Wages, Salaries, Remuneration

1. Legal basis

ART. 97. Definitions. – (f) “Wage” paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of Labor and Employment, of board, lodging, or other facilities customarily furnished by the employer to the employee. “Fair and reasonable value” shall not include any profit to the employer, or to any person affiliated with the employer. (P.D. 442, Title II – Wages, Book Three, Labor Code)

a. Concepts

Wage – See above.

2. Payment of Wages

The following are the rules on paying wages.

a. Forms of Payment

ART. 102. Forms of Payment. – No employer shall pay the wages of an employee by means of promissory notes, vouchers, coupons, tokens, tickets, chits, or any object other than legal tender, even when expressly requested by the employee.
Payment of wages by check or money order shall be allowed when such manner of payment is customary on the date of effectivity of this Code, or is necessary because of special circumstances as specified in appropriate regulations to be issued by the Secretary of Labor and Employment or as stipulated in a collective bargaining agreement. (P.D. 442, Labor Code)

1) Legal tender

The article prohibits the payment of wages other than legal tender.

For avoidance of doubt and clarity, employers should only pay money to their employees.

Thus, employers cannot substitute monetary payment with other forms such as promissory notes, vouchers, coupons, tokens, tickets, chits, or similar thereto.

There have been previous reports of employers who resort to paying via meals and snacks. This is also prohibited.

The law is very clear – in black and white – that wages should only be paid in money.

2) Bank check

Employers are allowed to pay via bank checks.

However, it should be noted that bank checks are only considered legal tender when they can be enchased or deposited. Otherwise, if they bounce or amount in insufficient to cover a check, then the bank check is only a piece of paper.

3) ATM payroll

Employers are also allowed pay via ATM payroll through the employee’s personal/private bank account.

b. Time of Payment

ART. 103. Time of Payment. – Wages shall be paid at least once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days. If on account of force majeure or circumstances beyond the employer’s control, payment of wages on or within the time herein provided cannot be made, the employer shall pay the wages immediately after such force majeure or circumstances have ceased. No employer shall make payment with less frequency than once a month.
The payment of wages of employees engaged to perform a task which cannot be completed in two (2) weeks shall be subject to the following conditions, in the absence of a collective bargaining agreement or arbitration award:
1. That payments are made at intervals not exceeding sixteen (16) days, in proportion to the amount of work completed;
2. That final settlement is made upon completion of the work. (P.D. 442, Labor Code)

1) Bi-monthly: 16-day gap

Wages are required to be paid every two (2) weeks or twice a month.

The gap between one pay from next should not exceed sixteen (16) calendar days.

There is no legal requirement for an employer to pay on the 15th or end of the month. Thus, the employer may choose whichever days of the month to pay. Thus, depending on whatever is more practical or convenient, some businesses pay on the 5th and 20th, 10th and end of the month, and so on.

a) Task that cannot be completed in 2 weeks

For tasks which cannot be completed in two (2) weeks, and in the absence of a collective bargaining agreement or arbitration award, payment of wages shall observe the following rules:

1) That payments are made at intervals not exceeding sixteen (16) days, in proportion to the amount of work completed;

2) That final settlement is made upon completion of the work.

NB: While unclear as to what circumstances is contemplated herein, it appears that this provision may apply to non-regular employees whose employment period may fall short of completing the two-week cycle. For example, after the last pay cycle, a project employee may just work for 5 days to complete the project. If that is the case, then the above rules will apply.

b) Monthly pay: prohibited

As provided in Article 103 of the Labor Code, monthly pay or once a month payment is prohibited.

In other jurisdictions or countries, monthly pay is acceptable. However, in the Philippines, it is not allowed.

b) Weekly pay

There is nothing prohibiting the employer from paying weekly wages. Further, weekly wages is in favor of the employees. Hence, an employer may choose to pay the employee weekly.

