D.O. 195-18: An additional ground for wage deduction and its legal implications

On 27 July 2018, the Honorable Secretary of Labor and Employment Silvestre H. Bello signed Department Order No. 195, Series 2018 (“D.O. 195-18”), entitled “RULE AMENDING SECTION 10 OF RULE VIII OF THE IMPLEMENTING RULES AND REGULATIONS OF THE LABOR CODE ON WAGE DEDUCTION.”

The amendment was not lengthy, but its implications are worth examining.

It is widely accepted that the Philippines is one of the countries which implement stricter labor laws. Part and parcel of these restrictions is the protection to the employee’s right to a living wage, a protection granted to the fruits of one’s labor. The right to a living wage of an employee is recognized under Article XIII, Section 3 of our 1987 Constitution. Moreover, the Labor Code and its Implementing Rules and Regulations bolster this protection, as seen in its various provisions. Minimum wage rates are imposed for each Region. Laws are also set in place which regulate the manner of payment of wages by setting the period and place for the same. Most importantly, a whole Chapter in the Labor Code is dedicated solely for the prohibitions on wages, namely: non-interference with the same, prohibitions on withholding, limitations on deposits made for loss or damage, and, the subject of D.O. 195-18, wage deductions.

The general rule on wage deductions is clear: “No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees.” The law, however, strikes a balance by including certain exceptions to this prohibition. Prior to D.O. 195-18, these are: (a) deductions authorized by law including insurance premiums advanced by the employer as well as union dues where the right to check-off has been recognized by the employer or authorized in writing by the employee; and (b) deductions with written authorization of the employees for payment to the third person and the employer agrees to do so; PROVIDED, that the employer does not receive any pecuniary benefit from the transaction.

The recent amendment, however, modified the latter ground by including as one of the exceptions, “deductions with written authorization of the employee for payment to the EMPLOYER or 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.” The addition, however, ends there. A perusal of the law would show that there seems to be no qualification as to what kind of “payment” is owed to the employer.

This is interesting since the other authorized forms of deduction are qualified by certain particulars. To illustrate, we have advancements for insurance premiums and union dues — which clearly specify the reason for the payments thereof. Moreover, Labor Advisory No. 11, Series of 2014 also clarifies the deductions for loss or damage, which is exclusively for private security agencies and further requires conditions to be observed. Deductions in case of the latter even seek to protect the wages of workers by ensuring that the deduction shall not exceed 20% of an employee’s wages in a week. Also, deductions in cases where meals are provided to an employee are fairly tempered by the rule that such deductions shall not be more than 70% of the value of the meals and snacks.

Compared to the foregoing, therefore, the new amendment may be perceived as encompassing — meaning, that as long as the written authorization of the employee is obtained, and that payment would be made to the employer, then such employer may validly deduct from the wages of an employee such amount. This is an exception not previously recognized under our labor laws.

A positive implication of the amendment, however, seems to curb a possibility where employers would impose additional charges on top of the actual amounts owed to them by the employee. This may be one way of reading the amendment with the qualification at the end of the provision. The previously existing qualification “that the employer does not receive any pecuniary benefit, directly or indirectly, from the transaction” is retained in the amended version. Therefore, while the regulation may have added a benefit for the employer, such that it now expressly recognizes an employer’s right to deduct from the wages of an employee by virtue of a written authorization, D.O. 195-18 is not without the necessary safeguards.

D.O. 195-18 is still in its early stages. It will be interesting to see its application in everyday occurrences, and witness both the pros and the cons for employers and employees alike.