Rules on Deductions After Resignation (Philippine context)

Key takeaways

Default rule: An employer may deduct from an employee’s wages only if (a) the deduction is required or authorized by law/regulation, or (b) the employee gave written authorization and the employer does not profit from the transaction.
SSS salary loans: The loan is a debt to the SSS, not to the employer. The employer acts mainly as a withholding/remitting agent while the employee is still employed.
From final pay after resignation: Deduction for SSS loan amortizations from final pay is generally allowed only if there is clear written authority from the employee (often built into the SSS loan application/“Authority to Deduct” or a stand-alone consent) or if a lawful order (e.g., garnishment) compels it.
No written authority, no order: The safer rule is do not deduct SSS loan balances from final pay. Instead, release the pay and advise the employee to pay the SSS directly going forward.
Employer liability: The employer can be liable only for amounts it actually deducted but failed to remit on time. It is not liable for the employee’s remaining SSS loan balance after separation.
Final pay timeline: Release within a reasonable period (commonly 30 days) from separation, unless a more favorable company policy or CBA applies.
Other lawful deductions from final pay (besides SSS loans) must still satisfy statutory rules: they must be lawful, reasonable, documented, and consistent with due process and written consent where required.

Legal bases & framework

Labor Code (Wage Deduction Rule). Employers may make deductions from wages only when:
- Permitted by law or regulation (e.g., withholding tax, SSS/PhilHealth/Pag-IBIG contributions when due); or
- Authorized in writing by the employee for payment to the employer or to a third person, provided the employer derives no profit and the deduction is for a legitimate purpose (e.g., to settle an employee-approved loan or purchase). This rule applies to all wage payments, including final pay.
Social Security Act of 2018 (RA 11199) & SSS rules.
- The loan is payable to SSS. During employment, the employer withholds amortizations (if notified/authorized) and remits them to SSS.
- Employers are answerable only for remitting what they actually deducted; they are not guarantors of the entire loan.
- Upon separation, the employer should stop payroll deductions, report the separation to SSS as required, and the member continues paying directly to SSS.
- Many SSS Salary Loan forms include an “Authority to Deduct” clause that expressly allows deduction from wages and benefits, including separation or final pay. If such authority exists and covers final pay, the employer may deduct and remit accordingly.
Civil Code (Compensation/Set-off). Legal set-off generally requires mutual debts between the same parties. Because an SSS loan is owed to SSS, not the employer, set-off usually does not apply to SSS loans. Any deduction therefore must rely on statutory authorization or written consent, not on set-off.

What counts as “final pay” upon resignation?

Typically includes:

Unpaid salaries up to last day worked
Monetized unused convertible leave (if provided by law, CBA, or company policy)
13th-month pay proportionate to service for the calendar year
Tax refund (if any, after annualization)
Other amounts due under company policy or contract

(No statutory “separation pay” is owed for voluntary resignation, unless a company policy/CBA provides it.)

When can an employer deduct SSS loan amortizations from final pay?

Allowed

There is clear written authorization by the employee covering final pay (e.g., the SSS loan application/Authority to Deduct, a payroll deduction form, or a quitclaim that specifically authorizes settlement of SSS amortizations from final wages/benefits).
There is a lawful order (e.g., writ of garnishment) specifically directing deduction/remittance.
The deduction is for amounts already due and payable at the time of separation (e.g., the installment that fell due during the last payroll period) and there is standing written consent to withhold and remit.

Not allowed (or risky)

No written authorization and no legal order.
Deducting more than the due amount (e.g., trying to clear the entire remaining SSS loan if the authority covers only “installments due”).
Charging fees or deriving profit from the deduction.
Using “set-off” theory for an SSS loan (debtor is SSS, not the employer).

Good practice: If the Authority to Deduct exists but is ambiguous about final pay, obtain a short written confirmation from the employee at exit (email or form) that they consent to deduction/remittance from final pay up to the amount due and demandable as of separation.

Employer obligations at separation (SSS loan context)

Stop payroll deductions after the final covered payroll period.
Remit promptly any amounts already deducted to SSS (avoid penalties).
Report the employee’s separation to SSS using the applicable reporting channel/form.
If authorized, deduct and remit the last due amortization(s) from final pay; issue payslip details and official proof of remittance for transparency.
Provide the employee with loan balance information if available (e.g., last remitted installment and cut-off) and advise direct payment arrangement with SSS for future installments.

Other deductions from final pay: what’s allowed?

