Temporary Allowances in Employment Contracts: Is It Legal for Employers to Grant and Withdraw Them at Any Time?

Question: Is it legal for employers in the Philippines to give temporary allowances that can be removed at any time?

In the Philippines, employers often provide various types of allowances to their employees as part of their compensation package. These allowances can include transportation, meal, housing, and other similar benefits, and they are typically provided on top of the employee's regular salary. However, the legality of providing temporary allowances that can be withdrawn at any time by the employer depends on several factors related to labor laws and the terms of the employment contract.

Legal Framework and Employer Discretion

Under Philippine labor law, the provision of allowances is generally a matter of agreement between the employer and the employee. Employers have the discretion to decide whether or not to grant allowances and to set the conditions under which they are provided. These allowances are often categorized as either "integrated" (meaning they are part of the employee's regular wage) or "non-integrated" (separate from the wage and often discretionary).

Temporary allowances, by their nature, are provided for a specific period or under certain conditions, such as achieving a particular performance target or covering additional work-related expenses. Since these allowances are not considered part of the employee's basic salary, employers have more flexibility in adjusting, suspending, or even withdrawing them, especially if they are clearly labeled as temporary and conditional in the employment contract.

Contractual Obligations and Employee Rights

The legality of withdrawing a temporary allowance depends largely on the terms set forth in the employment contract or company policy. If the contract explicitly states that the allowance is temporary and may be withdrawn at the employer's discretion, then the employer is within their legal rights to do so. However, if the contract or company policy does not clearly define the temporary nature of the allowance or the conditions under which it can be withdrawn, an employee might have grounds to challenge the withdrawal, arguing that the allowance has become an implied part of their regular compensation.

It is important to note that while employers have discretion over allowances, they must exercise this discretion in good faith. Abrupt or unjustified withdrawal of allowances, especially if done in a manner that appears retaliatory or discriminatory, could lead to disputes or claims of unfair labor practices. In such cases, employees might seek redress through the Department of Labor and Employment (DOLE) or the National Labor Relations Commission (NLRC).

Best Practices for Employers

To avoid potential disputes, employers should:

1. Clearly define the nature, duration, and conditions of any temporary allowance in the employment contract or related documentation.
2. Communicate any changes to allowances, including withdrawals, well in advance and provide a rationale for such changes.
3. Ensure that any withdrawal of allowances is done uniformly across all affected employees to avoid claims of discrimination.

In summary, it is legal for employers in the Philippines to grant temporary allowances and to withdraw them at their discretion, provided that the terms of such allowances are clearly defined in the employment contract and that the withdrawal is carried out in good faith and without discrimination. Employees should carefully review their contracts to understand the nature of any allowances provided and seek clarification from their employer if the terms are not clear.