2) Force majeure

Under Article 1174 of the New Civil Code, force majeure refers to those extraordinary events that “could not be foreseen, or which, though foreseen, were inevitable.” (Awayan v. Sulu Resources Development Corporation, G.R. No. 200474, November 09, 2020, Per Leonen, J.)

Force majeure involves fortuitous events such storm, typhoon, earthquake, fire, and other calamities, as well as man-made acts such as theft, robbery, arson, and so on.

If a force majeure happens and beyond the control of the employer, the payment of wages shall be “immediately after such force majeure or circumstances have ceased.” Otherwise stated, after the passing or happening of the force majeure, the employer should take active measures to ensure payment of the wages the soonest.

c. Place of Payment

ART. 104. Place of Payment.  – Payment of wages shall be made at or near the place of undertaking, except as otherwise provided by such regulations as the Secretary of Labor and Employment may prescribe under conditions to ensure greater protection of wages. (P.D. 442, Labor Code)

1) Near place of undertaking

The Labor Code was a passed in 1972. During that time, payment was made in cash or via bank checks. It would be very difficult for employees who worked at a field office or factory to go to the main office just to receive their wages. Thus, this provision ensured that payment of wages should only be made “at or near the place of undertaking.” Thus, employers have supervisors go around field workplaces during payday to ensure that employees get paid.

Nowadays, if an employer uses ATM payroll available, then there will no longer be the need for any processing of wages at the office as wages will be credited to the bank account of the employees.

d. Direct Payment of Wages

ART. 105. Direct Payment of Wages. – Wages shall be paid directly to the workers to whom they are due, except:
(a) In cases of force majeure rendering such payment impossible or under other special circumstances to be determined by the Secretary of Labor and Employment in appropriate  regulations, in which case, the worker may be paid through another person under written  authority given by the worker for the purpose; or
(b) Where the worker has died, in which case, the employer may pay the wages of the  deceased worker to the heirs of the latter without the necessity of intestate proceedings. The  claimants, if they are all of age, shall execute an affidavit attesting to their relationship to the  deceased and the fact that they are his heirs, to the exclusion of all other persons. If any of the heirs is a minor, the affidavit shall be executed on his behalf by his natural guardian or next-of-kin. The affidavit shall be presented to the employer who shall make payment through the Secretary of Labor and Employment or his representative. The representative of the Secretary of Labor and Employment shall act as referee in dividing the amount paid among the heirs. The payment of wages under this Article shall absolve the employer of any further liability with respect to the amount paid. (P.D. 442, Labor Code)

1) Direct payment to employees

Wages should only be paid to the employees.

The purpose of this legal provision is to prohibit the employer from paying any other person, such as the employee’s wife, mother, father, or creditor. Whatever the employee may owe to another person (e.g. debt, support, etc.), this is private and personal to the employee. The employer has no business with it.

However, there are exceptions as to when the employer is allowed to pay someone other than the employee, to wit:

1) Through authorized representative of the employee during force majeure; and

2) Heirs of the employee who died.

a) During force majeure

If there is a force majeure (e.g. calamity) and it renders payment impossible, wages may be paid via an authorized person who should have a written authority duly signed by the worker.

As Article 105(a) of the Labor Code simply states “written authority”, a handwritten letter will suffice. Thus, it is NOT necessary that the written authority be via a notarized special power of attorney (SPA).

b) Heirs of the employee who died

If an employee dies, wages may be paid to the heirs of the deceased employee without the necessity of intestate proceedings.

However, if there are several claimants and they are all of legal age, they will be required to execute an affidavit attesting to their relationship to the deceased that the fact that they are his heirs, to the exclusion of all other persons. If it so happens that there is a minor among the claimants, then the affidavit shall be signed/executed on behalf of the minor by the natural guardian or next-of-kin.

This affidavit shall be submitted to the employer who will make payment via the DOLE Secretary or his/her representative (e.g. DOLE Regional Director). By doing so, the employer is absolved of any further liability.

