A practitioner’s guide to what employers may and may not deduct from wages under Philippine labor law, with practical compliance checklists and employee remedies.

1) The Governing Rule

General rule: An employer may not deduct anything from an employee’s wages unless the deduction is:

Required by law or government regulation;
Authorized in writing by the employee and for the employee’s benefit; or
Expressly allowed under the Labor Code’s Implementing Rules and DOLE issuances (e.g., for loss or damage, union dues, cooperative savings, etc.).

“Wages” include all remunerations payable for work performed, whether time-rated, piece-rate, commission-based, or task-based, and typically cover regular, non-managerial employees; however, the wage-deduction restrictions are observed in practice for nearly all employees.

2) Deductions Required by Law (Always Allowed)

These do not require employee consent:

Withholding tax under the National Internal Revenue Code.
Social Security System (SSS) contributions (employee share) and SSS salary-loan amortizations remitted to SSS.
PhilHealth contributions (employee share).
Pag-IBIG (HDMF) contributions (employee share) and Pag-IBIG loan amortizations remitted to HDMF.
Court-ordered deductions (e.g., child support, lawful writs of garnishment/execution consistent with wage-protection rules).
Other deductions mandated by statute or a valid government order (e.g., authorized emergency or calamity-loan programs where the law or the agency rules require payroll deduction).

Compliance tip for employers: Keep the statutory basis and official schedules (rates/brackets) on file; update promptly when government agencies change rates.

3) Deductions Authorized by the Employee in Writing (Allowed if for the Employee’s Benefit)

These are permitted if there is a clear, voluntary, written authorization and the deduction is for the employee’s benefit (not primarily the employer’s), such as:

Union dues and assessments under a CBA or valid union authorization (note: special assessments generally require individual written consent and proper union-member voting/notice).
Employee-requested payroll deductions for:
- Cooperative or credit-union savings/shares and loan repayments;
- Company-facilitated benefits (HMO/health plan top-ups, group insurance where employee pays a share, retirement savings plans, legitimate charity donations);
- Canteen, commissary, or company store purchases at fair market prices;
- Uniforms, PPE, or tool purchases only when (a) voluntarily chosen by the employee (e.g., upgrades, extras) and (b) priced reasonably;
- Legitimate cash advances requested by the employee.

Key guardrails:

The authorization must be specific (what, how much, how often), voluntary, and revocable consistent with policy/contract.
Prices/fees must be reasonable; the arrangement must not circumvent minimum-wage protections or shift normal business costs to workers.

4) Deductions Expressly Allowed by DOLE Rules

A. Loss, Damage, or Breakage

Employers may deduct for loss/damage only if all the following are met:

The employee is clearly shown to be responsible (after an investigation).
The employee is given due process (notice and an opportunity to explain).
The deduction is fair and reasonable, and not excessive (DOLE guidance typically caps periodic deductions to a fraction of wages—commonly practiced at not more than 20% of the employee’s wages per payroll to avoid undue hardship).
The deduction is used solely to recover the actual loss (no profit/markup).

Practical process: issue a written notice of loss, conduct a clarificatory hearing or request a written explanation, determine responsibility, compute actual cost, and obtain written acknowledgment of the schedule of deductions.

B. Salary Overpayments or Payroll Errors

Employers may correct inadvertent overpayments by deducting the excess actually paid, ideally with:

Prompt written notice explaining the error, the exact amount, and the repayment schedule; and
A reasonable amortization plan (especially for large amounts) to avoid hardship.

C. Absences, Tardiness, and “No Work, No Pay”

This is not a “deduction” but a rule on non-payment for unworked time. It is lawful to pay only for hours actually worked, subject to:

Leave credits (if approved) offsetting absences;
Flexible work arrangements (if adopted and properly documented).

D. Loans and Installments

SSS/Pag-IBIG loans: automatically allowed (see §2).
Employer loans/cash advances: permitted with clear written authorization specifying the amount and deductions schedule.
Interest/fees: must be reasonable and disclosed; usurious or unconscionable terms risk invalidation.

