LEGALITY OF REMOVING EMPLOYEE ALLOWANCE IN THE PHILIPPINES
A comprehensive Philippine‑law guide
1. What “allowance” means in Philippine labor law
| Term | Typical examples | Legal character |
|---|---|---|
| Statutory allowance | Cost‑of‑Living Allowance (COLA) set by regional wage orders; Service Incentive Leave (monetised) | Mandated by law or wage order; deemed part of “wage” |
| Voluntary or company‑granted allowance | Rice, meal or transportation allowance; cellphone load; project bonuses | A management prerogative until it ripens into a company practice or is written into a CBA |
| Facilities (Art. 97 (f) Labor Code) | Board & lodging, company shuttle, uniforms | May be credited to wages if DOLE‑approved; withdrawal ≠ diminution because it is not a benefit in addition to wages |
2. Core legal anchors
1987 Constitution, Art. XIII, §3 – the State shall “afford full protection to labor.”
Labor Code
- Art. 100 – Non‑diminution of benefits. Once granted, they may not be withdrawn, reduced or eliminated.
- Art. 113 & 116 – prohibit illegal deductions and interference in wage disposition.
Republic Act 6727 (Wage Rationalization Act) – empowers Regional Tripartite Wage & Productivity Boards (RTWPBs) to issue wage orders that usually fix a basic wage plus COLA.
Civil Code, Art. 19 & 20 – employer must act with justice and good faith; abuse of rights doctrine.
3. The non‑diminution rule explained
| Requirement for a benefit to be protected | What the Supreme Court says |
|---|---|
| 1. Consistent and deliberate grant | Must have been given long enough and regularly – no fixed minimum period, but cases treat 2–3 years of unbroken grant as a strong indicator. |
| 2. No reservation or contingency | Not subject to performance conditions that lapse (e.g., perfect attendance allowance ends if policy so provides). |
| 3. Not due to error in law | If the grant stemmed from a misinterpretation of a statute, employer may rectify prospectively. |
| 4. Clear intention to bestow a benefit in addition to wage | One‑off or sporadic gifts do not become vested benefits. |
Key cases • Globe‑Mackay Cable & Radio Corp. v. NLRC, G.R. L‑82511 (1991) – established the “ripened into company practice” doctrine. • Philippine Duplicators, Inc. v. NLRC, G.R. 105223 (1994) – error‑in‑law exception. • Mountain Province Broadcasting Corp. (Bombo Radyo) v. Taguba, G.R. 191068 (22 Jan 2014) – withdrawal of emergency allowance held illegal despite financial losses.
4. When can an allowance be lawfully withdrawn?
By operation of a wage order Several wage orders have integrated COLA into the basic wage; after integration the separate COLA line item disappears without violating Art. 100.
Through legitimate re‑classification with employee consent Example: shifting a rice allowance into a “flexible benefits” cafeteria plan, provided employees freely elect alternatives and the total package is equal or better.
Upon expiration or renegotiation of a CBA If the allowance was purely contractual and parties later agree otherwise, the new CBA governs.
Because the allowance is contingent and the contingency vanished Attendance incentives, project completion bonuses, or out‑station per diems end together with the condition they were meant to address.
Correction of a mistaken grant If the employer can prove a bona fide legal error (Philippine Duplicators), it may stop prospectively—but it may not claw back past payments.
Financial losses alone are not enough. Bombo Radyo and many other cases stress that economic difficulty does not excuse unilateral withdrawal; the employer must negotiate, secure union consent, or obtain DOLE approval for a retrenchment or temporary suspension of operations.
5. Statutory allowances: special rules
| Allowance | Source | May an employer remove it? |
|---|---|---|
| COLA | Wage Order (e.g., NWPC RB‑IV‑23) | Only if a new wage order integrates or modifies it. |
| Night‑shift differential (10 % of wage) | Art. 86 Labor Code | No; it is statutory wage, not a removable allowance. |
| Service charge share | Art. 96 Labor Code, as amended by R.A. 11360 | No; employer must distribute 85 % to rank‑and‑file. |
| 13th‑month pay | P.D. 851 | No. |
6. Voluntary allowances: company practice doctrine
- Evidence matters. Payroll records, policies, and testimonies show regularity and intent.
- Estoppel operates. Even if the allowance began out of generosity, the employer is barred from pulling it back once employees relied on it.
- Partial reduction = diminution. Cutting a ₱ 2,000 meal allowance to ₱ 1,000 is still unlawful diminution.
7. Procedure for valid withdrawal or modification
- Management study & justification – spell out why the change is needed.
- Consultation / CBA bargaining – unions have the right to negotiate.
- Notice to DOLE (for large‑scale retrenchment or suspension of operations affecting allowances that are wage components).
- Written individual consent for non‑unionised employees (best practice).
- Implementation after a reasonable lead time – usually one payroll cycle.
8. Tax and social‑security angles
- Allowances that are non‑taxable under BIR de minimis rules (e.g., rice subsidy up to ₱ 2,000 / month) may be withdrawn only if Art. 100 allows it.
- If an allowance is folded into basic salary, it increases the base for SSS, PhilHealth, Pag‑IBIG and consequently employer contributions.
9. Public‑sector specificities
Government allowances (e.g., PERA, RATA, Subsistence Allowance for uniformed personnel) are controlled by DBM circulars and annual GAA provisions. Agencies cannot unilaterally drop them; budgetary constraints require DBM concurrence and COA clearance. The same constitutional non‑diminution principle applies via equal protection.
10. Remedies and liabilities
| For employees | For employers |
|---|---|
| File a money claim or illegal diminution complaint with the NLRC (4‑year prescriptive period). | Risk of payment of differential plus legal interest (6 % p.a.); possible moral/exemplary damages and attorney’s fees if bad faith is shown. |
| Invoke grievance machinery / voluntary arbitration if a CBA governs. | Directors or responsible officers may be held solidarily liable for unpaid benefits. |
11. Best‑practice checklist for employers
- Audit all allowances: statutory, voluntary, contingent.
- Document basis and duration; clarify if subject to conditions.
- Communicate impending changes transparently and negotiate in good faith.
- Obtain DOLE guidance when in doubt (e.g., through a Request for Ruling under DO 40‑03).
- Maintain parity: any restructuring should leave employees “whole” or better.
Conclusion
Under Philippine law, an employer may not simply take away an allowance once it has become a statutory entitlement, a contractual obligation, or a long‑standing company practice. The prohibition on diminution of benefits (Art. 100, Labor Code) is both a legal shield for workers and a predictability tool for management: benefits, once granted, vest unless clearly conditional or legally erroneous.
Where change is truly unavoidable—statutory integration, CBA renegotiation, or disappearance of the very contingency that justified the allowance—the employer must respect due process, bargain where required, and ensure no net loss to the employee. Otherwise, withdrawal exposes the company to money claims, interest, damages, and industrial unrest.
This article provides general information and is not a substitute for tailored legal advice. Employers and workers should consult counsel or the Department of Labor and Employment for guidance on specific situations.