In the Philippines, the short answer is: yes, but only in very limited, strictly regulated situations may an employer deduct from an employee’s wages the cost of lost or damaged company property. Anything outside those narrow conditions is generally considered an unlawful wage deduction and can expose the employer to liability.

Below is a detailed, practical guide to everything you need to know on this topic, framed in Philippine law and practice.

I. Legal Framework

Several layers of law and regulation are relevant:

The Constitution
- Mandates full protection to labor, a policy that influences how courts interpret wage deductions.
- Favors the employee in case of doubt, given the inequality of bargaining power.
Labor Code (as amended)
- Contains the general rule that wages shall not be withheld or diverted, except in cases:
  - Authorized by law (e.g., SSS, PhilHealth, Pag-IBIG, income tax),
  - Authorized by a collective bargaining agreement (CBA), or
  - Expressly authorized in writing by the employee for a legitimate purpose.
- The Implementing Rules explicitly address deductions for loss or damage to the employer’s property and lay down the conditions for their validity.
Civil Code
- Employees who, through fraud, negligence, or willful misconduct, cause damage to their employer may be civilly liable for that damage.
- But the existence of civil liability does not automatically authorize unilateral wage deductions; the Labor Code still controls the manner of recovery.
Special Laws
- Certain sectors have additional rules:
  - Kasambahay Law (RA 10361): strictly limits deductions from domestic workers’ pay.
  - Security services, construction, transport, etc. are often governed by DOLE department orders and industry-specific regulations dealing with bonds, tools, uniforms, and equipment.

II. General Rule on Wage Deductions

As a starting point:

Employers may not deduct any amount from an employee’s wages unless the deduction is allowed by law, by CBA, or by the employee’s written authorization—AND even then, it must not be unjust or oppressive.

Common lawful deductions (as context, not about property loss):

Mandatory contributions and taxes: SSS, PhilHealth, Pag-IBIG, withholding tax.
Union dues and agency fees under a valid CBA.
Loan amortizations or salary advances with written consent.

Loss or damage to company property is not automatically included here. It is a special case with its own strict conditions.

III. Special Rule: Deductions for Lost or Damaged Company Property

The Labor Code’s Implementing Rules recognize that employers may, in some cases, deduct from wages to recover the cost of lost or damaged property—but only if specific conditions are met.

A. The Classic Four Conditions

In practice and DOLE guidance, four conditions are used as a checklist. All must be present:

Clear responsibility
- It must be clearly established that the employee is responsible for the loss or damage.
- Mere suspicion or the fact that the employee was on duty is not enough.
- There must be some form of investigation or evidence (e.g., reports, CCTV, witness statements).
Opportunity to be heard
- The employee must be given a chance to explain:
  - Written notice of the alleged loss/damage and the proposed deduction;
  - Opportunity to submit a written explanation, attend a meeting, or be heard in a conference.
- This aligns with the “twin-notice and hearing” rule used in disciplinary cases: the employee should not just discover the deduction on the payslip.
Fair and reasonable amount
- The deduction must be fair and reasonable and not exceed the actual loss or damage.
  - No “inflated” or punitive amounts.
  - Depreciation and normal wear-and-tear should be taken into account.
- Deductions cannot be used as penalties or fines; they must be compensation for actual damage, not punishment.
Limit per pay period
- Only a limited portion of wages can be deducted per payroll period.
- In DOLE practice, some guidance caps such deductions at a certain percentage of the employee’s wages per pay day, to avoid leaving the employee with almost nothing to take home.
- Even when the total liability is large, deductions should be spread out reasonably.

If any of these elements are missing, the deduction is very likely to be considered illegal.

IV. Written Authorization vs. Forced Consent

Even when those four conditions are met, DOLE and the courts still look for proper consent:

Valid written authorization:
- Refers to a specific deduction (amount, purpose, schedule, and reason).
- Signed after the loss/damage is established, or as part of a clear policy previously explained and accepted (e.g., equipment accountability contract).
- The employee signs voluntarily, without coercion or threat.
Invalid or questionable consent:
- Requiring employees to sign blank or overly broad authorizations (e.g., “I authorize the company to deduct any amount for whatever losses it may incur”).
- Making signatures on such forms a condition for hiring or continued employment.
- Imposing the authorization under threat of dismissal or other sanctions.

Courts often treat coerced or overly broad authorizations as invalid, especially when they effectively force the employee to shoulder business losses or normal operational risks.

