A Comprehensive Guide to Authorized Deductions Under Philippine Labor Law

Executive Summary

In the Philippines, no wage deduction is “automatic” simply because an employer wants it. Deductions are allowed only if: (1) required by law, (2) ordered by a competent authority, or (3) expressly and voluntarily authorized by the employee in writing and permitted by the Labor Code and its rules. Anything outside these lanes risks being an illegal deduction, exposing the employer to money claims, penalties, and even criminal liability for unlawful withholding of wages.

Core Legal Principles

1) General Rule: No Deductions from Wages

The Labor Code’s wage-protection framework starts from a prohibition: employers may not deduct from wages except in specific, narrowly defined instances. The goal is to preserve the full wage as the employee’s property, subject only to exceptions grounded in law, regulation, or valid consent.

2) Employee Consent Must Be Informed, Written, and Specific

Where the law allows a voluntary deduction, the employee’s authorization must be:

Written (not verbal or implied),
Freely given (no coercion or undue pressure), and
Specific as to purpose, amount/formula, and duration.

3) Deductions May Not Undermine Wage Standards

Even authorized deductions cannot be used to circumvent the minimum wage, overtime, night shift differential, 13th month pay, and other statutory entitlements. Deductions for “facilities” (e.g., board and lodging) are subject to strict valuation and voluntariness rules and cannot be treated as a backdoor wage cut.

What Is Automatic (Because the Law Says So)

These deductions are mandatory. Employers must withhold them without needing the employee’s written consent:

Government-Mandated Contributions
- SSS (Social Security System)
- PhilHealth (National Health Insurance)
- Pag-IBIG/HDMF (Home Development Mutual Fund) Notes:
- The employer remits both the employee share (deducted from salary) and the employer counterpart by statutory deadlines.
- Failure to remit is a separate violation and can incur surcharges/penalties.
Withholding Taxes
- Compensation income tax must be withheld and remitted to the BIR following the pay-as-you-earn system.
- Minimum Wage Earners are exempt from income tax on basic pay, but this does not exempt them from SSS/PhilHealth/Pag-IBIG contributions.
Court or Quasi-Judicial Orders
- Garnishments (e.g., child support) or writs issued by courts or authorized agencies must be honored.
- Employers should implement strictly as ordered (amount, frequency, priority).

Bottom line: These three categories are the only truly “automatic” deductions in Philippine payroll—because the law (or an order) compels them.

What Requires Employee Authorization + Legal Basis

The following may be deducted only with a compliant written authorization and only if they fit within allowed categories under the Labor Code and its rules:

Union Dues / Agency Fees
- Permissible via check-off if recognized in a CBA or with individual written authorizations.
- Revocation follows the CBA or check-off rules; agency fees apply to non-union members in the bargaining unit if recognized under law and CBA.
Company Loans and Salary Advances
- Deductible only with a clear written consent stating the principal, interest (if any, consistent with usury/consumer rules), schedule, and right to prepay.
- Net take-home pay must remain compliant with wage standards.
Government-Related Loans (e.g., SSS salary loans, Pag-IBIG MP2/Calamity/Short-Term loans)
- Typically supported by borrower’s authorization for payroll deduction.
- Employer acts as collecting agent and must remit on time.
Insurance Premiums and Similar Voluntary Benefits
- Allowed if the employee is insured with his/her consent and the authorization specifically covers payroll deduction.
Deductions for Loss or Damage
- Strict conditions:
  - Employee’s clear responsibility/fault is established after giving the employee a chance to be heard;
  - The amount is fair and reasonable and does not exceed actual loss;
  - Deduction is not oppressive and complies with minimum wage protection;
  - Ideally supported by an internal investigation report and the employee’s written conformity to the deduction plan.
Board, Lodging, and Other “Facilities”
- Only if voluntarily accepted in writing by the employee as part of wage, and valued per DOLE rules (reasonable cost; not arbitrary).
- Supplements (e.g., canteen subsidies for the employer’s convenience) cannot be deducted.
Overpayments / Payroll Errors
- Recoverable if the facts are documented and employee authorizes a reasonable deduction schedule that preserves wage standards.
- For large amounts, consider installments to avoid undue hardship.
Miscellaneous Voluntary Programs (e.g., cooperative contributions, charity drives)
- Require written opt-in with clear amounts and revocation terms.

