In the Philippine workplace, few issues create as much tension as a "shortage" in a cash fund. Whether it involves a supermarket teller’s drawer, a petty cash custodian’s box, or a bank solicitor’s collections, the question remains: Can the employer legally hold the employee liable and deduct the loss from their salary?

Navigating this requires a balance between the employer's right to protect its property and the employee's constitutional right to due process and wage protection.

1. The Legal Basis: Wage Protection and Deductions

As a general rule under Article 113 of the Labor Code, employers are prohibited from making deductions from the wages of employees. However, there are three primary exceptions:

Insurance Premiums: When the employee is insured by the employer with their consent.
Union Dues: For check-offs agreed upon in a Collective Bargaining Agreement (CBA).
Authorized by Law or Regulation: This is where cash shortages fall.

Under Department Advisory No. 11, Series of 2014, and the Implementing Rules of the Labor Code, deductions for loss or damage (including cash shortages) are permissible only if the employee is clearly shown to be responsible and certain procedural steps are followed.

2. Conditions for a Valid Deduction

For an employer to legally deduct a shortage from an employee’s pay, the following criteria must be met:

Direct Responsibility: The employee must be the one who has custody and control of the fund.
Opportunity to be Heard: The employer cannot unilaterally decide there is a shortage and deduct immediately. They must provide the employee a chance to explain how the shortage occurred.
Reasonable Proof: The employer must show that the loss was due to the employee’s fault, negligence, or dishonesty—not due to systemic errors or third-party theft beyond the employee's control.
Fair Limit: The deduction must not exceed 20% of the employee’s wages per week/month, ensuring the worker still has enough to live on.

3. The Role of "Loss and Damage" Deposits

Some industries require employees to put up a "bond" or deposit to cover potential shortages. Under Philippine law, this is generally disfavored unless:

The employer is engaged in a trade where the practice of making deductions or requiring deposits is a recognized custom (e.g., retail, banking).
The Department of Labor and Employment (DOLE) has authorized such deductions.

4. Disciplinary Action vs. Civil Liability

A cash shortage can lead to two different paths:

A. Civil Liability (Restitution)

The employee is required to pay back the missing amount. This is often handled through a series of salary deductions. If the employee resigns before the debt is paid, the employer may legally deduct the balance from the employee's final pay.

B. Administrative Disciplinary Action

A shortage can be a ground for termination under Article 297 (formerly 282) of the Labor Code:

Serious Misconduct: If the employee stole the money.
Willful Breach of Trust: For employees in fiduciary positions (like cashiers).
Gross and Habitual Neglect: If the shortage happened because the employee repeatedly failed to follow counting or turnover procedures.

Important Note: A single, honest mistake resulting in a minor shortage usually does not justify dismissal. However, repeated shortages or a single "massive" shortage caused by gross negligence can be valid grounds for termination.

5. Due Process Requirements

Employers must follow the "Two-Notice Rule" if they intend to terminate an employee over a shortage:

First Written Notice: Specifying the grounds for termination (the shortage) and giving the employee at least 5 days to submit an explanation.
Hearing/Conference: An opportunity for the employee to present evidence or explain their side.
Second Written Notice: The final decision of the employer.

If the employer only intends to deduct the money (and not terminate), they must still provide a summary of the audit findings and allow the employee to contest the figures.

6. Common Defenses for Employees

If you are an employee facing a shortage claim, the following are common legal defenses:

Force Majeure: The loss was due to an event outside your control (e.g., a robbery or fire).
System Errors: The shortage is a "paper loss" caused by a software glitch or accounting error.
Lack of Exclusive Access: If multiple people had keys to the cash box or used the same POS login, the "direct responsibility" requirement is weakened.

Conclusion

While employers in the Philippines have the right to recoup actual financial losses caused by their staff, they cannot do so arbitrarily. The law prioritizes the protection of wages, requiring that any deduction for a cash shortage be backed by evidence, fair procedure, and a respect for the employee's right to be heard.

Would you like me to draft a sample "Explanation Memo" (Reply to a Notice to Explain) for a cash shortage scenario?