Overview

In the Philippine labor setting, “incentives” can mean very different things—commissions, productivity incentives, bonuses, profit-sharing, allowances, contest rewards, “extra” payments, or even leave conversion. Whether an employer may legally withhold an incentive (and whether written authorization is needed) depends on one core question:

Is the “incentive” already an earned part of the employee’s compensation (wage/benefit), or is it a discretionary reward that has not yet ripened into a demandable right?

If it is earned compensation, it is treated like wages/benefits and is protected by strict rules on timely payment and limitations on withholding and deductions. If it is truly discretionary, an employer has more leeway—but discretion is often lost when the incentive becomes contractual or a “company practice.”

This article explains the rules and how they apply in common workplace scenarios.

1) Key Legal Concepts You need to separate

A. “Incentive” that is actually wage

Under Philippine labor law, wages are broadly defined and can include many payments labeled as “incentives.” Common examples that are often treated as wages include:

Sales commissions (commission-based earnings are typically treated as wage)
Piece-rate / output-based incentive pay where it is part of the pay system
Productivity pay that is computed from measurable outputs and forms part of compensation

Why this matters: Once an amount is considered wage and has been earned, employers generally cannot withhold it except for reasons allowed by law—and many deductions require written authorization.

B. Incentive that is a benefit (especially if it’s already part of practice)

Some incentives are not “wage” in the strict sense, but they are benefits. If a benefit has been:

promised in a contract, CBA, or written policy, or
consistently and deliberately given over time such that employees can reasonably expect it,

it can become demandable under the doctrine of company practice and protected by the non-diminution of benefits rule.

Why this matters: Once it becomes a demandable benefit, withholding it can be treated like illegal reduction/nonpayment—even if the employer calls it “discretionary.”

C. Incentive that is a discretionary bonus

A “bonus” is generally considered gratuitous (not demandable) unless it has become:

contractual (expressly promised), or
regular and expected as a company practice, or
tied to measurable criteria such that, once met, payment is no longer discretionary.

Why this matters: Employers can decide not to give a purely discretionary bonus. But they cannot retroactively “discretion” their way out of something that employees have already earned under the rules/policy.

2) The Wage Protection Rules: Withholding vs. Deduction

A lot of disputes come from mixing up two ideas:

Withholding: not releasing payment that is due/earned.
Deduction: subtracting amounts from wages to cover debts, losses, penalties, etc.

Both are regulated, but deductions are especially strict.

General rule: wages must be paid on time

Wages must be paid at least twice a month (for most employees), and employers are not allowed to delay wages without legal basis.

If an “incentive” is effectively wage (like commissions or earned productivity pay), delaying or withholding it can be treated as nonpayment/underpayment of wages.

3) When written authorization is required (and when it is not)

A. Deductions that commonly require written authorization

While there are limited statutory deductions (e.g., withholding tax, SSS/PhilHealth/Pag-IBIG contributions), many other deductions need the employee’s written consent or must fall under specific legal exceptions. Written authorization is commonly required for deductions such as:

Loan repayments to the employer (salary loans, cash advances), unless covered by a lawful mechanism and properly documented
Insurance premiums or similar arrangements not mandated by law
Other personal obligations paid through payroll
Union-related deductions in situations where individual authorization is legally required (this gets technical depending on context, membership, CBA check-off provisions, etc.)

Practical takeaway: If the employer is taking money out of compensation, assume written authorization is needed unless it’s a government-mandated deduction or clearly allowed by law.

B. Situations where written authorization is not the main issue

Sometimes the dispute is not about a “deduction,” but about eligibility:

“You didn’t hit the KPI threshold, so no incentive is earned.”
“You were absent/tardy; under the plan rules, incentive is reduced.”
“The transaction was canceled/returned; commission is reversed per policy.”

In these cases, the question is whether the incentive plan is valid, clear, consistently applied, and lawful—not whether the employee signed a deduction authority.

4) The most common scenarios (and what the law tends to do with them)

Scenario 1: Employer withholds commissions because of a “policy” the employee never signed

Likely outcome: Risky for the employer.

Commissions are commonly treated as wages once earned (e.g., once a sale is booked/collected depending on the plan).
If the employer wants to impose conditions (collection, no returns, completed documentation), those conditions should be clear, communicated, and consistently applied.
If the commission is already earned under the plan or long-standing practice, withholding it can be viewed as wage nonpayment.

Best practice: Put the commission plan in writing, have employees acknowledge, define when commission is “earned,” and define reversals/chargebacks carefully.

Scenario 2: Employer withholds incentives to offset alleged losses, shortages, or damages

High legal risk unless done within strict limits.

Philippine rules on deposits and deductions for loss/damage are stringent. As a general approach:

The employer needs a lawful basis and due process (investigation, employee opportunity to explain).
Unilateral offsets against wages are heavily scrutinized.
For many non-mandatory offsets, employee written authorization is often crucial, and even then the legality may depend on the circumstances (e.g., whether the employee is at fault, whether procedural safeguards were followed).

Bottom line: Using “we’ll just deduct it from your incentives” as a shortcut is a common source of labor cases.

Scenario 3: Employer withholds a promised “performance incentive” because the employee resigned or was terminated before payout date

This depends on the nature of the incentive and the reasonableness of the condition:

If it is a discretionary bonus, an “active employment on payout date” condition is more defensible.
If it is a wage-like incentive earned through performance over a period (especially if the employee already met targets), an absolute forfeiture can be challenged as unjust or as a form of withholding earned compensation—particularly if the plan effectively makes it earned over time.

