Disclaimer: The following article provides general information about Philippine labor laws and practices relating to withheld employee incentives. It is not legal advice. For specific cases, seek assistance from a qualified attorney or the Department of Labor and Employment (DOLE).
1. Introduction
Employee incentives—often called bonuses, performance incentives, commissions, or productivity pay—can be a significant portion of a worker’s compensation package. In the Philippines, issues can sometimes arise when employers delay, reduce, or entirely withhold these incentives. Understanding your legal rights, the nature of these incentives, and the proper steps to claim them is crucial for fair resolution.
This article covers the legal framework, definitions, procedures, and remedies available to employees seeking to claim withheld incentives from their employers.
2. Understanding Types of Employee Incentives
2.1 Mandatory vs. Discretionary Incentives
Mandatory Incentives/Benefits
- 13th Month Pay: This is mandatory under Presidential Decree No. 851. All rank-and-file employees who have worked for at least one month during the calendar year are entitled to 13th month pay, calculated at one-twelfth (1/12) of the employee’s basic salary for the year.
- Other Statutory Benefits: Examples include holiday pay, overtime pay, night-shift differential, and service incentive leave. These are provided for by law and must be given under the conditions set forth in the Labor Code.
Discretionary Incentives/Benefits
- Performance Bonuses: Based on productivity, sales targets, or individual/key performance indicators (KPIs).
- Profit-Sharing Incentives: Some companies distribute a percentage of company profits among employees.
- Sales Commissions: Applicable to sales or marketing roles.
- Other Company-Specific Rewards: Examples include employee referral bonuses, project completion bonuses, or loyalty incentives.
Discretionary incentives are not explicitly mandated by law. Rather, their enforceability depends on company policy, contract stipulations, collective bargaining agreements (CBAs), and the established practice within the organization.
2.2 Established Practice (Company Practice Rule)
Even if an incentive is labeled as “discretionary,” it may become a demandable obligation if it evolves into an established company practice. Philippine jurisprudence (e.g., cases decided by the Supreme Court) has held that if a benefit has been given consistently for a significant period (often reckoned in years) and the employees have come to rely on it, it may acquire the status of a contractual obligation.
Key Points:
- If an employer has paid out a particular incentive regularly and uniformly over a considerable period, an employee could have a valid claim if that incentive is suddenly withheld without valid justification.
- Employers seeking to discontinue such a practice must do so with proper notice and justification, ensuring they do not violate the principle of non-diminution of benefits under Philippine labor law.
3. Legal Bases and Governing Laws
3.1 Labor Code of the Philippines
- Non-Diminution of Benefits: If a benefit is given voluntarily, consistently, and for a long duration, it cannot be unilaterally withdrawn or reduced by the employer if it has become part of the employee’s compensation.
- Contractual Obligation: Where an employee’s contract explicitly states certain incentives, the employer is bound by these terms.
3.2 DOLE Policies and Regulations
- Department Orders and Advisories: DOLE issues various regulations concerning wage-related benefits, labor standards, and dispute resolution procedures.
- Regional Wage Boards: Have jurisdiction over wage orders, including allowances or cost-of-living adjustments (COLA). While not directly concerning all “incentives,” wage orders can affect calculations (e.g., certain bonuses tied to basic pay).
3.3 Relevant Jurisprudence
Philippine courts, especially the Supreme Court, have repeatedly decided cases on withheld incentives. The guiding principle is that benefits become demandable if:
- They are stipulated in a contract or CBA; or
- They have become an established company practice over a significant period.
4. Common Reasons for Withholding Incentives
- Failure to Meet Performance Targets: Incentives are often contingent on meeting clear, measurable KPIs.
- Disciplinary or Policy Violations: Employers may withhold or reduce incentives if an employee is found to have violated company rules.
- Financial Constraints: Companies may cite losses or cash flow problems. However, whether this justifies withholding depends on the terms of employment or collective agreements.
- Pending Clearance: Some employers delay the release of incentives until after clearance procedures, especially for resigning employees or those who have separated from service.
- Administrative or Payroll Errors: Sometimes, the delay could simply be due to an oversight or technical/payroll system issues.
5. Steps to Claim Withheld Incentives
5.1 Gather Relevant Documents
Collect and organize:
- Employment Contract or Appointment Papers
- Company Policy Manuals or Employee Handbook
- Payslips or Records of Past Incentive Payouts
- Any Written Communication (emails, memos) regarding incentives
- Collective Bargaining Agreement (CBA) if applicable
Having documentation strengthens your position by showing either (a) a contractual obligation to pay incentives or (b) a company practice that has been established over time.
5.2 Verify the Nature and Conditions of the Incentive
- Check if the incentive is truly performance-based or discretionary.
