Excessive Salary Deductions in the Philippines
A comprehensive legal guide for employers, workers, HR and compliance officers
1. What counts as a “salary deduction” – and when does it become excessive?
Under Philippine law, a deduction is any sum withheld from an employee’s wage at payroll time. A deduction turns excessive (and therefore unlawful) the moment it is not expressly allowed by statute, regulation, written employee consent, or a valid court/administrative order, or if it drags the worker’s take-home pay below the applicable minimum wage. The default rule is no deduction is allowed; the employer must point to a clear legal basis. (AMSLAW)
2. Core statutory framework
| Provision | Key rule | Practical note |
|---|---|---|
| Labor Code Arts. 112-118 | • Art 113: general prohibition; three narrow exceptions. • Arts 114-115: deposits for loss / damage only after due process. • Art 116: bans withholding or kick-backs by force, stealth or threat. |
These are criminally punishable; “good faith” is not a defense. (AMSLAW) |
| Implementing Rules, Rule VIII, §10 (as amended) | Deduction with written employee authority is now allowed even if payment goes to the employer or a third party, provided the employer gains no pecuniary benefit and statutory wage levels are preserved. | Amendment introduced by DOLE Department Order 195-18 (27 July 2018). (Digest PH, BusinessWorld Online) |
3. Deductions the law always allows
| Category | Legal basis | Payroll treatment |
|---|---|---|
| Income-tax withholding | NIRC § 2.78.1, latest rates under BIR RR 4-2025 | Use BIR 1601-C; remit on or before the 10th of the following month. (Bir Cdn) |
| SSS contributions | RA 11199 (2018 SSS Act) & RA 8282; employer must deduct the employee share and add the employer counterpart, remitting within the first 10 days of the next month. (Social Security System, Social Security System) | |
| PhilHealth premium | UHC Act IRR; 5 % rate ceiling in 2025 (floor ₱10 000, ceiling ₱100 000). Employer withholds employee share and remits with ER share using RF-1. (PhilHealth, PhilHealth) | |
| Pag-IBIG Fund | RA 9679 IRR: 1 %–2 % employee share (capped at ₱100 / ₱150) + equal ER counterpart; collected by salary deduction every pay day. (Pag-IBIG Fund) | |
| Court / NLRC garnishment, child support, tax levy | obey writ exactly; do not exceed court-specified rate. |
4. Deductions that may be lawful only with strict conditions
| Scenario | Conditions |
|---|---|
| Insurance premiums | Employee must opt-in in writing and premium must be exactly the amount paid by the employer. |
| Union dues / agency fees | Covered by CBA check-off clause and individual written authorization, or by compulsory union-security arrangement; failure to remit is an unfair labor practice (ULP). (LawPhil) |
| Salary loans, company cooperatives, gadget plans, etc. | Written authorization under DO 195-18; aggregate deductions must not cut the employee’s net pay below minimum wage and employer must not profit. |
| Deposits for loss or damage (Arts 114-115) | (1) Business of the employer is one where deposits are a “recognized practice.” (2) Employee was heard and liability clearly shown. (3) Deduction equals actual loss. (AMSLAW) |
5. Flatly prohibited deductions
- “Penalties” (salary deductions as disciplinary sanction).
- Cash shortages or inventory losses charged without a formal due-process investigation.
- Employer-imposed “processing,” “training,” or “bond” fees that benefit the employer.
- Any kick-back, forced “voluntary” contribution, or withholding to coerce resignation or silence.
- Withholding final pay until exit clearances are completed unless property accountability is proven; blanket holds have been struck down by the Supreme Court. (LawPhil)
6. Recent jurisprudence snapshot
| Year | Case | Doctrine |
|---|---|---|
| 2024 | Al-Masiya Overseas v. Viernes, G.R. 243139 | Unlawful salary withholding = constructive dismissal; entitles worker to backwages and damages. (LawPhil) |
| 2023 | G.R. 235569 (unlawful union-dues withholding) | Non-remittance of checked-off dues is an ULP exposing officers to criminal charges. (LawPhil) |
| 2023 | SC News: Payroll used for paluwagan | Misappropriating payroll or making off-book deductions is gross misconduct warranting dismissal. (Supreme Court of the Philippines) |
7. Enforcement, penalties and employee remedies
Visitorial power – DOLE inspectors (Art 128) may order immediate refund and assess 10 % attorney’s fees (Art 111) on top of the principal. (AMSLAW)
Criminal liability – Violations of Arts 113-116 are punished under Art 303 [288]: fine ₱100 000–₱10 000 000 and/or 2–4 years imprisonment; alien offenders are deported after sentence. (Labor Law Library)
Civil damages & interest – Courts routinely award 6 % legal interest plus moral/exemplary damages where bad faith is shown. (RESPICIO & CO.)
Procedural track for workers
- Raise internally (HR/payroll).
- Single-Entry Approach (SEnA) at the nearest DOLE field office.
- Complaint before NLRC for money claims ≤ ₱5 000 (Art 129) or full-blown labor case with reinstatement.
- Criminal complaint with DOLE endorsement to the prosecutor’s office for flagrant violations. (RESPICIO & CO.)
8. Compliance blueprint for employers
- Payroll controls – automate statutory deductions; lock manual override behind maker-checker approvals.
- Written authorizations – use a one-page, transaction-specific form citing DO 195-18. Keep in 201 file for three years.
- Deduction caps – run a minimum-wage test each pay cycle; if net pay would fall below the regional minimum, suspend non-statutory deductions.
- Separate remittance calendars – earmark SSS, PhilHealth, Pag-IBIG, tax remittances; late payment penalties quickly exceed any cash-flow gain.
- Transparent payslips – itemize every deduction with legal basis; Electronic payslips are valid if printable on demand.
- Train line managers – many illegal deductions originate from ad-hoc “penalties” imposed at branch level; orient them on Arts 113-116.
9. Take-aways
The touchstone is consent + legality + benefit to the employee. Anything beyond the narrow statutory and regulatory exceptions is presumptively excessive and exposes the employer to refund orders, hefty fines and even jail time for officers. Robust payroll governance, documented authorizations and prompt remittances are the best defenses against claims of excessive salary deductions.