E. Cooperative & Savings Programs

Deductions to duly registered cooperatives/associations for savings, share capital, and loan payments are recognized if authorized in writing by the employee and properly receipted/remitted.

5) Deductions that are Generally Prohibited

Unilateral deductions without legal basis or employee’s valid written consent (e.g., “miscellaneous,” “admin,” or “processing” fees).
Penalties or fines used as discipline (beyond lawful non-payment for unworked time).
Deductions to cover normal business costs, such as:
- Standard tools, equipment, and PPE the employer must provide;
- Training necessary for the job (unless a separate, lawful training-cost agreement exists with clear pro-rated liquidated damages, not a penalty, and compliant with tenure and reasonableness standards);
- Uniforms required by the employer for branding/compliance (basic sets are ordinarily an employer cost).
Kickbacks or company-store monopolies (selling goods to employees at inflated prices and deducting the cost).
Deductions that push pay below the applicable statutory minimum (apart from government-mandated withholdings).
Deductions after resignation/separation that are not legally or contractually authorized and properly documented in the final pay computation.

6) Garnishment, Set-Off, and Assignments of Wages

Garnishment/levy by court order may lawfully reach wages subject to statutory exemptions and limits designed to protect subsistence income; family support orders are prioritized.
Set-off (legal compensation) between employer and employee is disfavored for wages; any offset must have a clear, lawful basis and must respect wage-protection rules.
Assignments of future wages are restricted; payroll deductions via voluntary written authorizations (for specific, current obligations) are preferred and scrutinized for voluntariness.

7) Special Topics & Edge Cases

A. Company Property, Bonds, and Deposits

Cash bonds or deposits may be used only where expressly allowed by DOLE rules (certain security-sensitive roles/industries) and must be properly receipted, safekept, and refundable.
“Deposits” to cover ordinary tools/uniforms are generally impermissible.

B. Meal, Lodging, and Facilities as “Wage” Credits

The employer can credit the value of “facilities” (meals, housing) against wages only if:
1. They are customarily furnished, voluntarily accepted in writing by the employee;
2. They are for the employee’s benefit (not the employer’s); and
3. The assessed value is reasonable per DOLE guidelines.
Otherwise, charging employees for such items via payroll deduction is not allowed.

C. Training Bonds & Scholarships

Training bonds (service-period agreements with pro-rated liquidated damages for early separation) can be valid if:
- The training is distinct and beneficial,
- Costs are actual and reasonable, and
- The clause is not a penalty and complies with public policy.
Payroll deduction to enforce such bonds typically requires clear written consent and post-separation collection is usually pursued outside payroll (i.e., not by netting wages below minimum or skipping final pay safeguards).

D. Commissions and Charge-Backs

Commission charge-backs (e.g., for cancelled sales/returns) must be clearly provided in the compensation plan and applied fairly and prospectively.
Employers should avoid netting that results in negative take-home; use forward-looking adjustments with transparency.

E. Remote Work, Tools, and BYOD

Requiring employees to buy tools/internet and deducting the cost is risky unless (a) voluntary, (b) benefit accrues to the employee, and (c) written consent exists; otherwise these are employer costs.

8) Documentation & Due Process: What DOLE Expects

For every non-statutory deduction, keep:

The employee’s signed authorization (specific amount/frequency, revocation terms).
Receipts or statements from third-party payees (co-op, HMO, insurer).
For loss/damage: incident report, inventory records, investigation minutes, employee’s written explanation, and computation of actual loss.
Remittance proofs (dates, amounts).
Payroll journals showing the deduction line items and running balances.

For disciplinary matters: Use proper notice-and-hearing; avoid “fines through payroll.”