It is the DOLE Secretary or his/her representative which shall act as referee in terms of dividing the amount paid among the heirs.

e. Payment by Results

ART. 101. Payment by Results. – (a) The Secretary of Labor and Employment shall regulate the payment of wages by results, including pakyao, piecework, and other non-time work, in order to ensure the payment of fair and reasonable wage rates, preferably through time and motion studies or in consultation with representatives of workers’ and employers’ organizations. (P.D. 442, Labor Code)

1) Time and motion studies

The DOLE Secretary is empowered in issuing regulations for situations calling for payment by results, such as pakyao, piecework, and other non-time work. This may be done via time and motion studies wherein the work being done will be studied in order to determine what would be the average number of outputs/results that an average worker will be able to do in a given time, particularly in an 8-hour workday. Once determined, the outputs will be quantified to determine payment for each output.

3. Prohibitions regarding Wages

a. Non-Diminution of Benefits

Principle of non-diminution of benefits – refers to the prohibition against employers from eliminating or reducing the benefits received by their employees. (See Wesleyan University-Philippines v. WUPF, G.R. No. 181806, 12 March 2014)

See related:

Non-Diminution of Benefits

b. Non-Interference in Disposal of Wages

ART. 112. Non-Interference in Disposal of Wages. – No employer shall limit or otherwise interfere with the freedom of any employee to dispose of his wages. He shall not in any manner force, compel, or oblige his employees to purchase merchandise, commodities or other property from any other person, or otherwise make use of any store or services of such employer or any other person. (P.D. 442, Labor Code)

1) Non-interference

Employers are expressly and categorically prohibited from interfering with the right and freedom of the employees to dispose of their wages.

The above provision is targeting employers who force or intimidate employees into using their wages to buy something that will benefit the employers, such as purchasing the merchandise, commodities, or other property owned by the employers.

c. Wage Deduction

ART. 113. Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except:
(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;
(b) For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and
(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment.
No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except:
(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;
(b) For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and
(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment. (P.D. 442, Labor Code)

1) Wage deduction

Wage deduction is prohibited.

The following are the limited exceptions as to when an employer may be authorized or justified in deducting employee wages:

1) Premium for insurance. In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;

2) Union dues. For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned;

3) SSS employee-share Contributions. SSS law and regulations mandate the employer to withhold SSS employee-share contributions from the employee’s wages;

4) PhilHealth employee-share Contributions. PhilHealth law and regulations mandate the employer to withhold SSS employee-share contributions from the employee’s wages;

5) HDMF/Pag-IBIG employee-share contributions. HDMF/Pag-IBIG law and regulations mandate the employer to withhold SSS employee-share contributions from the employee’s wages;

6) ECC employee-share contributions. The Labor Code mandates the employer to withhold SSS employee-share contributions from the employee’s wages (NB: ECC contributions are collected and tacked into the SSS contributions.);

7) Applicable Taxes. Tax laws mandate the employer to withhold applicable taxes against the employee’s wages;

8) Loan payments. If duly authorized in writing, the employer may apply a portion of the employee’s wages to outstanding debts (NB: The employees should still be able to receive sufficient amount after deductions to be able to pay for living expenses.); and

9) As may be prescribed by DOLE Regulations.

d. Deposits for Loss or Damage

ART. 114. Deposits for Loss or Damage. – No employer shall require his worker to make deposits from which deductions shall be made for the reimbursement of loss of or damage to tools, materials, or equipment supplied by the employer, except when the employer is engaged in such trades, occupations or business where the practice of making deductions or requiring deposits is a recognized one, or is necessary or desirable as determined by the Secretary of Labor and Employment in appropriate rules and regulations. (P.D. 442, Labor Code)

1) Deposits

Employers are prohibited from requiring deposits from which deductions shall be made for loss or damage to tools, materials or equipment supply by the employer.

a) Exception: Authorized by law or DOLE Regulations

Article 114 of the Labor Code prohibits an employer from requiting his employees to file a cash bond or to make deposits, subject to certain exceptions. (Dentech Manufacturing Corporation v. Ledesma, G.R. No. 81477, April 19, 1989, Per Gancayco, J.)

