Disclaimer

This article is for general information in the Philippine context and is not legal advice. Labor disputes are fact-specific and outcomes can vary depending on contracts, policies, payroll practice, and evidence.

1) The Core Idea: “Excess Leave” Usually Means “Leave Without Pay”

In Philippine employment practice, “excess leave” typically refers to absences beyond an employee’s available leave credits (e.g., sick leave/vacation leave already used up). When this happens, the usual rule is not “withholding” wages as a penalty, but simply treating the day(s) as leave without pay (LWOP)—meaning no wage is due for the day(s) no work was performed, unless a law, contract, CBA, or company policy says otherwise.

This rests on the long-standing labor principle often summarized as “no work, no pay”: wages are generally compensation for work actually rendered, except where pay is required by law or agreement (e.g., certain holiday pay situations, paid leaves provided by law or policy).

Bottom line: If an employee has no remaining paid leave credits and is absent, the employer may generally deduct the equivalent pay for the day(s) of absence because the employee did not render work for that period—so long as the deduction is only for the time not worked and not an unlawful fine/penalty disguised as a deduction.

2) “Withholding” vs “Deduction” vs “Non-payment for No Work”

These get mixed up, but they matter:

A. Non-payment for no work (LWOP)

The employee is absent with no paid leave credits.
The employer does not pay for the day(s) not worked.
This is generally not treated as a “wage deduction” in the punitive sense; it is simply that no wage accrued for that time.

B. Wage deduction (deducting from wages already due)

The employer subtracts amounts from wages otherwise payable (e.g., charges, offsets, deposits, penalties, breakages).
Philippine labor law restricts this heavily.

C. Wage withholding (holding back wages that are already due)

Delaying or refusing to release wages already earned can trigger wage law violations, including possible money claims and labor standards enforcement.

When employers say “we’ll withhold your salary because you had excess leave,” the lawful version is usually: “We will deduct/adjust pay equivalent to the days you did not work because you were on LWOP.” The unlawful version is often: “We will impose extra deductions or hold your entire paycheck as punishment.”

3) The Philippine Legal Framework on Wage Deductions (Labor Code)

The Labor Code provisions commonly involved are the rules on non-diminution of wages, payment of wages, and prohibited/regulated deductions, particularly the provisions traditionally cited as Articles 112–116 (renumbering exists in some compilations, but the substance is consistent). Key themes:

A. Deductions are allowed only in recognized situations

Generally permitted categories include:

Deductions required by law
- Withholding tax, SSS, PhilHealth, Pag-IBIG contributions, and other legally mandated withholdings.
Deductions authorized by the employee in writing
- Common for: salary loans, cooperative dues, union dues (subject to applicable rules), insurance premiums, company store purchases—but written authorization is crucial.
Deductions authorized by law/regulations (special cases)
- Very narrow categories, often with DOLE rules and strict conditions.

B. Prohibitions relevant to “excess leave”

Employers generally cannot:

Make deductions that function as penalties/fines for employee conduct (e.g., “late = ₱500 penalty”), if it effectively reduces earned wages beyond lawful limits.
Require “kickbacks” or withhold wages to force employees to give back any part of wages.
Deduct for alleged “loss/damage” to property without complying with strict requirements (due process, proof of employee fault, opportunity to be heard; and limitations).

Important: Deducting pay only equivalent to time not worked due to LWOP is different from deducting additional amounts as punishment.

4) What the Law Requires Employers to Pay (and What It Doesn’t)

A. Statutory leave: Service Incentive Leave (SIL)

Under the Labor Code, eligible employees generally receive Service Incentive Leave (commonly 5 days per year) after a required period of service, unless exempt due to employer type/employee classification (e.g., certain managerial employees, field personnel, etc., depending on the factual situation and implementing rules). Many employers provide more generous leave than SIL.

If the employee still has SIL (or company leave treated as paid), approved leave should be paid according to policy.

B. Company-granted leave (VL/SL beyond SIL)

Vacation and sick leave beyond SIL are typically contractual/company policy benefits. Employers can define accrual, conversion, carry-over, and approval rules—subject to:

non-diminution principles (benefits consistently given over time may become demandable, depending on circumstances), and
fairness/consistency and compliance with labor standards.

C. “Excess leave” beyond credits is generally unpaid

If there is no leave credit and no special entitlement, the law typically does not require paying for those absent days.

5) When Salary Adjustment for Excess Leave Is Lawful

An employer can generally reduce the payroll amount equivalent to the day(s) not worked when:

The absence is not covered by any paid leave credit (SIL or company leave), and
The employee did not render work on those days, and
The payroll computation is proportionate (only the corresponding daily/hourly equivalent), and
The employer does not impose additional deductions that operate as a penalty, and
The employer follows lawful pay practices (proper pay slip/payslip detail; correct cut-off handling; timely payment).

Practical example

Employee has used all VL/SL credits.
Employee takes 2 more days off, approved but designated as LWOP.
Employer pays only the days worked in the pay period (or adjusts monthly salary accordingly). This is typically treated as lawful payroll adjustment.

6) When It Becomes Unlawful “Withholding” or an Illegal Deduction

Problems arise if the employer:

A. Withholds the entire paycheck

If the employee worked part of the pay period, the employer generally cannot refuse to pay wages already earned for days actually worked, simply because the employee had LWOP days.

B. Deducts more than the value of the absence

Example: Employee is absent 1 day, employer deducts 3 days’ worth “as punishment” or “administrative charge.” This can be attacked as an unlawful deduction/penalty.

