Key Takeaway: The Integration of COLA into Standardized Salaries is Enforced by Law

Ninia P. Lumauan v. Commission on Audit, G.R. No. 218304, December 09, 2020

Imagine receiving a paycheck, expecting a certain amount, only to find out that a portion you thought was a separate allowance has been integrated into your base salary. This is the reality for many government employees in the Philippines, as highlighted by the Supreme Court’s ruling in the case of Ninia P. Lumauan against the Commission on Audit (COA). The central issue revolved around the payment of Cost of Living Allowance (COLA) to employees of the Metropolitan Tuguegarao Water District (MTWD), which was disallowed by COA due to its integration into their basic salaries.

In this case, Ninia P. Lumauan, the Acting General Manager of MTWD, challenged the COA’s decision to disallow the payment of accrued COLA for the years 1992 to 1997. The core legal question was whether the COA had committed grave abuse of discretion in upholding the disallowance.

Legal Context: Understanding COLA and Salary Standardization

The legal framework governing this issue is primarily Republic Act No. 6758, known as the Compensation and Position Classification Act of 1989. This law aimed to standardize salaries among government employees, including those in government-owned and controlled corporations (GOCCs) like MTWD. A crucial provision, Section 12, states:

“SECTION 12. Consolidation of Allowances and Compensation. — All allowances, except for representation and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional compensation not otherwise specified herein as may be determined by the DBM, shall be deemed included in the standardized salary rates herein prescribed.”

This means that COLA, which was intended to help employees cope with the rising cost of living, was integrated into the standardized salary rates. The Department of Budget and Management (DBM) further clarified this through Corporate Compensation Circular (CCC) No. 10, which mandated the discontinuation of all allowances and fringe benefits over and above basic salaries.

It’s important to understand that ‘integration’ in this context means that the COLA is not paid separately but is considered part of the employee’s basic salary. This can be likened to baking a cake where various ingredients are mixed into the batter, rather than being added as toppings afterward.

Case Breakdown: The Journey of Ninia P. Lumauan’s Appeal

Ninia P. Lumauan’s journey began when the MTWD Board of Directors approved the payment of accrued COLA for the years 1992 to 1997. However, COA’s auditors disallowed this payment, citing the integration of COLA into the employees’ basic salaries as per RA 6758 and DBM-CCC No. 10.

Lumauan appealed the disallowance to the COA Regional Director, who upheld the decision. Undeterred, she escalated the matter to the COA-Commission Proper (CP), which also denied her appeal, citing both the late filing and lack of merit in her arguments.

The Supreme Court’s decision focused on two main points:

• Timeliness of the Appeal: The Court found that Lumauan’s appeal was filed on time, as it was submitted on the same day the Regional Director’s decision was received.
• Validity of the Disallowance: The Court upheld the disallowance, affirming that COLA was indeed integrated into the salaries of government employees as per RA 6758. The Court emphasized that this law was self-executing, meaning it did not require additional implementing rules to take effect.

Here are two key quotes from the Court’s reasoning:

“R.A. No. 6758 standardized the salaries received by government officials and employees. Sec. 12 thereof states that all allowances, except for specific exceptions, shall be deemed included in the standardized salary rates herein prescribed.”

“The Court has consistently held that Sec. 12 of R.A. No. 6758 is valid and self-executory even without the implementing rules of DBM-CCC No. 10.”

Practical Implications: Navigating Salary and Allowance Issues

This ruling reinforces the principle that COLA is integrated into the standardized salary of government employees. For similar cases moving forward, it’s crucial for government agencies and employees to understand that any attempt to claim COLA as a separate allowance will likely be disallowed.

For businesses and GOCCs, this decision underscores the importance of adhering to salary standardization laws. It’s advisable to consult with legal experts to ensure compliance with RA 6758 and related regulations.

Key Lessons:

• Understand the integration of allowances into basic salaries as mandated by RA 6758.
• Ensure timely filing of appeals to avoid procedural dismissals.
• Consult with legal professionals to navigate complex salary and compensation issues.

Frequently Asked Questions

What is COLA?

Cost of Living Allowance (COLA) is a benefit intended to help employees cope with increases in the cost of living. However, for government employees, it is integrated into their basic salary under RA 6758.

Can government employees still claim COLA separately?

No, as per RA 6758, COLA is deemed integrated into the standardized salary rates of government employees, and separate claims are generally disallowed.

What should I do if my employer disallows my COLA?

Understand the legal basis for the disallowance. If you believe it’s unjust, consult with a legal expert to explore your options, but be aware of the legal framework surrounding salary integration.

How can I ensure compliance with salary laws?

Regularly review and understand the provisions of RA 6758 and related DBM circulars. Seek legal advice to ensure your organization’s compensation policies are compliant.

What are the exceptions to salary integration under RA 6758?

Exceptions include representation and transportation allowances, clothing and laundry allowances, subsistence allowances for specific groups, hazard pay, and allowances for foreign service personnel stationed abroad.

ASG Law specializes in government compensation and benefits. Contact us or email hello@asglawpartners.com to schedule a consultation.