WITHHOLDING SALES COMMISSION PENDING INVESTIGATION

All you need to know under Philippine Labour Law

1. What is a “sales commission” in Philippine law?

Commission = Wage. Under Article 97(f) of the Labor Code, “wage” embraces all remuneration capable of being expressed in money, including commissions, bonuses and incentives.
Variable, but not discretionary. A commission is variable pay that becomes due and demandable once the employee has performed the conditions laid down in the compensation plan (e.g., closing the sale and collection, if the plan makes collection a condition).

2. When does a commission “accrue”?

Typical triggering events	Effect
Sale is signed and fully paid/collected (most common wording)	Commission accrues on clearance of collection.
Sale is signed, regardless of collection	Commission accrues on signing. Employer bears risk of bad debt unless plan states a charge-back.
Progressive draws (e.g., 50 % on booking, 50 % on collection)	Each tranche accrues on its respective milestone.

Tip: The party that drafts the plan must state milestones with clarity; courts resolve ambiguities against the drafter under the contra proferentem rule.

3. General prohibition on withholding wages

Article 116 (formerly Art. 113) of the Labor Code makes it unlawful for any person directly or indirectly to withhold any amount of wages due an employee except in the situations expressly allowed by law. Violations are criminal (Art. 303) and expose the employer to:

payment of the amount wrongfully withheld, plus
legal interest (currently 6 % per annum, compounding from finality of judgment),
moral & exemplary damages in bad-faith cases, and
attorney’s fees (Art. 2208 Civil Code; Art. 111 Labor Code).

4. Allowable deductions and their limits

Under Article 117 and DOLE Department Order No. 195-18 (Guidelines on Wage Deductions):

Allowed only if all three exist	Notes
1️⃣ Express legal basis, or written authorization of employee, or CBA provision	“Pending investigation” is not a legal basis unless deduction is to reimburse a proven loss.
2️⃣ Employee actually benefits (for facilities)	Food, lodging, etc. Not applicable to commission issues.
3️⃣ No reduction below legal/statutory wage	The basic wage floor (e.g., ₱610/day NCR as of June 2025) cannot be penetrated.

5. Can an employer temporarily withhold a commission during an investigation?

If commission is not yet earned (e.g., collection not yet completed, or sale is under dispute): the amount is not yet “due” so no withholding technically occurs.
If commission is already earned, the employer cannot withhold except under these narrow grounds:
- Charge-back clause in the incentive plan clearly allowing suspension or claw-back in enumerated situations (e.g., customer cancellation, fraud).
- Ongoing audit involving specific shortage or loss attributable to the salesman, combined with:
  - written notice of discrepancy,
  - observance of the twin-notice and hearing (“due process”) requirement of the Labor Code, and
  - final determination that the employee is indeed liable.
- Valid offset under Article 1706 Civil Code (mutual debts due and demandable).

Key doctrine: An employee’s right to compensation, once earned, is a property right protected by the Constitution. Temporary “freezing” of an accrued commission is tantamount to a wage deduction and is invalid absent statutory or contractual authority and due process.

6. How does “due process” fit in?

Withholding an earned commission as a disciplinary measure is treated as a penalty. The employer must therefore:

First notice: specify the act or omission (e.g., padded invoice) and the intention to suspend payment.
Ample opportunity to explain & present evidence.
Second notice: convey the decision and the exact amount to be offset or forfeited.

Failure to follow this twin-notice rule converts the withholding into an illegal deduction, exposing the company to damages even if the underlying accusation is proven.

7. Representative jurisprudence

Case	G.R. No. / Date	Guiding principle
Korea Exchange Bank v. Gonzales	G.R. 143043, 26 Feb 2003	Commissions form part of wage; unilateral delay in payment is illegal if the employee already met quota.
Equitable Banking Corp. v. NLRC & Serrano	G.R. 102467, 25 Jan 1993	Bank may recover commissions only when collection failed and a charge-back clause existed.
Suarez v. NLRC (New World Hotel)	G.R. 125014, 28 Nov 1997	Hotel could not withhold service charges (also wages) pending investigation without prior notice and hearing.
Abbott Laboratories v. Alcaraz	G.R. 192571, 23 July 2013	Benefits already vested cannot be withheld; employer bears burden of proving lawful deduction.

(Case titles abridged for space; full texts are in the Supreme Court E-Library.)

8. Criminal exposure

Article 303 (formerly Art. 288) “Failure to pay wages,” penal offense — imprisonment of up to one year and/or fine of ₱1,000-₱10,000 for each offense.
Directors, managers and officers who knowingly permit the violation may be personally liable (Art. 305).

9. Practical compliance guide for employers

Draft a clear commission scheme
- State precise earning events (booking, billing, collection).
- Insert a charge-back or escrow clause for cancellations—but cap the escrow period (e.g., 90 days).
Issue written policies on investigations
- Target timeline (e.g., conclude within 30 days).
- Specify that any withholding beyond the timeline must be supported by prima facie proof and written employee consent.
Observe the 15/16-day payday rule
- Even variable pay must be released at least semi-monthly once due (Art. 103).
Document everything
- Notices, minutes of hearings, audit findings.
- This protects the company in inevitable NLRC cases.

10. Remedies available to employees

Forum	Relief	Time limit
Single-Entry Approach (SEnA)	Conciliation-mediation at DOLE field office	Within 3 years of cause of action
NLRC money claim	Back commissions, damages, 10 % attorney’s fees	3-year prescriptive period (Art. 306)
Criminal complaint (DOLE prosecutor)	Fine and/or imprisonment	3 years
Bureau of Working Conditions (for wage audits)	Compliance orders; possible closure	N/A

11. Tax implications

Commissions are subjected to expanded withholding tax on compensation; the employer remains obligated to remit the tax on the scheduled remittance date even if the net commission is illegally withheld.
Failure to remit because of pending investigation may invite BIR penalties.

12. Frequently asked questions

Question	Short answer
Can we delay payment until the client’s check clears?	Yes, if the plan states collection as a condition precedent.
May we offset shortages discovered in later audits?	Only if there is: (1) a clear shortage attributable to the employee, (2) due process, and (3) either written consent or a CBA clause.
What if the employee resigns during the investigation?	Accrued commissions must be included in the Final Pay released within 30 days of clearance, less only the proven shortage.
Is a “no-dispute” waiver in the plan valid?	No. Waivers of labor standards are void under Art. 22 Civil Code and Art. 6 Labor Code.

13. Key take-aways

Accrued commissions are wages; wages are sacrosanct.
Temporary freezing equals deduction. Do it only when the law, contract, and due process allow.
Clarity saves costs. A well-worded commission plan and a fast, documented investigation process are the employer’s best defenses.

Prepared June 28 2025 for general information. This article is not legal advice; consult counsel for specific situations.