Statutory deductions: Withholding tax; government-mandated contributions that pertain to the final payroll period.
Cash advances/loans to the employer: Allowed with written authorization; set-off applies because the debt is owed to the employer.
Unreturned company property/losses: Deduction is allowed only if (a) the employee is clearly responsible, (b) there is due process (notice and chance to explain), (c) the amount is reasonable and supported, and (d) the employee consents in writing (or a lawful order authorizes it).
Training costs/bond: Enforceable only if a valid training agreement exists (reasonable amount, pro-rated, definite service period, freely consented) and deduction is authorized in writing.
Administrative fines/penalties: Generally not deductible unless authorized by law/regulation or by valid written consent and compliant with wage protection rules.

Never deduct amounts that would bring the wage below protections (e.g., minimum wage for the covered pay period) unless the deduction is required by law.

Process & documentation checklist (for HR/payroll)

Collect documents:
- SSS loan Authority to Deduct (or equivalent written consent)
- Company exit clearance and any loan/advance records
- Policies/CBA provisions on final pay & deductions
Compute final pay:
- Identify items due (salary to last day, 13th month proportionate, convertible leave, tax annualization)
- Determine which deductions are lawful and supported in writing
Apply deductions in proper order:
- Statutory (tax, mandatory contributions for the last period)
- Authorized deductions (employer receivables; third-party with consent like SSS loan amortization)
- Ensure no profit and no over-deduction
Remit & document:
- Remit deducted amounts (e.g., SSS amortization) on time
- Issue itemized payslip and proof of remittance to the employee
Communicate next steps to the employee:
- If SSS loan remains outstanding, advise direct payment to SSS and provide relevant references (loan account no., last remitted installment date/period)

Worked examples

Example 1: Authority exists and mentions final pay

Ana resigns effective September 30. Her SSS loan form includes: “I authorize my employer to deduct from my wages and benefits, including separation pay, any due amortizations and remit to SSS.”

Employer may deduct the September installment (and any installment already due) from final pay and remit it.
If the remaining loan balance exceeds final pay, the excess is not deductible; Ana pays SSS directly.

Example 2: No written authority

Ben resigns; HR finds he has an SSS loan but no Authority to Deduct on file and no garnishment order.

Employer should not deduct from final pay.
Employer releases final pay and advises Ben to continue paying SSS directly.

Example 3: Employer deducted but failed to remit

Carla’s employer withheld her August SSS amortization but remitted late.

The employer can face SSS penalties for failure to remit timely.
The employee should not be prejudiced; HR must cure the remittance and provide proof.

FAQs

Is the employer required to fully settle the employee’s remaining SSS loan from final pay? No. The employer is not the debtor. It may withhold and remit only what is due and authorized; the employee remains liable to SSS for any balance.

Can an employer refuse to release final pay until the SSS loan is cleared? Best practice is no. Absent a lawful basis (e.g., valid written authority specifically allowing offset from final pay and it’s actually applied), withholding final pay can expose the employer to claims for unpaid wages.

What if the Authority to Deduct is silent on “final pay”? Err on the side of non-deduction or obtain a fresh, specific consent covering the final pay.

What documents should employees keep?

Copy of SSS loan documents and Authority to Deduct
Final payslip showing any SSS deduction
Proof of SSS remittance for the last deducted installment
SSS payment receipts for post-employment payments

Model clauses (for HR forms)

Payroll Authorization (SSS Loan – Final Pay Coverage).

“I voluntarily authorize [Employer] to deduct from my wages and benefits—including my final pay upon separation—any due and demandable amortizations on my SSS Salary Loan, and to remit the same directly to the SSS. I understand that any remaining balance after such remittance remains my personal obligation to SSS.”

Exit Acknowledgment (if no prior authority).

“I acknowledge my outstanding SSS Salary Loan and agree to pay SSS directly after my separation. I do not authorize [Employer] to deduct any amount for my SSS loan from my final pay.”

Practical tips

For employers: Maintain copies of all Authorities to Deduct, keep a clear audit trail of remittances, and avoid “catch-all” deductions without specific consent.
For employees: Before resigning, check whether your SSS loan form includes a final-pay deduction clause and plan for direct payments after separation.
For both: Transparency and itemized documentation reduce disputes and complaints.

This article provides general information on Philippine labor and social security rules concerning deductions from final pay. For complex or disputed cases, consider seeking tailored advice from a labor practitioner or coordinating directly with the SSS for loan-account specifics.