Permissible Deductions from Wages under the Labor Code and Other Laws

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Published — March 19, 2019

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Also Read: Issuance of payslips and maintenance of payroll

The Labor Code of the Philippines defined wage as the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of Labor and Employment, of board, lodging, or other facilities customarily furnished by the employer to the employee (Article 97 (f) of the Labor Code). In view thereof, wage, being remuneration or earning, is the fruit of an employee’s hard work or labor, as such, it must not be subjected to deductions.

Prohibitions Regarding Deduction on Wages

An employer cannot limit or interfere with the freedom of any employee to dispose of his wages. In relation to this, an employer shall not in any manner force, compel, or oblige his employees to purchase merchandise, commodities or other property from any other person, or otherwise make use of any store or services of such employer or any other person (Art. 112, Labor Code). The Labor Code also considers the act of any person in withholding any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth, intimidation, threat or by any other means whatsoever without the worker’s consent as unlawful (Art. 116 Labor Code).

It shall be unlawful to make any deduction from the wages of any employee for the benefit of the employer or his representative or intermediary as consideration of a promise of employment or retention in employment. (Art. 117 Labor Code). Refusal to pay or reduction of wages and benefits, expulsion or discrimination against any employee who has filed any complaint or instituted any proceeding under the prohibition on wage deduction or has testified or is about to testify in such proceedings is also considered as unlawful (Art. 118 Labor Code).

Aside from the Labor Code, other laws also express prohibition on the deduction and withholding of employee’s wages. Particularly, Article 1708 of the Civil Code of the Philippines provides that, employee’s wages are not subject to execution or attachment. Unless, the execution or attachment is made for debts incurred for food, shelter, clothing and medical attendance.

Permissible Deductions from Wages

Labor Code of the Philippines

Under Article 113 of the Labor Code, no employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except for the following cases:

1. In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;
2. For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and
3. In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment.

Article 114 of the Labor Code also allows deductions on employee’s wages in case of loss or damages to tools, materials or equipment supplied by the employer to the employee where the employer is engaged in trade, occupation or business where practice of making deductions or requiring deposits is recognized.

Article 259 (e) of Labor Code also allows deductions on employee’s wages with regard to payment of agency fees for non-union members who accept the benefits from the Collective Bargaining Agreement (CBA) negotiated by the bargaining union.

Also, under the Rules implementing the Labor Code (IRR of Labor Code), particularly Book 3 on Conditions of Employment, deductions on wages are allowed if employer received a written authorization from the employee for payment to a third (3^rd) person. This is valid only when the employer did not receive any pecuniary benefit directly or indirectly from the transaction (Rule VIII, Book 3, Section 10 (b) of IRR).

Deductions on wages based on the value of meals and facilities are also allowed as long as the acceptance of the employee is voluntarily made (Rule VII-A, Book 3, Section 7).

Other Laws

Under Republic Act No. 8282, the law implementing the Social Security System (SSS) on Social Security Program Contribution, Presidential Decree No. 1752, the law implementing Pag-IBIG or Home Development Mutual Fund and Republic Act 7875, the law implementing PhilHealth in relation to the National Health Insurance Program contribution, salary deductions based on the said laws respectively are also allowed.

The payment of withholding tax mandated under the National Internal Revenue Code (NIRC), where the withholding tax is deducted and withheld from the salary of the employees, are also considered as allowable deductions on salary.

Under Articles 1706 and 1708 of the New Civil Code, withholding of wages because of the employee’s overdue debt to the employer and deductions made pursuant to a court judgment against the worker for payment of debts incurred for food, clothing, shelter and medical attendance are allowable deductions.

Salary deductions on the basis of Article 59 of Republic Act. No. 6938 or the Cooperative Code of the Philippines on cooperative membership or contributory fees are allowable deductions.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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