V. Distinguishing Legal Deduction From Illegal Penalties

A key distinction in Philippine labor law is between:

Reimbursement for actual loss or damage, versus
Imposition of penalties/fines disguised as wage deductions.

Examples:

Potentially lawful (if all conditions are met):
- A company-issued laptop is lost due to the employee’s negligence (leaving it unattended in a public place despite clear policy). An investigation confirms this, the value is computed fairly (considering age of the laptop), and the employee signs a repayment plan deducted in reasonable installments.
Likely unlawful:
- A cashier is charged a fixed “shortage penalty” every time there is a cash shortfall, regardless of proof of fault, with amounts automatically deducted from salary.
- Restaurant staff are routinely charged for broken glasses/plates simply because they were on duty when it happened.
- Delivery riders must pay for all lost parcels even when theft or hijacking occurs beyond their control.

In these cases, deductions function as fines or cost-shifting, not fair compensation for proven negligence.

VI. Burden of Proof and Employer Responsibility

A. Who has the burden?

The employer bears the burden of proof:
- That the company property existed and was indeed lost or damaged;
- That the specific employee was responsible for the loss/damage;
- That there was an investigation and an opportunity to be heard;
- That the amount deducted represents actual and reasonable loss, not speculative or punitive sums;
- That the employee freely authorized the deduction, where required.

Without such proof, DOLE and the NLRC generally consider the deduction illegal, and order refunds plus possible damages.

B. Operational risk vs. employee negligence

Employers are expected to bear ordinary business risks:

Normal breakage, shrinkage, inventory variances within industry norms;
Losses due to system failures, lack of proper controls, or management decisions.

Only when the loss is clearly due to employee fault (fraud, gross negligence, willful breach of policy) can the employer seek recovery. Even then, wage deduction is just one possible (and highly regulated) method; the employer can also:

File a civil case for damages; or
Pursue criminal charges (e.g., theft, qualified theft) in appropriate cases.

VII. Special Treatment in Certain Sectors

1. Retail, restaurants, and hospitality

Common issues:

Broken plates, glasses, or utensils;
Unpaid customer bills (e.g., dine-and-dash);
Shortages in cash registers.

As a rule:

Employers cannot routinely deduct for breakages and shortages, especially if the business has chosen a setup where loss is predictable (e.g., self-service, high-volume operations) or where several people share responsibility (e.g., multiple cash handlers).
Only proven negligence or misconduct of a particular employee may justify deduction.

2. Logistics, transport, and delivery

Common issues:

Damaged or lost goods in transit;
Vehicle damage in accidents;
Traffic violations.

Key points:

Traffic fines paid by the company and then automatically charged to the driver are often deemed unlawful deductions unless there is clear agreement and proof of fault, and even then must be reasonable.
For accidents, employer bodies (e.g., insurance, fleet management) should bear the primary risk; only in cases of clear, egregious negligence (e.g., drunk driving, willful violation of safety rules) do deductions become more defensible, and even then must follow due process.

3. BPO and office-based work

Common issues:

Lost or damaged headsets, ID badges, access cards, laptops, mobile phones.

Guidelines:

It is common to require employees to sign equipment accountability forms or property receipts.
However, these do not grant the employer unlimited power to deduct:
- There must still be proof of fault;
- Replacement costs must be reasonable and not simply at brand-new retail price if the item is already old; and
- Installments must be fair and not confiscatory.

4. Domestic workers (Kasambahay)

The Kasambahay Law contains stricter protections:

Deductions for loss or damage are allowed only when clearly attributable to the domestic worker’s fault or negligence and after due process.
Even then, recovery is often limited and must not reduce wages below minimum levels set by law.
Additional restrictions apply to ensure domestic workers are not trapped in debt bondage.

5. Security and agency workers

In some industries, cash bonds are permitted (subject to DOLE rules), but:

These bonds must be deposited in trust (often in a bank) and refundable upon separation minus any properly substantiated liabilities.
They are not a license for arbitrary deductions.
The same negligence + due process + reasonable amount test applies before applying any liability against the bond.

VIII. Company Policies, Contracts, and CBAs

A. Role of policies and contracts

Employers often adopt policies stating, for example:

“Employees shall be responsible for company property issued to them. Loss or damage due to negligence shall be charged to the employee’s account.”

While such policies are not inherently illegal, they do not override the Labor Code. Courts will assess:

Whether the policy is fair and reasonable;
Whether it was clearly communicated (e.g., in an employee handbook, acknowledged via signature);
Whether it was implemented consistently, not selectively.

