Can an Employer Deduct an SSS Loan Balance from an Employee’s Final Pay When Terminated for Redundancy?

A comprehensive Philippine legal guide (updated to May 2025)

Executive summary

Under the Social Security Act of 2018 (Republic Act No. 11199) and its implementing rules—including SSS Circular 2019-014—an employer must deduct whatever remains of an employee’s SSS salary-loan amortizations from “any benefits due the employee” at the time of separation and remit the amount to the Social Security System within 30 days. “Benefits” covers wages, 13ᵗʰ-month pay, prorated allowances, and statutory or company-granted separation pay (e.g., redundancy pay under Art. 298 [formerly 283] of the Labor Code).

The Labor Code’s general rule against unauthorized wage deductions (Arts. 113–116) does not bar this particular deduction because:

The employee’s loan application constitutes express written authorization; and
RA 11199 itself is a “lawful authority” requiring employers to act as collecting agents—even upon separation.

Failure to deduct and remit exposes the employer and its responsible officers to (a) the unpaid loan plus interest and penalties, (b) a 2 percent monthly SSS penalty, (c) civil liability equal to twice the amount unpaid, and (d) criminal prosecution punishable by fine and/or imprisonment.

1. Redundancy and “final pay” at a glance

Item	Statutory / typical basis	Is it part of “benefits due” that may be applied to an SSS loan?
Accrued wages up to last day worked	Labor Code Art. 102	✔
Separation pay for redundancy (≥ 1 month salary or 1 month × years of service, whichever is higher)	Labor Code Art. 298(b)	✔
Pro-rated 13ᵗʰ-month pay	Presidential Decree 851	✔
Unused SIL/VL conversion	Labor Code Art. 95; company policy	✔
Tax-refunds / over-withheld tax	NIRC, BIR RR 8-2011	✔
Retirement pay under Art. 302	Not applicable to redundancy unless employee also qualifies for retirement	✔

“Final pay” (sometimes called “last pay” or “back pay”) is the sum of the foregoing, plus any company-granted benefits, less lawful deductions (withholding tax, government loans, etc.).

2. The legal basis for loan deductions

2.1. Labor Code restrictions (Arts. 113 & 116)

General rule: No employer may make deductions from the wages of an employee except:

When authorized by law;
When the employee authorizes the deduction in writing for insurance, union dues, or “other similar purposes”; and
In cases of employer-employee indebtedness when there is written authorization and deduction does not exceed 20 percent of wages per month.

2.2. Special mandate under RA 11199

Section 20(b) of RA 11199:

“The employer shall deduct from the employee’s salary and from any benefit due him in case of separation, and remit to the SSS, the corresponding amortizations of salary loans… Failure or refusal to remit shall render the employer liable for the benefits due, penalties thereon, and may constitute an offense punishable under this Act.”

Key take-aways:

The statute expressly overrides the “20 percent ceiling” in Art. 113 when the employee is separated; the entire outstanding balance may be offset.
No fresh employee consent is required at separation because (a) consent was given in the loan application; and (b) statutory mandate substitutes for consent.

2.3. Implementing rules

SSS Circular 2019-014 (“Guidelines on Salary Loan Verification and Settlement”) — § 7.2 requires employers, upon separation, to:
1. Compute the verified total outstanding balance;
2. Deduct the full amount or, if benefits are insufficient, deduct what is available and still remit it;
3. Submit an SSS-dedicated Separation Report and the Loan Disclosure Schedule within 30 days; and
4. Turn over post-separation loan vouchers and disclosure to the employee.
DOLE Labor Advisory No. 06-20 (Final Pay) does not prohibit deductions required by another law; instead it compels employers to release the net final pay within 30 calendar days from separation.

3. Interaction with redundancy separation pay

3.1. Redundancy separation pay is a “benefit due”

While separation pay is paid precisely because employment is severed, the wording of RA 11199—“from any benefits due him in case of separation”—captures redundancy separation pay. Neither the Labor Code nor DOLE regulations create an exemption.

3.2. Effect on tax-exempt status

Section 32(B)(6)(b) of the National Internal Revenue Code exempts separation pay due to redundancy or retrenchment from income tax. Netting the SSS loan does not create taxable income because the law still regards the entire separation pay as compensation for loss of employment; the loan offset is simply a mode of settlement authorized by law.

3.3. Order of application when multiple obligations exist

Employers routinely face Pag-IBIG or company loans in addition to an SSS loan. A defensible order—backed by statutory priority—is:

Government-mandated deductions (SSS loan, Pag-IBIG loan, BIR withholding).
Court-ordered garnishments (e.g., child support).
Company loans, subject to the 20 percent wage-deduction ceiling absent special legal authority.