What Is Not Allowed

Open-ended, blanket authorizations (“Deduct anything the company deems fit”)
Kickbacks / Deposits for employment or to ensure continued employment
Penalties or fines not authorized by law, CBA, or DOLE-approved rules
Deductions that drive take-home pay below minimum wage (except those mandated by law such as SSS/PhilHealth/Pag-IBIG and taxes)
Forced acceptance of “facilities” without proper valuation and written consent
Set-off of wages to satisfy employer business risks without due process (e.g., unexplained shortages)
Withholding release of final pay to compel return of tools/clearance beyond lawful set-offs and due process

“No Work, No Pay” vs. “Deductions”

Absences and tardiness are not “deductions” but a non-accrual of wages for unworked time (except where paid leaves or flexible work arrangements apply). Employers should:

Keep accurate timekeeping;
Apply leave credits correctly (e.g., Service Incentive Leave); and
Be consistent with attendance and disciplinary policies.

Practical Compliance Checklist for Employers

Policy Architecture
- Publish a Payroll Deductions Policy covering all lawful categories.
- Attach templates for employee authorizations, loan agreements, and check-off forms.
Written Authorizations
- Use transaction-specific forms: amount or formula, start date, frequency, cap, and revocation mechanics.
- Avoid broad consent language.
Valuation & Documentation
- For facilities, keep cost studies and DOLE valuation/approvals when required.
- For loss/damage, maintain incident reports, inventory records, witness statements, and a hearing memorandum to show due process.
System Controls
- Configure payroll to separate mandatory vs. voluntary deductions.
- Hard-stop rules preventing violations (e.g., dipping below minimum wage due to voluntary deductions).
- Remittance calendars for SSS/PhilHealth/Pag-IBIG/BIR; reconcile monthly.
Employee Communication
- Provide pre-payroll summaries showing each deduction line.
- Honor revocations prospectively where allowed (e.g., insurance, cooperative).
Audit & Recordkeeping
- Annual internal audit of deductions; random sampling each payroll cycle.
- Retain authorizations and remittance proofs consistent with prescriptive periods.

Rights and Remedies

For Employees

Ask for an itemized payslip each period, showing gross pay and all deductions.
Revoke voluntary deductions prospectively where the program allows revocation.
Question unlawful deductions internally (HR/payroll) or through DOLE assistance/conciliation; file a money claim (generally subject to a three-year prescriptive period).
Keep copies of authorizations, policy acknowledgments, and payslips.

For Employers

Use conciliation to resolve deduction disputes early.
If deducting for loss/damage, ensure due process and proportionality; consider installments.
For complex set-offs, seek legal review before touching wages.

Frequently Asked Scenarios

Q1: Can we automatically deduct HMO premiums? A: Only if the plan requires an employee share and there’s clear written authorization (or a CBA basis). Otherwise, charge to company or seek opt-in.

Q2: Can we deduct uniform or equipment costs? A: Generally no, unless they qualify as facilities with valid written consent and valuation. If they are tools for the employer’s benefit, they are usually non-deductible.

Q3: Cash shortage from a teller/cashier—can we deduct? A: Only after due process, clear proof of responsibility, and within actual loss; apply a reasonable, humane schedule and preserve wage floors.

Q4: May we net a company loan from the employee’s final pay? A: If there is a written loan agreement with payroll set-off language and the amounts are liquidated and due, yes, subject to wage-protection rules. Document the computation in the clearance.

Q5: Are agency fees for non-union employees automatic? A: Only where lawfully recognized under a CBA/regulatory framework and processed via check-off rules; otherwise, secure individual consent.

Sample Policy Language (Employer)

Payroll Deductions Policy (Excerpt) The Company shall not deduct from an employee’s wages except: (a) deductions required by law (SSS, PhilHealth, Pag-IBIG, taxes); (b) deductions ordered by competent authority; and (c) voluntary deductions authorized in writing by the employee and permitted by the Labor Code and applicable regulations, including union dues/agency fees per CBA, company loans/advances, insurance premiums, and DOLE-recognized facilities.

For deductions due to loss or damage, the Company will conduct due process, determine responsibility, and limit any deduction to the actual loss, using a reasonable installment schedule that preserves statutory wage entitlements.

The Company will provide itemized payslips each pay period and accept revocations of voluntary deductions prospectively where allowed by law and program rules.

Key Takeaways

Only SSS/PhilHealth/Pag-IBIG, tax withholding, and lawful orders are truly automatic.
Everything else needs both a legal basis and proper written authorization—and must respect wage floors and due process.
Clear policies, precise forms, and disciplined payroll controls are the best protection against illegal deduction claims.

This article provides general legal information for the Philippine context and is not a substitute for tailored legal advice on specific facts or CBAs.