Below is a general discussion on the question of whether a Philippine manpower or service agency (“Agency”) may withhold the salaries of its employees when the Agency’s client fails to pay on time. This article is provided for general informational purposes only and does not constitute legal advice. For any specific concerns, you should consult a qualified labor lawyer or the appropriate government agency (e.g., the Philippine Department of Labor and Employment).

1. Background: The Relationship Among Agency, Client, and Employees

Employer-Employee Relationship
- In a typical manpower or service arrangement, the Agency is considered the direct employer of the deployed employees, even if those employees are assigned to work at the client’s premises.
- This relationship imposes upon the Agency the legal obligation to pay the employees’ salaries and benefits as required by law (e.g., minimum wage, holiday pay, overtime pay, 13th month pay).
Client-Agency Contract
- The Agency and its client usually have a service or manpower contract specifying the scope of work, the fees or billing rates, payment schedules, and other details.
- The question arises: “What if the client is late or fails to remit payments to the Agency? Can the Agency withhold the employees’ wages pending the client’s payment?”
Pertinent Philippine Labor Laws and Regulations
- The Labor Code of the Philippines (Presidential Decree No. 442, as amended) contains provisions on the timely payment of wages and on prohibited acts related to withholding wages.
- Department of Labor and Employment (DOLE) Department Order No. 174, s. 2017 (or its predecessor orders, e.g., DO 18-A) governs contracting and subcontracting arrangements, clarifying that the principal/client is generally not the direct employer of the workers deployed by the Agency.

2. Legal Obligation to Pay Wages Timely

2.1. Article 103 of the Labor Code

Article 103 states that wages shall be paid at least once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days.
It does not allow employers to defer payment of wages based solely on issues like non-payment or late payment by a third-party client.

2.2. Prohibition Against Offsetting Employee Wages

Article 116 of the Labor Code makes it unlawful for any person to withhold any amount from an employee’s wages unless authorized by law (e.g., SSS, PhilHealth, HDMF contributions, or tax withholdings) or by a valid written agreement (e.g., union dues, salary loans with express consent).

2.3. Obligation of the Direct Employer

Regardless of a client’s payment status, the Agency—recognized as the employees’ direct employer—is primarily responsible for paying wages.
Failure to pay employees on time may expose the Agency to legal liabilities, including administrative, civil, and even criminal sanctions under the Labor Code (Article 288 on penalties for non-compliance with wage orders).

3. Withholding Salaries When the Client Has Not Paid

3.1. General Rule: Prohibited Without a Lawful Basis

As a general rule, an employer in the Philippines cannot withhold salaries simply because a client has failed to settle its invoices.
Employees’ wages are deemed a preferential obligation under Philippine law. When an employer withholds salary without legal basis, this constitutes a violation of labor standards.

3.2. Exceptions or Lawful Deductions

Under Article 113 of the Labor Code, deductions from wages are permitted only if:
1. Required by law or regulations (e.g., SSS, PhilHealth, HDMF contributions, or BIR withholding taxes);
2. Expressly authorized by the employee in writing (e.g., union dues, salary loans);
3. Certain court-ordered garnishments or deductions are explicitly allowed.
The client’s failure to pay the Agency is not among these lawful bases.

4. Consequences and Remedies

4.1. Administrative Liabilities

The Department of Labor and Employment (DOLE) may conduct labor inspections and investigations if an employee files a complaint for unpaid wages.
Upon finding violations, the DOLE can issue compliance orders directing the Agency to pay back wages, damages, or penalties, as appropriate.

4.2. Civil Liabilities

Employees may also pursue civil actions for the recovery of unpaid salaries. A labor arbiter (under the National Labor Relations Commission) could order the Agency to pay wage differentials, damages, and other monetary claims.

4.3. Criminal Liabilities

Under the Labor Code’s penal provisions (e.g., Article 288), certain willful or repeated violations related to non-payment of wages can lead to criminal liability and fines for the employer or its responsible officers.

4.4. Joint and Several Liability of Client (When Applicable)

In some circumstances—particularly if the arrangement is deemed “labor-only contracting” (where the Agency is found to be a mere conduit or “dummy” employer)—the client can be held jointly and severally liable with the Agency for employees’ wages and benefits. However, this typically involves a legal determination that the contracting arrangement is invalid under labor laws.
Absent a finding of labor-only contracting, the obligation primarily remains with the Agency, unless the contract itself provides for some form of secondary liability on the part of the client.

5. Practical Considerations for Agencies and Employees

Agencies
- Must maintain sufficient capital or cash flow to pay salaries on time, irrespective of client payment.
- Should have robust contractual protections and collection measures in place to handle late-paying clients but cannot shift the burden of non-payment onto employees.
Employees
- If salaries are not paid on time, employees can file a complaint with the DOLE or approach the National Labor Relations Commission (NLRC).
- Keep records of payslips, contracts, and other employment documents to substantiate any claim for unpaid wages.
Client-Agency Contracts
- Clients and Agencies should include clear payment terms and penalties for late payments, but all parties must remember that labor law obligations (payment of wages) cannot be circumvented through private contracts.

6. Summary of Key Points

Direct Obligation to Pay: The Agency, as the direct employer, must pay its employees’ wages on time under Philippine labor laws.
No Withholding for Client Non-Payment: A client’s failure to pay is not a lawful basis to withhold employee salaries.
Penalties and Liabilities: Withholding wages can result in administrative, civil, and criminal liabilities for the Agency.
Employee Remedies: Employees may file labor complaints with DOLE or the NLRC for unpaid wages and other labor standard violations.
Contractual Arrangements Don’t Trump Labor Law: Private agreements do not excuse compliance with mandatory wage payment laws.

7. Conclusion

In the Philippines, an Agency cannot withhold employees’ salaries simply because a client has failed to pay the Agency. Labor laws mandate timely wage payments and provide no exception for late or non-payment by a third-party client. Employers who violate these provisions risk administrative penalties, civil liability, and in certain cases, criminal sanctions. Employees denied their wages have several legal avenues for recourse, including lodging complaints with the DOLE and the NLRC.

Disclaimer: This discussion is for informational purposes and does not substitute for formal legal counsel. For specific issues, you should consult a licensed labor attorney or the appropriate government agency.