/ECOLA) into the basic wage in all regions except BARMM. The statutory minimum wage therefore consists exclusively of the basic wage. All other monetary benefits paid by the employer (meal allowance, transportation allowance, rice allowance, housing allowance, perfect attendance bonus, etc.) are classified as supplements or fringe benefits that are paid over and above the minimum wage.
II. The Constitutional and Statutory Prohibition Against Diminution of Benefits
Article XIII, Section 3 of the 1987 Constitution mandates the State to protect labor and guarantee “full protection to labor.” This is operationalized in the Labor Code through:
Article 100. Prohibition against elimination or diminution of benefits.
“Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.”
The Supreme Court has repeatedly held that Article 100 applies not only to benefits existing in 1974 but to all benefits that have ripened into company practice or contractual obligation, even if granted unilaterally by the employer (Wesleyan University-Philippines v. Wesleyan University-Philippines Faculty and Staff Association, G.R. No. 181806, 12 March 2014; Vergara v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 176985, 5 April 2017).
Regularly granted allowances (those given for at least three months or twice within a 12-month period) become part of the employee’s contractual compensation and cannot be unilaterally withdrawn or reduced.
III. Express Prohibition in Every Wage Order
Every Wage Order issued by the RTWPBs since 1989 contains a substantially identical provision:
“Prohibition Against Reduction/Diminution of Benefits
Nothing in this Wage Order shall be construed to reduce any existing wage rates, allowances, and benefits of any form under existing laws, decrees, issuances, executive orders, and/or under any contract or agreement between the workers and the employers.”
This provision is mandatory and has the force of law. It explicitly prohibits employers from using the wage increase as justification to reduce, absorb, offset, or integrate existing allowances into the new basic wage.
IV. Specific Prohibition Against Absorption or Offset of Allowances
DOLE and the NWPC have consistently ruled that the following practices are illegal:
- Reducing fixed cash allowances (meal, transportation, rice, etc.) by the amount of the wage increase.
- “Integrating” or “absorbing” existing allowances into the new basic wage so that the employee’s total take-home pay remains the same or increases only minimally.
- Reclassifying existing allowances as “statutory benefits” or part of the new minimum wage.
- Converting fixed allowances into reimbursable expenses requiring receipts.
These practices violate both Article 100 of the Labor Code and the non-diminution clause of the Wage Order.
V. Supreme Court Jurisprudence on the Matter
The Supreme Court has been unanimous and categorical:
- Wong v. Carpio, G.R. No. 102542, 17 August 1993 – The employer cannot absorb the COLA into the basic wage even if mandated by a previous wage order if it results in diminution of total compensation package.
- Millares v. NLRC, G.R. No. 122827, 29 March 1999 – Regularly paid transportation allowance formed part of the employees’ wages and could not be withdrawn.
- Mayon Hotel & Restaurant v. Adana, G.R. No. 157634, 16 May 2005 – Emergency allowances regularly granted for more than ten years could no longer be withheld.
- Royal Plant Workers Union v. Coca-Cola Bottlers Philippines, G.R. No. 198783, 15 April 2013 – Meal allowance paid in cash for 37 years had become part of regular compensation.
- Wesleyan University-Philippines v. Wesleyan University-Philippines Faculty and Staff Association, G.R. No. 181806, 12 March 2014 – Once a benefit (longevity pay) is incorporated into the employment contract or CBA, the employer cannot unilaterally withdraw it even if it claims the benefit was granted by mistake.
- Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter, G.R. No. 210657, 8 February 2017 – Merger-related salary increases cannot be used to offset or absorb existing allowances.
The Court has never upheld an employer’s unilateral reduction or integration of allowances following a minimum wage increase.
VI. DOLE and NWPC Official Positions (1990–2025)
- NWPC Advisory No. 01-1996 and all subsequent advisories: “The wage increase shall be applied to the basic wage without touching existing allowances.”
- DOLE Handbook on Workers’ Statutory Monetary Benefits (2024 edition): “Allowances such as meal, transportation, rice, etc., are supplements and are excluded in the determination of compliance with the minimum wage. The wage increase must be given on top of existing allowances.”
- DOLE Labor Advisory No. 10-19 (2019) and succeeding issuances: Explicitly prohibits “absorption of allowances into the increased basic wage.”
VII. Practical Examples of Illegal Practices
| Previous Compensation | New Minimum Wage Increase | Illegal Employer Action | Reason Illegal |
|---|---|---|---|
| Basic: ₱570 Meal Allowance: ₱50/day Transportation: ₱30/day |
New MW: ₱610 (+₱40) | Increases basic to ₱610 but eliminates meal & transportation allowances | Violates non-diminution rule and Wage Order prohibition |
| Basic: ₱550 Non-taxable Allowance: ₱100/day |
New MW: ₱610 | Increases basic to ₱610, removes allowance | Same violation; total pay remains same instead of increasing by ₱40 |
| Basic: ₱600 (above MW) Rice Allowance: ₱2,000/month |
New MW: ₱610 | Reduces rice allowance to ₱1,600 claiming “equity” | Illegal even for above-minimum workers if allowance is regular |
All the above practices are void. The employee is entitled to the full wage increase plus retention of all previous allowances.
VIII. Consequences for Employers
- Money claims with backwages (up to 3 years under Article 306 [291] Labor Code)
- 10% attorney’s fees
- Criminal liability under Article 303 [288] (unfair labor practice) – imprisonment of 3 months to 3 years or fine of ₱10,000–₱100,000
- Administrative sanctions from DOLE (fines up to ₱100,000 per violation under DOLE D.O. 174-17)
- Blacklisting from government contracts
IX. Only Permissible Adjustments
- By mutual consent or through collective bargaining
- When the allowance is explicitly conditional (e.g., “transportation allowance only while basic wage is below ₱600”) and such condition is clearly communicated in writing before the grant
- When the allowance is purely gratuitous and explicitly declared as non-regular/non-integral (very difficult to prove after several grants)
X. Conclusion
Philippine law and jurisprudence are crystal clear and have been consistent for over three decades: Employers are absolutely prohibited from reducing, absorbing, offsetting, or integrating existing allowances into the basic wage following a minimum wage increase. The wage increase mandated by the Regional Wage Order must be granted on top of all existing wage rates, allowances, and benefits. Any attempt to adjust allowances downward constitutes illegal diminution of benefits, a violation of the Labor Code, the Wage Order, and settled Supreme Court rulings.
Employers who engage in such practices do so at their peril. Employees whose allowances are reduced or eliminated after a wage order takes effect have a strong, straightforward cause of action for illegal diminution with full backwages and penalties.