New Hires Without BIR Form 2316: Can Employers Require a Waiver?

Introduction

In the Philippine employment landscape, tax compliance is a critical aspect of the employer-employee relationship. The Bureau of Internal Revenue (BIR) mandates various forms and procedures to ensure accurate withholding and reporting of income taxes. One such form is BIR Form 2316, the Certificate of Compensation Payment/Tax Withheld, which serves as a summary of an employee's annual compensation, taxes withheld, and other relevant details from their employer. For new hires transitioning from previous employment, providing this form to the new employer is essential for seamless tax computations. However, situations arise where new employees fail to submit BIR Form 2316, prompting questions about employer remedies, including the requirement of a waiver. This article explores the legal framework, implications, and practices surrounding this issue within the Philippine context, drawing from relevant tax regulations, labor laws, and common practices.

The Role and Importance of BIR Form 2316

BIR Form 2316 is issued by employers to employees no later than January 31 of the following year, or upon termination of employment if earlier. It certifies the total compensation paid, taxes withheld at source, and any adjustments for the calendar year. This form is crucial for several reasons:

Tax Filing Purposes: Employees use it as an attachment to their annual Income Tax Return (ITR) via BIR Form 1700 or 1701, ensuring they claim proper credits for taxes already withheld.
Withholding Tax Computations: For employers, it provides the basis for calculating withholding taxes on compensation under the graduated tax rates or the 8% optional gross income tax regime, as applicable.
Continuity in Multi-Employer Scenarios: When an employee has multiple employers in a single year, the cumulative income must be considered to apply the correct tax brackets. The form from the previous employer allows the new one to account for prior earnings and withholdings, preventing under- or over-withholding.

Failure to handle this form properly can lead to discrepancies in tax payments, potential audits, and penalties for both parties.

Legal Requirements for New Hires Regarding BIR Form 2316

Under Revenue Regulations (RR) No. 2-98, as amended by subsequent issuances like RR No. 11-2018 and RR No. 16-2020, employees who resign from one employer and join another within the same calendar year are required to furnish the new employer with BIR Form 2316 from the previous employer. This must be done promptly upon hiring to enable accurate monthly withholding tax calculations.

Key obligations include:

Employee's Responsibility: The new hire must secure the form from their former employer and submit it to the new one. If the previous employment ended mid-year, the form should reflect year-to-date figures.
Employer's Duty: The new employer must request the form and use it to compute withholding taxes based on cumulative income. If the form is not provided, the employer cannot claim substituted filing benefits for the employee, potentially requiring the employee to file their own ITR manually.
Timeline: The form should be submitted before the first payroll in the new employment to avoid initial over-withholding.

In cases where the new hire is a fresh graduate or has no prior employment in the year, no Form 2316 is needed, and the employer treats them as starting from zero income.

Consequences of Not Providing BIR Form 2316

When a new hire fails to provide BIR Form 2316, several issues may arise:

For the Employee:
- Over-withholding: The new employer may apply withholding taxes as if the employee's income started anew, potentially leading to higher deductions since lower tax brackets aren't fully utilized.
- Tax Refund Delays: At year-end, the employee might need to reconcile discrepancies themselves, claiming refunds via their ITR, which could involve additional documentation and BIR scrutiny.
- Potential Underpayment: If cumulative income pushes the employee into higher tax brackets, failure to account for prior earnings could result in under-withholding, leading to penalties and interest on unpaid taxes.
For the Employer:
- Compliance Risks: The employer might face BIR audits for inaccurate withholding, as they are liable for remitting the correct amounts under the withholding tax system.
- Administrative Burden: Without the form, the employer cannot issue a complete BIR Form 2316 at year-end, complicating their own reporting obligations via BIR Form 1604-C (Annual Information Return of Income Taxes Withheld on Compensation).
- Penalties: Under Section 250 of the National Internal Revenue Code (NIRC), as amended, failure to withhold or remit correctly can incur penalties ranging from 25% to 50% of the tax due, plus interest.

These consequences underscore the importance of addressing the absence of the form proactively.

Employer's Options When BIR Form 2316 Is Missing

Employers have limited recourse when a new hire cannot or will not provide the form. Common practices include:

Provisional Withholding: The employer may proceed with withholding based on the employee's declared income from the new job only, but this is risky and not recommended without safeguards.
Request for BIR Assistance: In rare cases, employers can seek guidance from the BIR, but this is not a standard procedure and may not yield immediate results.
Requiring a Waiver or Indemnity Agreement: Many employers ask the new hire to sign a waiver or undertaking, wherein the employee acknowledges the lack of Form 2316 and agrees to hold the employer harmless from any tax liabilities, penalties, or adjustments arising from the omission. The employee may also commit to reimbursing the employer for any additional taxes assessed by the BIR.

