The short and unequivocal answer under Philippine law is no. Employers are strictly prohibited from unilaterally deducting BIR-imposed penalties, surcharges, interest, or any related financial losses from an employee’s salary, whether the penalty has already been assessed or is merely “potential.” Such deductions constitute illegal withholding of wages and expose the employer to labor claims, administrative penalties, and possible criminal liability.

This principle is deeply rooted in the 1987 Constitution, the Labor Code, jurisprudence of the Supreme Court, DOLE departmental orders, and settled BIR policy.

1. Constitutional and Labor Code Protection of Wages

Article XIII, Section 3 of the 1987 Constitution mandates the State to afford full protection to labor and declares that workers are entitled to “just and humane conditions of work” and “security of tenure.” Wages are explicitly protected as a fundamental worker’s right.

The Labor Code implements this through several iron-clad provisions:

Article 112 – “Non-interference in disposal of wages.” No employer shall limit or interfere with the freedom of any employee to dispose of his wages.
Article 113 – Enumerates the only allowable wage deductions:
1. Insurance premiums (with employee’s written consent)
2. Union dues (with check-off authorization)
3. Deductions authorized by law (SSS, PhilHealth, Pag-IBIG, withholding tax, court-ordered support, etc.)
4. Deductions for payment of loans to the employer (subject to DOLE guidelines and ceiling limits)
Article 116 – “Withholding of wages and kickbacks prohibited.” It is unlawful for any person to withhold any amount from the wages of a worker without his free and voluntary consent.
Article 1706 of the Civil Code (suppletory to labor law) – “Withholding of the wages, except for a debt due, shall not be made by the employer.”

The Supreme Court has repeatedly ruled that any deduction not falling under the exclusive list in Article 113 is illegal (e.g., G.R. No. 212878, Milan v. Solidbank, April 25, 2017; G.R. No. 167614, Nina Jewelry v. Montecillo, March 8, 2010).

2. Deductions for “Loss or Damage” Are Severely Restricted

Many employers mistakenly believe they can treat BIR penalties as “company losses” caused by employee negligence and therefore deductible. This is incorrect.

Article 114 of the Labor Code allows deductions for loss or damage only when all four conditions are simultaneously present:

The employee is clearly shown to be responsible for the loss or damage;
The employee is afforded due process (written notice, hearing/opportunity to explain);
The deduction is reasonable and does not exceed 20% of the employee’s weekly wage (DOLE Explanatory Bulletin on Deductions for Loss/Damage, 1999); and
The loss pertains to tools, materials, or equipment supplied by the employer (not administrative penalties paid to the government).

BIR penalties, surcharges, and interest are not “loss or damage to tools, materials, or equipment.” They are statutory civil penalties imposed on the employer as withholding agent. The Supreme Court has never extended Article 114 to cover government-imposed fines or penalties (see G.R. No. 204014, Wesleyan University-Philippines v. Villanueva, October 10, 2018).

3. BIR Penalties Are the Employer’s Liability as Withholding Agent

Under the National Internal Revenue Code (RA 8424 as amended):

Section 58(A) and Revenue Regulations No. 2-98 make the employer the statutory withholding agent for compensation income.
Sections 248–251 impose civil penalties (25%–50% surcharge), 12%–20% interest, and possible compromise penalties on the withholding agent (the employer), not on the individual employee who prepared the forms.
Even if the error was committed by the accountant, payroll officer, or HR personnel, the BIR will pursue the corporation or employer, not the employee.

The BIR itself has repeatedly clarified in rulings (BIR Ruling DA-073-2007, DA-489-2004, etc.) that the employer cannot shift the burden of these penalties to employees via salary deduction. To do so would violate the Labor Code and render the deduction illegal.

4. What Employers Commonly (But Wrongly) Do

Despite the clear prohibition, some companies insert clauses in employment contracts or handbooks stating:

“The employee shall be liable for any BIR penalties arising from his/her fault.”
“Salary deductions shall be made to cover tax deficiencies caused by the employee.”

These clauses are void ab initio for being contrary to law and public policy (Article 1306, Civil Code; Pakistan International Airlines v. Ople, G.R. No. 61594, September 28, 1990). The Supreme Court has consistently struck down contractual provisions that violate the Labor Code’s wage protection provisions.

5. Legitimate Recourses Available to Employers

While unilateral salary deduction is prohibited, employers are not without remedy:

Civil action for damages – Sue the employee for reimbursement under Articles 2176 (quasi-delict) or 1161 (culpa criminal) of the Civil Code if gross negligence or willful misconduct is proven.
Administrative disciplinary action – Impose suspension or termination for gross and habitual neglect of duty or serious misconduct (Article 297, Labor Code).
Criminal action – If the act constitutes estafa through negligence or qualified theft (very rare and difficult to prove).
Require cash bond or surety bond (for highly accountable positions such as cashiers or finance officers) – Allowed under DOLE Department Order No. 195-18, provided the bond is reasonable and the employee consents.
Withholding of final pay pending accounting – Limited to clearance procedures; still cannot deduct without due process and only for actual, proven shortages in money or property accountability.

6. Consequences for Employers Who Deduct Illegally

Employee may file a complaint for illegal deduction with the DOLE Regional Office (single-entry approach or SEnA).
Employer will be ordered to refund the deducted amount plus 25% legal interest and may be fined ₱10,000–₱100,000 per violation (DOLE D.O. 174-17).
Repeated violations can lead to criminal prosecution for violation of Article 116 (imprisonment of up to 3 years or fine of ₱30,000–₱100,000).
Constructive dismissal claim if the deduction is substantial.

Conclusion

Philippine law is crystal clear and heavily skewed in favor of the employee when it comes to wage protection. No employer may deduct actual or potential BIR penalties, surcharges, interest, or any tax-related losses from an employee’s salary. Such deductions are illegal, void, and unenforceable, regardless of employment contract provisions, company policy, or the degree of employee fault.

The employer’s remedy lies in disciplinary action or a separate civil suit for damages — never in self-help through salary garnishment. Any attempt to do so will almost certainly be struck down by the NLRC, DOLE, or the courts, with the employer bearing all costs and penalties.

Employees who encounter such deductions should immediately demand refund in writing and, if refused, file a complaint with the nearest DOLE office. The law is emphatically on their side.