1) The problem in plain terms

A common workplace scenario is this: an employee takes a loan (often through a company “salary loan,” a cooperative, an in-house lending program, a bank that uses payroll deduction, or a government program). The employee fully pays the loan—either by completing scheduled amortizations or by making an early/full settlement—yet payroll deductions continue. This can happen because of administrative delay, a mismatch between the lender’s ledger and payroll records, a failure to transmit proof of full payment, or simple error.

In Philippine law, once an obligation is extinguished by payment, the debtor has the right to stop further collection and to recover amounts wrongfully collected after full payment. When the continued deduction is done through payroll, additional rules on wage protection and payroll authorization also come into play.

This article explains the key rights and remedies of employees (borrowers), and the corresponding duties of employers and lenders, when payroll deductions continue after a loan has already been fully paid.

2) Core legal principles (Philippine framework)

A. Payment extinguishes the obligation

Under the Civil Code concept of obligations and contracts, payment or performance extinguishes the obligation. Once the debt is fully paid, the creditor has no legal basis to keep collecting. Any further deduction is generally an undue payment or wrongful collection.

B. Undue payment and restitution

Philippine civil law recognizes solutio indebiti (undue payment): when a person receives something without right (e.g., money collected after the loan is already paid), the recipient must return it. If payroll deductions continue after full payment, the excess amounts are typically recoverable under this principle.

C. Protection of wages and lawful payroll deductions

Wages are protected. As a rule, deductions from wages must be authorized by law or authorized by the employee (and must be for a lawful purpose). Where the loan is already fully paid, the continuing deduction is no longer for a lawful/authorized purpose—even if an old payroll authority exists—because the underlying debt is gone.

D. Employer as payor/withholding agent vs. lender as recipient

There are usually three actors:

Employee (borrower) – whose salary is being deducted;
Employer (payroll) – who withholds and remits; and
Lender/creditor – who receives remittances.

Depending on the setup, liability may attach to:

the employer, for continuing to deduct despite notice/proof of full payment or failing to act with reasonable diligence; and/or
the lender, for receiving/retaining money not due and failing to correct or refund.

Sometimes both may be involved, but who pays the refund initially can depend on who has custody of the excess funds (e.g., if payroll deducted but has not yet remitted).

3) Your rights as the employee-borrower

Right 1: To have deductions stopped immediately after full payment

Once you have fully settled, you have the right to demand that payroll deduction cease. This is especially strong when you have:

a Certificate of Full Payment / Loan Clearance / Release of Mortgage (if applicable),
an official statement of account showing zero balance, or
an official receipt/ledger reflecting full settlement.

Practical note: Stoppage can be implemented fastest by coordinated written notices to both the lender and HR/payroll.

Right 2: To a refund of all excess deductions

Any deductions collected after full payment are generally refundable as undue payment. Refund should cover:

the principal amount wrongly deducted; and
where appropriate, legal interest from the time demand is made and the payee is in delay (depending on circumstances and proof).

Refund responsibility may fall on:

Employer, if it withheld amounts but did not remit or withheld after being properly notified and having enough basis to stop; or
Lender, if it already received the remittances.

In some cases, employees pursue the employer first (because payroll made the deduction), and the employer seeks reimbursement from the lender (or vice versa).

Right 3: To documentation and a release/clearance

You have the right to request documentation proving the loan is fully paid, such as:

certificate of full payment/loan clearance,
updated statement of account,
cancellation of post-dated checks or auto-debit instructions (if any),
return of collateral documents (if applicable), and
release of any security (e.g., chattel mortgage, real estate mortgage, assignments), where applicable.

These documents matter because payroll often requires formal clearance before stopping deductions.

Right 4: To correct payroll records and protect future wages

You may insist that HR/payroll correct:

the deduction schedule,
the “active loan” flag in payroll systems,
remittance mapping (employee ID, lender account, cutoff dates), and
any internal memo/authority to deduct.

This prevents “phantom deductions” from restarting in later cutoffs.

