In the Philippine employment setting, the distinction between what constitutes "wages" and what constitutes "allowances" is a frequent point of contention. For employees assigned to field work or temporary assignments away from their primary station, understanding the legal framework for Per Diem and Field Allowances is essential for ensuring both compliance and the protection of labor rights.
1. Defining the Concepts
While the Philippine Labor Code does not provide a rigid statutory definition for these specific terms, jurisprudence and Department of Labor and Employment (DOLE) regulations establish clear functional definitions:
- Per Diem: Literally meaning "by the day," this is a daily allowance intended to cover personal expenses—primarily meals and incidental costs—incurred by an employee while traveling or on a temporary assignment.
- Field Allowance: This is a broader category of supplemental compensation provided to employees whose duties are performed away from the principal place of business (e.g., engineers, sales representatives, or surveyors). It is intended to cover the additional cost of living or working in "the field."
2. Nature of the Payment: Salary vs. Benefit
The most critical legal distinction is whether these payments are considered part of the employee's Basic Salary.
- The "Reimbursement" Rule: Generally, per diems and field allowances are not considered part of the "Basic Salary" if they are given to cover necessary expenses incurred by the employee in the performance of their duties. Because they are meant to make the employee "whole" rather than provide a profit, they are excluded from the computation of 13th-month pay, overtime, and retirement pay.
- The "Integration" Exception: If the allowance is granted regardless of whether expenses are actually incurred, or if it is a fixed amount given as a matter of regular practice (even when the employee is not in the field), the Supreme Court has ruled it may be considered integrated into the wage. In such cases, it becomes part of the "Basic Salary" for purposes of statutory benefits.
3. Regulatory Standards and Management Prerogative
Under Philippine law, there is no specific statutory minimum for per diems or field allowances in the private sector.
- Management Prerogative: The amount and frequency of these allowances are generally left to the employer’s discretion, provided they meet the standards set in the Employment Contract or the Collective Bargaining Agreement (CBA).
- The Non-Diminution of Benefits: Once a per diem or field allowance has been established as a company practice or policy over a significant period, it cannot be unilaterally withdrawn or reduced by the employer. Article 100 of the Labor Code protects against the "diminution of benefits."
4. Tax Implications (BIR Regulations)
The Bureau of Internal Revenue (BIR) provides specific rules on the taxability of these allowances:
| Type of Allowance | Tax Treatment | Conditions |
|---|---|---|
| Fixed/Regular | Taxable | If it is a fixed amount received regularly, it is treated as part of compensation. |
| Actual/Reimbursable | Non-Taxable | If the employee must liquidate the amount with receipts and it is "ordinary and necessary" for business. |
| Reasonable Per Diem | Non-Taxable | If the amount is reasonable and used for "away from home" expenses in the pursuit of trade or business. |
Note: Per diems for travel are generally not subject to withholding tax if they do not exceed the actual expenses or the "reasonable" thresholds set by the BIR.
5. Field Personnel and the Labor Code
It is important to distinguish the allowance from the classification of the worker. Under Article 82 of the Labor Code, "field personnel" are those who perform their duties away from the principal place of business and whose actual hours of work in the field cannot be determined with reasonable certainty.
- Exemption from Labor Standards: Genuine field personnel are often exempt from the payment of overtime pay, night shift differential, and holiday pay.
- Requirement for Benefits: However, even if an employee is classified as field personnel, they are still entitled to the Service Incentive Leave (SIL) and 13th-Month Pay, unless they fall under other specific exemptions.
6. Key Legal Risks for Employers
- Arbitrary Reclassification: Attempting to label a regular office employee as "field personnel" simply to avoid paying overtime, while providing a meager field allowance, is a form of labor malpractice.
- Lack of Policy Clarity: Without a written policy on liquidation (receipts), the BIR may categorize all allowances as taxable income, leading to significant back-tax assessments.
- Unilateral Withdrawal: Stopping a field allowance during a period of financial downturn without proper negotiation or "closure" of that specific business function can lead to illegal diminution of benefit claims.
Summary of Obligations
| Entity | Obligation |
|---|---|
| Employer | Must honor the rates stipulated in the CBA/Contract; cannot reduce benefits once established. |
| Employee | Must provide proper documentation (liquidation) if the allowance is based on actual reimbursement. |
| State | Ensures that allowances are not used as a "wash" to circumvent the Minimum Wage Law. |