Thus, by way of exception, if authorized by law or DOLE Regulation allows it, an employer may be authorized to require deposits if the employer is engaged in such trades, occupations or business where the practice of making deductions or requiring deposits is a recognized one, or is necessary or desirable.

Niña Jewelry Manufacturing of Metal Arts, Inc. v. Montecillo, G.R. No. 188169, November 28, 2011, Per Reyes, J.:

• [The Company] should first establish that the making of deductions from the salaries is authorized by law, or regulations issued by the Secretary of Labor. Further, the posting of cash bonds should be proven as a recognized practice in the jewelry manufacturing business, or alternatively, the petitioners should seek for the determination by the Secretary of Labor through the issuance of appropriate rules and regulations that the policy the former seeks to implement is necessary or desirable in the conduct of business. [The Company] failed in this respect. It bears stressing that without proofs that requiring deposits and effecting deductions are recognized practices, or without securing the Secretary of Labor’s determination of the necessity or desirability of the same, the imposition of new policies relative to deductions and deposits can be made subject to abuse by the employers. This is not what the law intends.

• For a case digest, see: Niña Jewelry Manufacturing of Metal Arts, Inc. v. Montecillo (2011)

Bluer than Blue Joint Ventures Company v. Estban, G.R. No. 192582, April 7, 2014, Per Reyes, J.:

• In this case, the petitioner failed to sufficiently establish that Esteban was responsible for the negative variance it had in its sales for the year 2005 to 2006 and that Esteban was given the opportunity to show cause the deduction from her last salary should not be made. The Court cannot accept the petitioner’s statement that it is the practice in the retail industry to deduct variances from an employee’s salary, without more.

2) Loss or damage to employer’s equipment

• [Article 114] provides the rule on deposits for loss or damage to tools, materials or equipments supplied by the employer. Clearly, the same does not apply to or permit deposits to defray any deficiency which the taxi driver may incur in the remittance of his “boundary.” (Five J Taxi v. NLRC, G.R. No. 111474, August 22, 1994, Per Regalado, J.)

• For a case digest, see: Five J Taxi v. NLRC (1994)

3) Limitations

ART. 115. Limitations. – No deduction from the deposits of an employee for the actual amount of the loss or damage shall be made unless the employee has been heard thereon, and his responsibility has been clearly shown. (P.D. 442, Labor Code)
a) Aligns with due process

This requirement of hearing first the employee aligns with due process.

It is important to hear the side of the employee as there might be a valid cause or reason for the loss or damage, such as a force majeure or fault that is not attributable to the employee.

f. Wage withholding and kickbacks

ART. 116. Withholding of Wages and Kickbacks Prohibited. – It shall be unlawful for any person, directly or indirectly, to withhold any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth, intimidation, threat or by any other means whatsoever without the worker’s consent. (P.D. 442, Labor Code)

Wage withholding and/or kickbacks is prohibited.

The employees should receive what is owing to them, free from any deduction, regardless of whether the employee has been induced to give up a portion of his pay, whether by force, stealth, intimidation, threat or by any other means whatsoever.

While the provision allows wage withholding if there is consent on the worker, this should be strictly interpreted as to mean that the consent is freely, willingly, and voluntarily given. Any color of bad faith on the part of the employer will render such consent invalid.

g. Deduction to Ensure Employment

ART. 117. Deduction to Ensure Employment. – It shall be unlawful to make any deduction from the wages of any employee for the benefit of the employer or his representative or intermediary as consideration of a promise of employment or retention in employment. (P.D. 442, Labor Code)

Employers or its representatives or intermediaries, are prohibited from deducting the wages of the employees in consideration of a promise of employment or retention in employment.

h. Retaliatory Measures

ART. 118. Retaliatory Measures. – It shall be unlawful for an employer to refuse to pay or reduce the wages and benefits, discharge or in any manner discriminate against any employee who has filed any complaint or instituted any proceeding under this Title or has testified or is about to testify in such proceedings. (P.D. 442, Labor Code)

If an employee has filed a labor complaint or has testified or is about to testify in such proceedings, employers are prohibited from retaliating, such as by refusing or reducing wages and benefits, discharging or terminating employment, or in any manner discriminate against the concerned employees.

i. False Reporting

ART. 119. False Reporting. – It shall be unlawful for any person to make any statement, report, or record filed or kept pursuant to the provisions of this Code knowing such statement, report or record to be false in any material respect. (P.D. 442, Labor Code)

False reporting is prohibited.

