The employer is prohibited from limiting or otherwise interfering with the freedom of any employee to dispose of his wages.[1] These rules are in consonance with the policy to ensure greater protection of wages.[2]

Further, the employer is prohibited, in any manner, to 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 service of such employer or any other person.[3]

Salary deductions

The employer, on his own behalf or on behalf of any person, is prohibited from making any deduction from the wages of his employees.[4] These are the limited exceptions:[5]

  • When the deductions are authorized by law;[6]
  • When the deductions are with the written authorization of the employees for payment to a third person and the employer agrees to do so, provided that the latter does not receive any pecuniary benefit, directly or indirectly, from the transaction;[7] and
  • In cases where the employer is authorized by law or regulations issued by the DOLE Secretary.[8]

The law authorizes the following deductions: (a) Withholding tax;[9] (b) SSS, Pag-IBIG, and Philhealth contributions;[10] (c) Salary deductions with respect to a member of a legally established and registered cooperative;[11] (d) Employee’s debt to the employer and such is due and demandable;[12] (e) Garnishment via court awards;[13] (f) Deductions for the insurance premiums advanced by the employer in behalf of the employee;[14] (g) Deductions for union dues where the right to check-off has been recognized by the employer or authorized in writing by the individual employee himself;[15] (h) Deductions for meals and use of facilities.[16]

Best Legal Practices:

Document basis for deduction – The employer should document and keep records of the basis for deductions (e.g. tax returns, SSS contributions, monetary debt).

Obtain written consent of the employee whenever practicable – The employer should obtain the written consent of the employee whenever practicable with respect to the deduction. For instance, the employee should sign a promissory note or a loan document as proof of the debt to the employer. To strengthen it as a piece of evidence, the promissory note or loan document should be notarized.

As this is a rich source of conflict, the employer should carefully observe the rules against salary deductions to avoid liabilities.

Deposits

As a general rule, the employer is prohibited from requiring his employees to make deposits from which deductions will be made for the reimbursement of loss or damage to tools, materials, or equipment supplied by the employer.[17]

By way of exception, the employer may do so if he is engaged in such trade, occupation, or business where making a deposit: (a) is a recognized practice; or (b) is necessary; or (c) is desirable, as determined by DOLE regulations.[18] If it is allowed, the employer may only deduct from the deposit of an employee for the actual amount of the loss or damage after the latter has been heard thereon, and his responsibility has been clearly shown.[19] To be clear, due process has to be observed by the employer.

Best Legal Practices:

Observe due process when making a deduction – As the law requires that due process be observed, the employer should follow these steps:

First, a 1st written notice regarding the incident of the loss or damage should be delivered to the concerned employee. This notice should include an opportunity for the employee to be heard, whether it be through a hearing or a written reply. Preferably, the employer should ask for a written response within five days from receipt of the said notice. If through a hearing, it should be properly documented particularly to the given response.

Second, the employee should be given an opportunity to be heard. If a hearing was chosen, the employer should hear the side of the concerned employee. If a written response was submitted by the employee, the employer should evaluate the explanation given. As the law simply requires that the employee be given the opportunity to be heard, a written response stating the explanations of the employee is sufficient and a hearing will not longer be necessary.

Third, a 2nd written notice explaining the evaluation of the evidence, findings, and decision of the employer should be delivered to the employee so that the latter may be notified.

Personally deliver notices and have them signed received – Whenever practicable, the 1st and 2nd notices should be personally delivered and signed as received by the concerned employee. The receiving copy will serve as proof of delivery later on in case of a labor dispute. If the employee refuses to receive the notices, the messenger may simply leave the notices. Afterwards, the messenger should execute an affidavit of service stating the circumstances of the delivery by leaving copies of the notices. The affidavit of service will serve as evidence of delivery.

Send via registered mail with return card with Philippine Post Office and/or private courier if personal delivery is impracticable – If personal delivery is impracticable, the notices should be sent via registered mail with return card with the Philippine Post Office and/or private courier. The return card, registry receipts, official receipts, notice of delivery, and the like will serve as proof of service.

Withholding of wages

Labor law strictly prohibits any person (employer or otherwise), directly or indirectly, to withhold 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 without the worker’s consent.[20]

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Industry Practices: Some companies observe a clearance process for employees whose employment is about to terminate. In some case, the last pay of the employee is placed on hold until all of the latter’s liabilities are settled. As the law strictly prohibits the withholding of wages, the employer should ensure that the clearance process should be conducted at least two weeks prior to the last day so the employee’s last pay may be immediately released.

– – –

Moreover, it is 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.[21]

It is unlawful for an employer to refuse to pay or reduce the wages and benefits, discharge or in any manner discriminate against any employee who has filed any complaint or instituted any proceeding for wage money claims or has testified or is about to testify in such proceedings.[22]

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References

[1] LABOR CODE. Article 112.

[2] Ibid. Article 104.

[3] Ibid.

[4] LABOR CODE. Article 113.

[5] LABOR CODE. Article 113.

[6] IMPLEMENTING RULES OF BOOK III OF THE LABOR CODE. Section 10, Rule VIII.

[7] IMPLEMENTING RULES OF BOOK III OF THE LABOR CODE, Section 10, Rule VIII.

[8] LABOR CODE. Article 113.

[9] National Internal Revenue Code.

[10] Laws for SSS, Pag-IBIG, Philhealth

[11] Cooperative Law].

[12] CIVIL CODE. Art. 1706.

[13] CIVIL CODE. Art. 1708.

[14] LABOR CODE. Art. 113.

[15] LABOR CODE. Art. 113.

[16] IMPLEMENTING RULES OF BOOK III OF THE LABOR CODE.

[17] Ibid. Article 115.

[18] LABOR CODE. Article 114.

[19] Ibid. Article 115.

[20] Ibid. Article 116.

[21] Ibid. Article 117.

[22] Ibid. Article 118.