C. Converts the absence into a “fine” system

Deductions framed as disciplinary fines (separate from lawful LWOP adjustments) are legally risky and commonly challenged as prohibited reductions of wages.

D. Offsets absences against “deposits” or requires deposits improperly

The Labor Code limits deposits and deductions for loss/damage, and such schemes often fail without strict compliance and due process.

E. Makes unilateral deductions for “overused leave” without a clear basis

If the employer previously treated certain leave as paid (or promised paid leave), then later retroactively reclassifies it as unpaid and deducts after the fact, disputes may arise depending on:

written policy,
approvals and communications,
consistent company practice,
payroll timing and employee reliance.

7) Monthly-Paid vs Daily-Paid Employees: Does It Change the Rule?

A. Daily-paid

Straightforward: no work day generally means no pay day, unless paid leave/holiday rules apply.

B. Monthly-paid (fixed salary)

Monthly salary is still compensation for work and attendance within the month under agreed terms. Employers commonly compute an equivalent daily rate for absences and deduct accordingly. The legality hinges on:

whether the employee was absent without paid leave credit,
whether the deduction is proportionate and properly computed,
whether the employee is paid on a basis that already assumes paid rest days/holidays (which affects computation rules),
whether contractual terms or policy specify a divisor (e.g., 26 working days, 30 calendar days, 313 annual factor, etc.).

Key risk area: wrong divisor or inconsistent computation can create underpayment claims. Employers should use a computation method consistent with their pay structure and legal rules on holiday/rest day pay.

8) How This Interacts With Holidays, Rest Days, and Special Non-Working Days

This is where “excess leave” often gets misunderstood.

A. Regular holidays

Holiday pay rules can require payment even if no work is performed, depending on eligibility and presence/absence rules surrounding the holiday (e.g., being on leave/absent immediately before the holiday can affect entitlement in some settings). The details depend on the classification of the day and DOLE holiday pay rules.

B. Special non-working days

Often “no work, no pay” applies unless company policy or a CBA provides pay.

C. Rest days

Rest day pay applies if worked; if not worked, it is generally not paid unless already built into the wage structure or agreed.

Takeaway: Employers should not automatically tag a holiday as unpaid just because the employee has “excess leave” somewhere in the month; the legal nature of each day matters.

9) Documentation and Due Process: Best Practice (and Often Dispute-Preventing)

Even when lawful, employers reduce disputes by doing these:

Clear leave policy
- accrual, approval process, LWOP handling, cut-off timing, and conversion rules.
Written notice or leave form stating LWOP
- especially if leave is approved but unpaid.
Transparent payslip
- show number of LWOP days/hours and the exact computation.
Consistent application
- selective enforcement can trigger claims of unfair labor practice (in unionized contexts) or discrimination allegations.

10) Can Employers “Recover” Leave Taken in Advance?

Some companies allow “advance leave” (borrowing against future accrual). If the employee later resigns/terminates before earning back the leave, the employer may attempt to recover the equivalent amount from final pay.

Lawfulness depends on:

clear written policy allowing advance leave and recovery,
employee’s written authorization (or contract provision) permitting deduction from final pay,
compliance with wage deduction restrictions.

Unilateral recovery without a contractual/policy basis and written authority is more contestable, especially if it reduces final pay below what is unquestionably due.

11) Final Pay: A Common Flashpoint

When employment ends, disputes often arise if the employer:

offsets “excess leave” against final pay,
charges “liquidated damages” or other penalties,
deducts alleged accountabilities without due process.

A safer approach (and commonly expected in labor standards enforcement) is:

pay undisputed earned wages promptly,
document and justify any lawful deductions,
avoid punitive or unsupported offsets.

12) Remedies and Enforcement Paths (Philippines)

Employees who believe wages were unlawfully withheld/deducted typically pursue:

labor standards money claims (unpaid wages, illegal deductions), often through DOLE mechanisms or the appropriate labor forum depending on amount, employer-employee relationship status, and procedural rules;
claims may include wage differentials, holiday pay issues, 13th month pay differentials, and sometimes related damages/attorney’s fees where legally justified.

Employers generally defend by presenting:

time records, leave ledgers, approvals,
policy documents and employment contracts,
payroll registers and payslips showing correct computation,
written authorizations for deductions (when applicable).

13) Quick Rules of Thumb

Lawful: Treating leave beyond credits as LWOP and paying only for days worked (or deducting the exact equivalent for absences), with correct computation and documentation.
Unlawful / high-risk: Holding back the entire paycheck, deducting more than the absence value, imposing “fines,” making unilateral offsets without written authorization, or retroactively reclassifying paid leave as unpaid without clear basis.
Always sensitive: Holiday pay interactions, final pay offsets, “advance leave” recovery, and any deduction not mandated by law or not expressly authorized in writing.

14) Suggested Article-Grade Conclusion

Under Philippine labor standards, an employer generally may reduce pay corresponding to days not worked when an employee has taken leave beyond available paid credits—this is ordinarily LWOP, not a punitive withholding. However, Philippine law tightly regulates wage deductions and strongly disfavors schemes that penalize employees through extra deductions, broad offsets, or withholding of wages already earned. The legality therefore turns on whether the employer’s action is a proportionate pay adjustment for time not worked versus an unauthorized deduction or withholding—and whether policies, approvals, and payroll computations are clear, consistent, and properly documented.