4. Employer liability for non-deduction or late remittance

Violation	Monetary exposure	Criminal exposure
Failure to deduct and remit within 30 days	Outstanding loan + 2 % per month penalty (RA 11199 § 19), plus damages equal to twice the amount (Art. 115, Labor Code)	Fine ₱5,000–₱20,000 and/or 6–12 years’ imprisonment (RA 11199 § 28)
Partial remittance	Same, applied on unpaid balance	Same
Falsified report of “no outstanding loan”	Same, plus possible estafa under RPC	Same

SSS almost invariably files both civil and criminal complaints against the corporate employer and its president/treasurer/HR manager in their personal capacities.

5. Step-by-step compliance checklist for HR & payroll

Verify loan balance via the My.SSS Employer portal > Loans > Employee Loan Inquiry or through SSS Form SLF-016.
Compute net final pay: Gross final pay – statutory withholding tax (if any) – SSS salary-loan balance (full) – Pag-IBIG/other lawful deductions = Net amount to release
Issue pay slip or breakdown showing the deduction.
Remit the deducted loan amount using Payment Reference Number (PRN)-based collection or eGovNB.
File:
- (a) LMS-01158 Separation Report;
- (b) R-1A or Electronic Collection List update indicating “Separated”;
- (c) Proof of loan remittance.
Turn over a copy of the Loan Disclosure Statement to the employee.
Document in writing (ideally a “Quitclaim and Release”) the net amount handed to the employee.

6. Jurisprudence and administrative rulings

Although no Supreme Court case squarely addresses redundancy vis-à-vis SSS loan deduction, several rulings affirm an employer’s right—and duty—to offset government-mandated loans from terminal benefits:

SSS v. Sea-Land Service, Inc. (G.R. L-40711, 21 June 1977) – Employers are mere collecting agents; non-remittance incurs personal liability of officers.
Nera v. Social Security Commission (G.R. L-46749, 18 Dec 1981) – Separation benefits may be withheld to cover loan obligations.
SSS Circular 2013-010 interpreted by the SSC in In re: Diaz (SSC Case 07-00002, 2014) – full offset from separation pay upheld.

Because the principle is statutory, courts routinely dismiss money claims by employees seeking to recover amounts validly applied to SSS loans.

7. Frequently asked questions

Question	Answer
Does the employee need to sign another authorization at separation?	No. The original salary-loan application contains a perpetual authority; RA 11199 adds statutory authority.
Can the employer deduct more than 20 % of wages?	Yes, because the 20 % cap in Art. 113 applies only to ordinary debts; SSS has special legislative priority.
What if the final pay is smaller than the loan balance?	Deduct what is available, remit it, and report the shortfall; SSS will pursue the employee for the rest but may still assess the employer if the shortfall resulted from earlier non-deductions.
Does DOLE require employee clearance before offsetting?	No, but best practice is to reflect the deduction in the clearance or quitclaim document to avoid disputes.
Is Pag-IBIG treated the same way?	Yes. HDMF Circular No. 448 prescribes identical steps for outstanding Pag-IBIG salary loans.

8. Practical drafting tips for companies

Integrate an irrevocable loan-offset clause in every salary-loan attestation form.
Automate loan-balance retrieval through SSS APIs (available to large employers since 2023).
Train payroll staff on the 30-day “final pay” rule under Labor Advisory 06-20.
Maintain a separation-pay computation worksheet that clearly shows each statutory deduction.
Archive remittance proofs for at least 10 years—the prescriptive period for SSS delinquency actions.

9. Key statutory provisions (textual extracts)

RA 11199, § 20(b). “…In case of separation of the employee, the employer shall deduct the total amount of outstanding amortizations from any benefits due him and shall remit the same to the SSS…”

Labor Code, Art. 113. “No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except: (a) When authorized by law or regulations…”

Labor Code, Art. 298(b). “…In case of redundancy, the employee shall be entitled to a separation pay equivalent to… one month pay or at least one month pay for every year of service, whichever is higher.”

10. Conclusion

When an employee is declared redundant, the employer is not only allowed but required to apply any outstanding SSS salary-loan balance against the employee’s final pay—including redundancy separation pay—and remit the amount within 30 days. The deduction is squarely authorized by RA 11199 and reinforced by SSS Circular 2019-014, overriding the Labor Code’s general prohibition on wage deductions. Employers who fail to comply face steep financial and criminal penalties, while employees retain no valid cause of action to recover amounts validly offset.

Bottom line: Treat the SSS loan balance as a statutory first-priority lien on all monies an employer owes a separating employee, redundancy included. Properly compute, deduct, remit, and document—then both HR and the redundant employee can move on without lingering liabilities.