- Understand eligibility requirements (e.g., must be employed on payout date, must have met specific targets, etc.).
- Determine if the incentive is part of a statutory benefit (like 13th month pay) or a customary benefit.
5.3 Communicate Internally (HR or Management)
- Send a Written Request: Email or letter to the HR department or immediate supervisor, politely inquiring about the withheld incentive.
- Explain the Factual Basis: Reference your contract, policy, or past practice.
- Ask for Clarification: Get a clear, documented response to why the payment is being withheld.
Often, issues can be resolved through open communication. Keep all correspondence on record.
5.4 File a Complaint with DOLE (If Internal Steps Fail)
If internal discussions do not resolve the issue, you may file a complaint with the nearest DOLE field office. Key points:
- Single Entry Approach (SEnA):
- This is a mandatory 30-day conciliation-mediation service aimed at expeditious resolution of labor issues.
- A DOLE officer facilitates discussion between you and the employer.
- Documentation:
- Submit your complaint letter and all supporting documents.
- Possible Outcomes:
- Settlement, partial payment, or employer’s agreement to release incentives.
- If unresolved, you can pursue a formal labor case with the National Labor Relations Commission (NLRC).
5.5 Elevate to the National Labor Relations Commission (NLRC)
If mediation under SEnA fails, the next step is to file a formal case with the NLRC. The NLRC has the power to:
- Conduct hearings, require the submission of pleadings and evidence.
- Issue orders for payment of due salaries, benefits, or damages if warranted.
Note: The litigation process can be time-consuming and may require professional legal help, especially if the claim is complex.
6. Potential Legal Outcomes and Remedies
- Payment of Withheld Incentives: The NLRC or courts may order the employer to pay all withheld sums if they are proven to be due.
- Reinstatement (in certain cases): For illegally dismissed employees whose incentives and salaries were withheld, reinstatement can be ordered (if the dispute also covers illegal dismissal).
- Damages: In cases where employers acted in bad faith, the court may award moral and/or exemplary damages.
- Attorney’s Fees: If the employee is compelled to litigate to recover unpaid wages or benefits, they may be granted attorney’s fees (usually 10% of the total monetary award).
7. Practical Tips and Precautions
- Review Contracts and Policies: When starting or leaving a job, always review any clauses regarding incentives.
- Maintain Accurate Records: Keep copies of payslips, official memos, and any policies that outline incentive structures.
- Confirm Changes in Writing: If management changes your incentives, request that such changes be made in writing.
- Avoid Delays: The longer you wait, the more challenging it may be to prove your case, especially if documents go missing.
- Use Conciliation First: Attempt peaceful resolution through HR, supervisors, or SEnA before engaging in formal litigation.
- Seek Professional Advice: For large claims or complex scenarios, consult a labor lawyer to avoid procedural missteps.
8. Frequently Asked Questions (FAQs)
Is a “bonus” the same as a 13th month pay?
- No. The 13th month pay is a statutory benefit required by law for rank-and-file employees. A “bonus,” in contrast, may be purely discretionary unless contractually stipulated or established by practice.
What if my employer says the company can no longer afford to pay incentives?
- If the incentive has become a demandable obligation (by contract or established practice), financial difficulty alone does not automatically exempt the employer from fulfilling it. Legal remedies may be pursued if they refuse to pay.
Can an employer legally change an incentive policy mid-year?
- Employers can update policies, but they cannot unilaterally diminish an existing, demandable benefit without valid reasons or proper notice. The principle of non-diminution of benefits may apply.
Do I still get my incentives if I have resigned?
- Check your contract or policy. Some incentives require the employee to be “active on the date of payout.” However, if it is a vested or demandable benefit, the employer may still be obliged to pay a pro-rated share.
How long do I have to file a claim for withheld incentives?
- Labor money claims prescribe in three (3) years, counted from the date the cause of action accrued (i.e., when the incentive was withheld). It’s best to act promptly.
9. Conclusion
Claiming withheld employee incentives in the Philippines hinges on understanding the nature of the incentive (mandatory vs. discretionary), supporting documentation (contracts, policies, and past practice), and following the correct legal processes (initial internal communication, DOLE mediation, NLRC adjudication if needed). Employees are encouraged to clarify their incentive structures upon hiring and maintain thorough records.
When disputes arise, start by communicating with your employer or HR and attempting resolution through SEnA. If necessary, escalate to the NLRC or consult a legal professional. Philippine labor law, under the principles of fairness and social justice, generally provides avenues to protect employees’ rights to the compensation and benefits they have earned.
Important Reminder: Every case is different, and the law can change over time through new legislation or court rulings. For complex or high-value disputes, always seek personalized legal counsel from a qualified attorney or professional assistance from DOLE.