Right 5: To pursue administrative and judicial remedies

Depending on the context (employer-employee relationship, nature of loan, and who made the error), you may:

raise the matter internally (HR/payroll, finance, compliance),
file a labor-related complaint for unlawful wage deduction (where applicable),
pursue a civil claim for recovery of money (undue payment) and damages,
complain to relevant regulators if the lender is a regulated entity (e.g., bank or financing company), where appropriate.

4) Employer obligations (what HR/payroll must do)

A. Implement only authorized deductions

Employers should deduct only when:

there is a valid employee authorization or legal basis, and
the deduction corresponds to a subsisting obligation.

Once the loan is paid, continuing to deduct becomes difficult to justify, especially after receiving proof.

B. Exercise reasonable diligence in payroll administration

Employers are expected to maintain accurate payroll systems and respond to employee notices. If payroll continues to deduct despite:

a clearance document, or
the lender’s written confirmation, or
repeated employee complaints,

the employer may be exposed to liability for wage-related violations and damages.

C. Promptly return amounts withheld but not yet remitted

If payroll has deducted amounts but has not remitted them to the lender, the employer should generally refund the employee promptly (often through next payroll run or an off-cycle refund), then reconcile with the lender as needed.

5) Lender obligations (what the creditor must do)

A. Correct the loan account and issue clearance

The lender must update the borrower’s account to reflect full payment, issue clearance when appropriate, and communicate stoppage to the employer if payroll deduction is used.

B. Return amounts received without basis

If the lender receives remittances after the loan is fully paid, it must refund them as undue payments. Retaining them after demand risks additional liability, including interest and possible damages depending on the facts (bad faith, stubborn refusal, etc.).

6) Common situations and how the rules apply

Scenario 1: Fully paid via scheduled amortizations, but payroll “overran” by 1–2 cutoffs

This is common due to timing. If the loan ended at cutoff X but payroll only updated at cutoff X+2, you might be deducted one or two extra times.

Result: excess deductions are refundable. Stoppage should be immediate upon discovery. Liability depends on who caused the delay and who retained the funds.

Scenario 2: You made an early full settlement, but payroll kept deducting the old schedule

Early settlement requires the lender to update the account and provide clearance; payroll needs updated instruction. If the lender issued clearance and payroll ignored it, payroll is at fault. If the lender delayed clearance or failed to notify payroll, the lender may bear responsibility.

Result: refundable; evidence (settlement receipt, clearance issuance date, email trail) is key.

Scenario 3: Employer deducted but did not remit; money is “floating”

Sometimes payroll deductions are withheld but remittance is delayed. If the loan is already fully paid, those withheld sums should be refunded by the employer, then reconciled.

Result: employer is the immediate custodian, so refund can be demanded from employer.

Scenario 4: Multiple lenders / cooperative + bank, and deductions were misapplied

Deductions might be credited to the wrong account or wrong employee number.

Result: still refundable/rectifiable. You should demand a reconciliation report and correction.

Scenario 5: Payroll authority says “deduct until notice,” but loan already ended

Even a broad authority does not allow collection of a non-existent debt. The authority is ancillary; the obligation is the basis. Without obligation, deductions become unauthorized.

Result: stoppage + refund.

7) What you can claim besides refund (interest and damages)

A. Interest

If a party is in delay after a clear demand to refund, you may claim legal interest (rate depends on current jurisprudential standards and the nature of the obligation; in practice, the applicable legal interest framework can be technical). The important point: interest may be recoverable once there is unjust retention after demand.

B. Damages

Damages may be available in appropriate cases, especially where:

there is bad faith (knowing the debt is paid but still collecting),
the error caused actual financial harm (e.g., bounced checks, missed payments),
there is reckless disregard of repeated notices,
the act caused mental anguish or humiliation in rare but provable contexts.

In routine payroll overrun cases resolved promptly, disputes often end with refund and correction without damages—but the right to claim exists when harm and culpability are present.