This waiver practice is widespread in Philippine corporate settings, particularly in industries with high employee turnover like business process outsourcing (BPO) and manufacturing.

Legality of Requiring a Waiver

The core question is whether employers can legally require such a waiver. Philippine law does not explicitly prohibit or mandate waivers in this context, leading to a nuanced analysis:

Contractual Freedom: Under Article 1306 of the Civil Code, parties may stipulate terms in contracts as long as they are not contrary to law, morals, good customs, public order, or public policy. A waiver for tax-related liabilities can be seen as a valid stipulation in the employment contract, provided it is entered into voluntarily and with full understanding.
Labor Law Considerations: The Labor Code (Presidential Decree No. 442, as amended) emphasizes protection of workers' rights. Requiring a waiver as a condition of employment could be scrutinized under Article 4, which mandates construction in favor of labor. If the waiver is deemed coercive or diminishes statutory rights (e.g., accurate tax withholding), it might be invalid.
BIR Stance: The BIR has not issued specific regulations banning waivers but emphasizes compliance with withholding rules. In Revenue Memorandum Circular (RMC) No. 31-2013 and similar issuances, the focus is on accurate reporting rather than contractual arrangements between employer and employee. However, if a waiver leads to non-compliance (e.g., deliberate under-withholding), both parties could face sanctions under Sections 251 and 255 of the NIRC for false or fraudulent returns.
Judicial Precedents: There is limited case law directly on point. However, in analogous cases like those involving quitclaims in labor disputes (e.g., Supreme Court decisions in Goodrich Manufacturing Corp. v. Ativo, G.R. No. 188002), waivers are upheld if voluntary and not against public policy. A tax waiver might similarly be enforceable if it merely allocates responsibility without evading tax obligations.
Limitations: Waivers cannot absolve parties from criminal liabilities under the NIRC, such as tax evasion. They also do not bind the BIR, which can still assess deficiencies against the employer as the withholding agent.

In summary, while not explicitly illegal, requiring a waiver should be approached cautiously to avoid claims of undue influence or violation of labor rights.

Employee Rights and Obligations in This Scenario

Employees are not powerless when faced with a waiver request:

Right to Refuse: An employee can decline to sign, but this might delay hiring or lead to provisional arrangements. However, refusal cannot be grounds for discrimination under Article 3 of the Labor Code.
Obligation to Comply: Employees must make good-faith efforts to obtain Form 2316 from their previous employer, as failure could be seen as negligence.
Seeking Remedies: If the previous employer refuses to issue the form, the employee can file a complaint with the BIR under RMC No. 57-2011, which outlines procedures for non-issuance.
Tax Relief Options: Employees can opt for the 8% flat tax on gross income if eligible (for self-employed or mixed-income individuals), bypassing some withholding complexities, but this is not available to pure compensation earners.

Balancing these rights ensures fair treatment.

BIR Guidelines, Penalties, and Enforcement

The BIR enforces compliance through audits and assessments:

Guidelines: RR No. 10-2008 details the substituted filing system, where employers' issuance of Form 2316 can substitute for employees' ITR filing if conditions are met. Absence of prior forms disrupts this.
Penalties: For employers, non-remittance can lead to civil penalties (25% surcharge, 20% interest per annum) and criminal charges. Employees face similar for underpayment.
Amnesty and Relief: Under recent laws like Republic Act No. 11213 (Tax Amnesty Act), certain deficiencies might be amnestied, but ongoing compliance is required.

Employers should maintain records of requests for Form 2316 to demonstrate due diligence.

Best Practices for Employers and Employees

To mitigate risks:

For Employers:
- Include clauses in employment contracts requiring submission of Form 2316.
- Use standardized waiver templates reviewed by legal counsel.
- Educate HR on tax rules and conduct regular compliance training.
- Consider absorbing minor risks for key hires rather than insisting on waivers.
For Employees:
- Always request Form 2316 upon resignation.
- Review waivers carefully and seek advice if needed.
- File ITR diligently to claim any overpaid taxes.
General Advice: Both parties should consult tax professionals or the BIR for case-specific guidance.

Conclusion

The issue of new hires without BIR Form 2316 highlights the interplay between tax compliance and employment practices in the Philippines. While employers can require waivers as a protective measure, their enforceability depends on voluntariness and alignment with laws. Ultimately, proactive communication and adherence to BIR regulations minimize disputes, ensuring both fiscal responsibility and harmonious labor relations. As tax laws evolve, staying informed remains paramount for all stakeholders.