What deductions from an employee's pay are allowed
An employer may deduct only what the law allows or what the employee has authorized in writing, such as SSS, PhilHealth, Pag-IBIG, withholding tax, union dues with authorization and valid loan repayments.
Deductions required by law
- SSS, PhilHealth and Pag-IBIG employee contributions
- Withholding tax on compensation
- Amounts ordered by a court or authorized agency, such as a garnishment
Deductions that need the employee's written authorization
- Company loans and cash advances
- Union dues and agency fees, where the law or a collective agreement allows check-off
- Insurance premiums and other voluntary plans
- Purchases or salary-deducted programs the employee signed up for
Deductions that are not allowed
- Withholding wages as a penalty
- Deductions to secure employment or to pay for a bond the law does not allow
- Charges that exceed the loss or that skip due process
Keep records
For each deduction, keep the authorization, the amount, the schedule and the payslip line. See Record employee loans and Add payroll adjustments.
Questions people ask
Can an employer deduct for damaged equipment?
Only under the conditions in the Labor Code: the employee must be shown to be responsible, given a chance to be heard, and the deduction must be fair and reasonable and within what the rules allow. Keep the documentation.
Can an employer withhold wages as a penalty?
No. Withholding wages and making deductions to secure employment are prohibited.
Do loans need written consent?
Yes. A company loan or cash advance should have a signed agreement stating the amount, the term and how it is repaid through payroll.
What happens to loans when an employee leaves?
The outstanding balance can be offset against final pay only as the agreement and the law allow. Itemize it in the final pay computation.
Sources
- Labor Code of the Philippines, Articles 113 to 118 (wage deductions)