Deducting Mandatory Contributions from a Resigned Employee’s Final Pay in the Philippines (Comprehensive legal primer – updated to July 30 2025)
1 | Why “final pay” matters
When an employee resigns, the employer must settle final pay (sometimes called “last pay” or “back pay”). Typical elements are:
- wage for all days worked up to the effectivity of resignation
- cash conversion of unused service incentive leave (Art. 95, Labor Code)
- pro‑rated 13th‑month pay (PD 851)
- any other monetary benefit provided by contract, policy, CBA, or company practice
- deductions that the law expressly allows (Arts. 113‑116, Labor Code, and special statutes)
Labor Advisory No. 06‑20 (DOLE, June 26 2020) encourages payment within 30 days from the date the employee “clears” or from effectivity of separation—whichever comes earlier. The advisory is not penal but has become industry standard.
2 | Statutory basis for deductions
| Legal source | What it allows |
|---|---|
| Art. 113‑115, Labor Code | Deduction of employee’s share in government contributions (SSS/PhilHealth/Pag‑IBIG), tax, union dues, and lawful debts with the employee’s written consent. Any other deduction—e.g., for loss or damage—requires twin due‑process tests (notice & hearing) under Art. 114. |
| Republic Act 11199 (Social Security Act of 2018) | Emp‑loyer must deduct whole employee share once the employee earns any compensation in a month. Failure to deduct does not excuse the employer from paying; the employer becomes liable for both shares plus 3 % penalty per month. |
| Republic Act 11223 (Universal Health Care Act, PhilHealth) | Same “one‑day‑work‑in‑a‑month‑means-full-premium” rule. Penalty: at least 3 % interest per month plus surcharges. |
| Republic Act 9679 (Pag‑IBIG) | Employer deducts 2 % of Monthly Compensation (MC) up to ₱5 000 (i.e., max ₱100) and remits an equal counterpart. Pag‑IBIG treats partial month compensation as basis for proportionate deduction, but in practice most payroll systems deduct the full ₱100 once MC ≥ ₱5 000. |
Key principle: The employer may deduct only the employee’s legally mandated share. The employer share must never be passed on to the employee.
3 | How to compute contributions on the last payroll cycle
Identify the coverage month. If the employee worked even a single day in July 2025, the July contribution is due.
Determine the correct Monthly Salary Credit (MSC) or Monthly Basic Salary. SSS uses MSC brackets; PhilHealth now uses a percentage of actual salary (5 % of basic salary divided equally between employer and employee, continuing the phased schedule under Circular 2023‑0022).
Apply the “whole‑month rule.” No proration for SSS and PhilHealth. Pag‑IBIG may be prorated only if payroll software is configured for actual MC; otherwise deduct the usual ₱100/2 % as long as compensation reaches the ceiling.
Check for loan amortisations. SSS salary loans, Pag‑IBIG MPL/Housing loans, calamity loans—deduct amounts due within the last payroll period only. Future amortisations cannot be accelerated without a written authority signed post‑resignation (Art. 115).
Withhold income tax on all taxable items (BIR RR 8‑2018 as amended). 13th‑month pay up to ₱90 000 is tax‑exempt. Unused SIL is taxable.
Document everything in the quitclaim or final pay computation sheet—even if the net amount is zero or negative. Provide the employee with:
- pay slip (RA 10395)
- BIR Form 2316 (Year‑to‑date) within 30 days of separation
- COE stating dates and position (Labor Advisory 06‑20)
4 | Timing & remittance after resignation
| Agency | Cut‑off (employee resigned in July 2025) | Remittance deadline (regular employers) | Filing/report |
|---|---|---|---|
| SSS | Any compensation earned 1–31 July 2025 | 31 Aug 2025 (last day of month following) | R‑5 and R‑3 via My.SSS |
| PhilHealth | Compensation for July 2025 | 11 Aug 2025 (if Employer ID ends 0‑4) or 15 Aug 2025 (ID 5‑9) | Electronic Premium Remittance System (EPRS) & ER‑2 |
| Pag‑IBIG | Compensation for July 2025 | 10 Aug 2025 | MCRF & electronic remittance |
Penalties accrue per day of delay (SSS: 3 % / month; PhilHealth: 3 %; Pag‑IBIG: 2 %). Criminal prosecution is possible for habitual non‑remittance (SSS Law sec. 28‑h).
5 | Common issues & how to handle them
Partial‑month resignation (e.g., July 15). Still deduct full month contributions—the law is explicit.
Net pay is insufficient. Deduct what the final net pay can cover (employee share first, then loan amortisation). The employer still owes the balance to the government agency; it cannot be recovered from the employee later unless the employee consents in writing or the CBA provides a mechanism.
Company property losses / training bonds. Follow Art. 114 due‑process steps. Without written admission of liability and clear proof of value, DOLE inspectors often order refund of illegal deductions plus legal interest.
Separation vs. retirement. Resignation does not entitle the employee to statutory separation pay (Art. 298), but if the company has a retirement plan at age 60+ or 15 yrs service, RA 7641 benefits may be triggered instead—separate computation from mandatory contributions.
Transition to voluntary/self‑employed membership. Employers should advise resigning employees to:
- enroll as Voluntary (SSS) and Self‑Employed (PhilHealth, Pag‑IBIG) members within 30 days, using Forms SSS RS‑5, PhilHealth CF2, or Pag‑IBIG MDF;
- keep receipts to avoid coverage gaps affecting future benefit claims.
6 | Penalties & employee remedies
- Government penalties – As noted above, statutory interest plus possible imprisonment (up to 12 yrs under SSS Law).
- Money claims – Resigned employees may file a complaint before DOLE Regional Office (≤ ₱5 000) or NLRC (any amount) within three (3) years from accrual (Art. 305).
- Benefit claims – Employees missing contributions can still claim sickness/maternity/retirement but processing will stall until the employer pays; SSS often issues a Demand Letter to the employer.
7 | Step‑by‑step employer checklist
- Receive written resignation and verify last working day.
- Start clearance routing; request inventory of accountabilities.
- Compute gross final pay and itemise each component.
- Calculate mandatory contributions for the last coverage month.
- Offset authorised deductions; ensure no employer share is passed on.
- Issue quitclaim and COE; obtain employee signature.
- Remit SSS/PhilHealth/Pag‑IBIG premiums and loan amortisations on or before statutory deadlines.
- Generate and transmit electronic reports (R‑3, EPRS, MCRF).
- Release net final pay within 30 days (best practice).
- Furnish BIR 2316 and update AlphaList for year‑end.
8 | Employee quick tips
- Ask for a breakdown of final pay and verify SSS, PhilHealth, and Pag‑IBIG deductions vs. posted contributions online.
- Request your COE and quitclaim—they double as proof of separation when switching to voluntary membership.
- If contributions remain unposted after 60 days, lodge a written inquiry with the employer’s HR and copy the concerned agency’s compliance division.
9 | Conclusion
Deducting mandatory contributions from a resigned employee’s final pay is not optional—it is a statutory duty intertwined with wage‑deduction rules, benefit coverage, and government financing. By following the “whole‑month rule,” respecting deduction limitations, and observing strict remittance schedules, employers can close the employment relationship cleanly while protecting both parties’ rights.
This article provides general information only and does not constitute legal advice. For case‑specific concerns, consult a Philippine labor‑law practitioner or the appropriate government agency.