9) Final Pay and Deductions upon Separation

Upon resignation or termination (authorized or just cause), the employer should release final pay (unpaid wages, pro-rated 13th month, convertible leave, etc.) and clearances promptly. Deductions from final pay are limited to:

Statutory withholdings;
Documented, lawful wage deductions already authorized (e.g., co-op loans, government loans);
Established liability for loss/damage or overpayment, after due process and subject to reasonableness;
Lawful set-offs expressly permitted by contract/law and not defeating wage protections.

If a balance remains (e.g., training bond, employer loan without payroll authorization), the employer should resort to ordinary collection (not unilateral withholding of all wages/benefits).

10) Penalties and Risks for Unlawful Deductions

Money claims: Employees can file with DOLE or the NLRC for refunds, damages, and attorney’s fees.
Criminal/administrative liability: The Labor Code prescribes penalties for unlawful deductions and wage violations; DOLE may issue compliance orders and assess fines.
CBA/union disputes: Unlawful check-offs can trigger ULP charges and remedial orders.

11) Practical Compliance Checklists

Employer 10-Point Checklist

Is the deduction mandated by law? If yes, proceed; if no, continue below.
Do we have a specific, voluntary, written authorization?
Is it for the employee’s benefit (not primarily ours)?
Will the deduction keep pay at or above applicable minimum wage (excluding statutory withholdings)?
Are the amounts and frequency clearly stated and reasonable?
For loss/damage: do we have investigation records and actual cost computation?
Are remittances timely and supported by receipts?
Is there a revocation or fully-paid endpoint?
Is the deduction transparent on the payslip?
Are our policies DOLE-aligned and communicated to employees?

Employee Quick Guide

Check your payslip; every deduction should be named and explainable.
Ask for the basis (law, court order, or your signed authorization).
For loss/damage deductions, demand investigation records and computation.
You can revoke non-mandatory authorizations prospectively (subject to policy and existing obligations).
If something seems off, raise internally (HR/Payroll), then seek DOLE assistance for mediation/inspection if unresolved.

12) Frequently Asked Scenarios

Can an employer deduct for uniforms? Only if the purchase is voluntary and authorized in writing or if the employee opts for upgrades/extras. If uniforms are required, the basic cost is ordinarily an employer expense.
Can tardiness be “fined”? Employers can apply no work, no pay (reduce payable hours) but not punitive fines through payroll.
Can we deduct for company phone/laptop damage? Only after due process and clear proof of fault/negligence, and only the actual loss, via reasonable installments.
Can we deduct co-op savings even if the employee now objects? Employee may revoke future deductions (subject to co-op by-laws for withdrawal timelines). Past valid deductions stand.
Can we net a negative commission? Structure compensation to avoid negative pay; if charge-backs are allowed, apply prospectively with clear plan terms.

13) Model Clauses (For Policy Drafting)

Sample Payroll Deduction Consent “I, [Employee Name], voluntarily authorize [Employer] to deduct from my wages the amount of ₱[amount] [per cutoff/month] to pay [describe purpose/payee], beginning on [date] until fully paid or revoked as allowed by policy. I understand this is for my benefit, may be revoked prospectively by written notice, and shall not reduce my pay below the statutory minimum except for deductions mandated by law.”

Sample Loss/Damage Acknowledgment (Post-Investigation) “Following notice and investigation on [date], I acknowledge responsibility for [item/incident] and consent to payroll deduction totaling ₱[actual cost], payable at ₱[installment] per cutoff, not exceeding a reasonable portion of my wages per payroll.”

(Adapt to your CBA/policies and keep separate from disciplinary notices.)

14) Takeaways

Default to NO deductions unless they are mandated, voluntarily authorized for the worker’s benefit, or expressly allowed (with due process).
Document everything—authorizations, investigations, computations, and remittances.
Never use payroll to shift ordinary business costs to employees or to impose fines.
When in doubt, seek DOLE clarification or legal counsel—penalties and back-pay exposure can be significant.

This article provides general information on Philippine wage-deduction rules. For specific cases (e.g., unique industry rules, CBAs, or government program updates), consult your counsel or DOLE for current guidance.