B. CBAs and unionized workplaces

In unionized settings:

A CBA may specify how losses are investigated, limits to liability, or maximum percentages for deductions.
These terms, if more favorable to employees, generally prevail.
Employers must respect both the CBA and the Labor Code requirements.

IX. Due Process in Practice

When an employer intends to charge an employee for lost or damaged property (and possibly deduct wages), a legally safer sequence looks like this:

Incident report
- Document the loss/damage: date, time, nature of property, circumstances.
Notice to the employee
- Written notice describing:
  - The property lost or damaged;
  - Alleged responsibility or negligence;
  - The proposed liability or deduction.
Opportunity to explain
- Allow the employee to:
  - Submit a written explanation;
  - Attend a conference or hearing;
  - Present witnesses or evidence.
Evaluation & decision
- Management evaluates evidence.
- If liability is established:
  - Compute the actual loss (considering age/depreciation and any insurance).
  - Decide on a reasonable repayment scheme, often through installments.
Written agreement
- A clear, signed agreement stating:
  - Total amount owed;
  - Installment amount per pay period;
  - Duration of deductions;
  - Acknowledgment that the employee had a chance to be heard.
Implementation
- Deductions are reflected in payslips with transparent breakdowns.
- If the employee disputes liability, it is safer not to deduct and instead pursue civil remedies.

Skipping these steps significantly increases the risk that DOLE or the NLRC will treat the deduction as illegal.

X. Limits and Red Flags for Illegality

An employer practice is often unlawful if:

Deductions are made without prior notice describing the loss/damage.
The employee never had a chance to contest the allegation.
Deductions are automatic based on policy alone (“any breakage is charged to staff on duty”).
Deductions exceed the actual value of the loss, ignoring depreciation.
Deductions are very large relative to wages, leaving the employee with almost nothing.
The practice effectively shifts normal business risks (e.g., theft by third parties, unavoidable damage, stock variances) onto employees.
Employees are made to sign blank or very general authorizations covering “all possible losses”.
The deductions, taken together with other practices, result in an effective wage that falls below legal minimums or function as hidden penalties.

In such cases, DOLE may order:

Refund of illegally deducted amounts;
Payment of wage differentials, if minimum wage laws are violated;
Possible fines or criminal liability under the Labor Code’s penal provisions.

XI. Remedies and Practical Steps

A. For employees

If you believe your employer has made illegal deductions for lost or damaged company property, you may:

Raise the issue internally first:
- HR, immediate supervisor, or the grievance machinery (if there is a union).
- Request a written explanation of:
  - The basis of your alleged liability;
  - How the amount was computed;
  - Copies of any policy or document they rely on.
Gather documents
- Payslips showing deductions;
- Copies of employment contract, handbook, accountability forms, and any written explanation you gave;
- Any messages or memos about the incident.
Seek external assistance
- File a complaint with the DOLE Regional/Field Office for inspection and conciliation-mediation; or
- For higher amounts or complex disputes, file a money claim and/or illegal deduction case before the NLRC.

B. For employers

To minimize legal risk:

Draft clear, reasonable policies on company property issuance, care, and accountability.
Avoid automatic or blanket deductions; always investigate incidents.
Use written accountability forms that are:
- Specific and fair, not overly broad;
- Explained to employees upon signing.
If damage or loss occurs, perform due process: notice, explanation, evaluation.
Compute losses fairly:
- Consider age and normal wear-and-tear;
- Deduct any insurance recoveries.
Use installment deductions with written acknowledgment, keeping in mind limits so that take-home pay remains reasonable.
When in doubt—especially for large amounts—consider civil action instead of unilateral wage deduction.

XII. Final Thoughts and Caution

In Philippine labor law, the employee’s wage is highly protected. The law recognizes that wages are the worker’s means of survival, so any deduction is strictly scrutinized.

To summarize the core principles:

Yes, employers can sometimes deduct the cost of lost or damaged company property from wages.
But only if:
- The employee’s fault is clearly established;
- The employee had a genuine chance to be heard;
- The amount is limited to the actual, reasonable loss;
- The deduction per pay period is not oppressive; and
- The employee’s consent is clear and not coerced, consistent with the Labor Code and DOLE rules.

Anything beyond these strict requirements is highly vulnerable to being deemed illegal, with consequences for the employer and remedies available to the employee.

Because laws and regulations can be amended, and because each case is fact-specific, anyone facing a real-life issue on this topic should consult a Philippine labor lawyer or DOLE officer for tailored advice.