C. Attorney’s fees and costs

In some cases, attorney’s fees may be awarded when a party is compelled to litigate due to another’s wrongful act, subject to proof and court discretion.

8) Evidence to gather (what wins cases and speeds refunds)

Collect and keep:

Loan documents (promissory note, disclosure, amortization schedule);
Payroll authority (authorization to deduct);
Receipts / proof of full payment (ORs, bank confirmation, settlement receipt);
Certificate of full payment / clearance (if issued);
Payslips showing continued deductions (with dates and amounts);
Remittance records (if employer can provide);
Communications with HR/payroll and lender (emails, tickets, memos);
Demand letter copy (with proof of receipt).

9) Step-by-step: how to enforce your rights (practical playbook)

Step 1: Confirm the “zero balance” status in writing

Ask the lender for:

updated statement of account showing ₱0.00 balance; and
loan clearance.

If you already have them, proceed.

Step 2: Send written notice to payroll/HR to stop deductions

Attach:

clearance/zero-balance proof,
your payslip showing the continuing deduction, and
request the specific effective cutoff date for stoppage.

Step 3: Demand refund of the specific excess amounts

Be specific: list payroll dates and amounts deducted after full payment. Ask whether the excess was:

remitted to lender, or
still with the employer.

Step 4: Set a reasonable deadline and escalation path

If no action, escalate to:

HR head / finance controller,
internal grievance procedure,
then external remedies (labor/civil), depending on your circumstances.

Step 5: Choose the correct forum if escalation is needed

If the issue is framed as unlawful wage deduction or payroll practice in an employer-employee setting, labor-related avenues may be relevant.
If the issue is framed as recovery of money from the lender (or from whoever received the undue payment), a civil claim may be relevant.

Forum choice depends on facts, parties, and relationship; sometimes parallel demands are made to both employer and lender and resolved without filing.

10) Special considerations by loan type

A. Company in-house salary loan

Usually the employer is the lender. This simplifies things: employer must stop deductions and refund excess directly.

B. Cooperative loan with payroll deduction

Coops commonly use payroll deduction arrangements. The coop must issue clearance and coordinate stoppage; employer must implement.

C. Bank/financing company with payroll deduction (salary deduction arrangement)

Banks/financing companies may rely on employer remittance. Request clearance and coordinate with payroll immediately after full settlement.

D. Government-related loans (e.g., GSIS/Pag-IBIG contexts)

Government programs have their own operational rules, but the core principle remains: once fully paid, continued collection is improper and refundable. Documentation is particularly important.

11) Employer “set-off” arguments and why they usually fail here

Sometimes an employer might say they will “offset” the excess deduction against other obligations (e.g., cash advance, other receivables). Generally, offsetting employee wages without clear legal basis and proper consent is risky. If the excess deduction was for a specific loan already paid, the safer and typically proper course is refund, not unilateral reallocation.

12) Preventive tips (to avoid repeat issues)

Always request a loan clearance immediately upon full payment.
Provide HR/payroll a copy and ask for written confirmation of the effective cutoff when deductions stop.
Check payslips for the next 1–2 pay periods after settlement.
If you fully settle mid-cutoff, anticipate timing issues and coordinate early.
Keep a “paper trail” (email beats verbal instructions).

13) Sample demand points (what to say, content-wise)

A good written demand typically includes:

loan account details and full payment date,
proof of full payment and clearance,
list of continuing payroll deductions (dates/amounts),
demand to stop deductions immediately,
demand for refund and identification of who holds the funds,
request for written confirmation and timeline.

14) Key takeaways

After full payment, there is no basis to keep deducting.
Continued payroll deductions after full payment are generally undue payments and must be refunded.
Both employer (as payroll deductor) and lender (as recipient/creditor) may bear responsibility depending on who caused and who retained the excess.
Act fast, document everything, and make written demands for stoppage + refund.

If you want, paste your timeline (date of full payment, dates/amounts still deducted, and whether the lender issued clearance), and I’ll draft a tight demand letter addressed to HR/payroll and the lender that fits Philippine practice.