Per DOLE Labor Advisory No. 4, Series of 2023, all private establishments are required to submit an annua establishment report covering employees who are below managerial level, including learners, apprentices, and disabled/handicapped workers.

NB: While Article 119 of the Labor Code is found under Title II on Wages, this prohibition may also apply to other reports not necessarily connected to wages.

4. Worker Preference in Case of Bankruptcy

ART. 110. Worker Preference in Case of Bankruptcy. – In the event of bankruptcy or liquidation of an employer’s business, his workers shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid. (P.D. 442, Labor Code)
Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer’s business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. (Rule VIII, Book III, of the Revised Rules and Regulations Implementing the Labor Code)

1) Article 110 of the Labor Code read together with Civil Code

Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits. (DBP v. NLRC, En Banc, G.R. Nos. 82763-64, March 19, 1990, Per Melencio-Herrera, J.)

1) Preference of credit

A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the debtor. Logically, it becomes material only when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale (of) the debtor’s specific property. Indubitably, the preferential right of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established. (DBP v. Secretary of Labor, G.R. No. 79351, 28 November 1989, Per Cortes, J.)

a) Versus a lien

A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent’s assets. It is a right to a first preference in the discharge of the funds of the judgment debtor. (DBP v. NLRC [1990], supra.)

2) Required: Declaration of bankruptcy or Judicial liquidation

[A] declaration of bankruptcy or a judicial liquidation must be present before the worker’s preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a liquidation order. (DBP v. Santos, G.R. No. 78261-62, March 8, 1989, Per Guttierez, Jr., J.)

a) Rationale

In this jurisdiction, bankruptcy, insolvency and general judicial liquidation proceedings provide the only proper venue for the enforcement of a creditor’s preferential right such as that established in Article 110 of the Labor Code, for these are in rem proceedings binding against the whole world where all persons having any interest in the assets of the debtor are given the opportunity to establish their respective credits. (DBP v. Secretary of Labor [1989], supra.)

Insolvency proceedings… are both proceedings in rem which are binding against the whole world. All persons having interest in the subject matter involved, whether they were notified or not, are equally bound. Consequently, a liquidation of similar import or ‘other equivalent general liquidation must also necessarily be a proceeding in rem so that all interested persons whether known to the parties or not may be bound by such proceeding. (Philippine Savings Bank v. Lantin, G.R. No. L-33929, September 2, 1983, Per Guttierez, Jr., J.)

The claims of all creditors whether preferred or non-preferred, the identification of the preferred ones and the totality of the employer’s asset should be brought into the picture. There can then be an authoritative, fair, and binding adjudication instead of the piece meal settlement which would result from [a single case – e.g. labor case]. (DBP v. NLRC, G.R. No. 108031, March 1, 1995, Per Bellosillo, J.)

In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvents property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvent’s creditors may be given and where the claims of preferred creditors may be bindingly adjudicated. (DBP v. NLRC [1990], supra.)

3) Ordinary preferred credits

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such complaints for unpaid wages are already covered by Article 2241, number 6: “claims for laborers wages, on the goods manufactured or the work done;” or by Article 2242, number 3: “claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and other works, upon said buildings, canals and other works.” To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244. (Republic v. Peralta, En Banc, G.R. No. L-56568, May 20, 1987, Per Feliciano, J.)

References

Book III, Presidential Decree No. 442, a.k.a. Labor Code of the Philippines

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