Practical middle ground many employers use: pro-rating rules, or defining “earning” and “vesting” points (e.g., earned monthly, payable quarterly), with clear forfeiture rules for misconduct (not mere resignation).

Scenario 4: Employer withholds incentives as a disciplinary penalty (e.g., policy violation, attendance issues)

Employers can design incentive schemes that factor in:

attendance,
punctuality,
compliance and quality metrics,

as long as the scheme is clear and not used to evade minimum wage/mandatory benefits.

But withholding wages as punishment is dangerous if the “incentive” is actually an earned wage component. Discipline must follow due process, and penalties must not violate wage protection rules.

Scenario 5: Employer refuses to pay a “bonus” that has been given every year

This is where company practice and non-diminution of benefits come in.

If the bonus/incentive has been:

consistently given over a significant time,
deliberately (not due to a clear one-off condition),
such that employees reasonably expect it,

it may become a demandable benefit. Employers then cannot simply stop paying it without risking a non-diminution claim—unless they can prove it was truly conditional/discretionary and not a practice that ripened into an obligation.

5) Mandatory benefits are not “optional incentives”

Some items employers sometimes mislabel as “incentives” are actually mandatory and cannot be withheld as a matter of policy:

13th month pay (mandatory under the 13th Month Pay Law for covered employees, with specific rules and deadlines)
Service Incentive Leave (SIL) (5 days with pay after one year of service for covered employees)
Holiday pay / overtime pay / night shift differential, where applicable
Government-mandated contributions (employer must remit properly; employees’ share is deducted as allowed)

Calling a mandatory benefit an “incentive” does not make it discretionary.

6) What makes an incentive plan enforceable (and safer for employers)

Whether you’re an employer designing a plan or an employee challenging one, these features are decisive:

A. Clear “earned vs payable” definitions

A strong plan defines:

When the incentive is earned (e.g., upon collection, upon delivery, upon acceptance)
When it becomes payable (e.g., next payroll, quarter-end)
What events trigger reversals/chargebacks (returns, cancellations, bad debts)

B. Non-violation of labor standards

An incentive plan cannot be used to:

bring pay below minimum wage,
substitute mandatory benefits,
impose unlawful penalties through wage withholding.

C. Consistent implementation

Inconsistently applying rules (waiving for some, not for others) creates vulnerability.

D. Documentation and acknowledgments

Written policies and employee acknowledgment reduce disputes—especially where the employer will later argue that the incentive is conditional.

7) So—can employers withhold incentives without written authorization?

If the “incentive” is earned wage or a demandable benefit

Generally, no. Withholding is likely unlawful unless:

the employee did not actually earn it under a valid plan, or
the withholding is tied to lawful deductions/offsets (many of which require written authorization), or
there is a legal ground recognized by labor standards rules.

If the “incentive” is a purely discretionary bonus

Often, yes—because it is not yet a legally demandable right. But the employer must be careful: repeated, consistent granting can convert it into a demandable benefit.

If the employer is deducting amounts from incentives to cover obligations

This is where written authorization frequently becomes essential, unless the deduction is mandated/allowed by law. Even with written authorization, deductions that function as penalties or shortcuts around due process can still be challenged.

8) Remedies for employees (practical steps)

Gather documents: payslips, incentive plan, emails, memos, KPI reports, commission statements, handbook pages, prior payout history.
Send a written inquiry (HR/payroll) requesting computation and basis of withholding.
SEnA (Single Entry Approach) at DOLE for conciliation-mediation (often the fastest first move).
If unresolved, consider a money claim (venue depends on claim type/amount and circumstances) and seek legal advice on whether it belongs with DOLE or the NLRC/Labor Arbiter.

9) Practical compliance checklist (for employers)

Classify each payment correctly: wage vs benefit vs discretionary bonus.
Put incentive plans in writing with employee acknowledgment.
Define “earned,” “payable,” and “reversal” rules.
Avoid forfeiture rules that wipe out already-earned amounts without strong justification.
Do not offset losses/penalties against wages/incentives without legal basis and due process.
Use written authorization when deducting for loans/obligations not mandated by law.
Watch for “company practice” risk when giving “discretionary” incentives regularly.

10) Quick FAQs

Is an “incentive” automatically discretionary because the company calls it discretionary? No. Labels don’t control. Substance and practice do.

Can a company delay incentive payout to the next quarter? If the plan clearly provides for that and it doesn’t violate wage payment rules (especially if the incentive is wage-like and already earned), it may be allowed—but unexplained delays are risky.

Can an employer withhold incentives because the employee has a pending HR case? Not as a default. If the incentive is earned wage/benefit, withholding as leverage is dangerous. Any forfeiture must be grounded in a lawful, clearly stated plan and implemented with due process.

If the employee resigns, can the employer refuse to pay incentives earned before resignation? If the incentive is earned wage/benefit, it is generally part of final pay. If it’s truly discretionary, the employer has more leeway. Many disputes turn on whether it’s “earned” before separation.

Closing note

The safest way to analyze any withholding is to answer, in order:

What exactly is the incentive (commission, productivity pay, bonus, allowance, benefit)?
When is it earned under the plan or practice?
Is the employer withholding it, or deducting/offsetting something from it?
If deducting/offsetting, is there a lawful basis and written authorization (or a statutory exception)?
Has the incentive become a demandable benefit through contract or company practice?

If you want, paste the exact wording of the incentive policy (or describe how it was computed and why it was withheld), and I’ll map it to these categories and flag the strongest arguments on both sides.