Final Pay Deductions in the Philippines: COE, Last Pay, and SSS Loan Offsets Explained

When an employee resigns or is separated from employment in the Philippines, one of the most pressing issues is the final pay. This covers salary and other monetary benefits due upon termination of the employer-employee relationship. Questions often arise about what deductions are allowed, how loans (particularly from the Social Security System or SSS) are treated, and the issuance of the Certificate of Employment (COE). This article explores the Philippine legal framework governing final pay, with focus on deductions, SSS loan offsets, and COE issuance.

1. Legal Basis for Final Pay

Under Labor Advisory No. 06, Series of 2020 (DOLE), final pay refers to the sum or totality of all wages or monetary benefits due to an employee, regardless of the cause of termination. Employers are required to release the final pay within 30 days from the employee’s date of separation, unless a different period is stipulated in the company policy, collective bargaining agreement (CBA), or employment contract.

Final pay typically includes:

Last unpaid salary
Pro-rated 13th month pay
Conversion of unused service incentive leave or vacation leave (if convertible)
Separation pay, if applicable (due to authorized causes under the Labor Code)
Other contractual benefits

2. Certificate of Employment (COE)

A Certificate of Employment is an employee’s basic right. Under Article 4, Labor Code and reinforced by DOLE Labor Advisory No. 06-20, the COE must be issued upon request by the employee, regardless of the circumstances of separation.

The COE should contain:

Dates of employment
Nature of work performed
Position(s) held

It cannot be withheld due to pending clearance, unsettled loans, or ongoing disputes. The Supreme Court has repeatedly ruled that the COE is merely an official record of employment and should not be used as leverage by employers.

3. Deductions from Final Pay

The Labor Code of the Philippines (Article 113) and DOLE rules strictly regulate deductions. Employers may deduct from wages only if:

Required by law (e.g., income tax, SSS, PhilHealth, Pag-IBIG contributions);
Authorized by the employee in writing (for loans or company obligations);
Due to damages or loss where the employee is clearly responsible, after due process.

Thus, deductions from final pay must fall within these categories. Employers cannot impose arbitrary deductions, such as penalties for resignation without notice (unless specifically allowed under the contract and not contrary to law).

4. SSS Loan Offsets and Final Pay

An SSS salary loan or calamity loan is a government obligation. When an employee with an outstanding SSS loan separates from employment:

Employer Responsibility: Employers are not legally obligated to deduct SSS loan balances from the final pay. Their responsibility is limited to remitting loan amortizations that have already been deducted from salaries before separation.
Employee Obligation: The loan remains the employee’s responsibility. After separation, the borrower must pay SSS directly through voluntary payment facilities.
Offsetting with Final Pay: An employer cannot unilaterally offset the employee’s final pay to settle SSS loans unless there is a written authorization from the employee allowing such deduction.

If the employee did not authorize, the employer must release the final pay in full (minus lawful deductions like tax, contributions, or company advances). The outstanding SSS loan is between the employee and the SSS.

5. Other Common Offsets and Clearances

Employers often require employees to undergo a clearance process to ensure return of company property and settlement of obligations. Common offsets include:

Unreturned company equipment or uniforms
Cash advances or company loans (if authorized in writing)
Overpayment of benefits or salary

These may be deducted from the final pay, provided due process is observed and the employee consented (in writing) to such deductions at the time the obligation was incurred.

6. Remedies for Employees

If the employer withholds final pay or makes unlawful deductions:

DOLE Complaint – Employees may file a complaint with the DOLE Field Office through a Single Entry Approach (SEnA).
Labor Arbiter Case – For claims above ₱5,000, an employee may file a complaint for money claims with the NLRC.
Demand Letter – A written demand for release of final pay and COE often expedites compliance.

7. Practical Guidelines for Employers

Release final pay within 30 days, unless otherwise agreed.
Issue COE immediately upon request, regardless of clearance status.
Limit deductions strictly to those allowed by law or authorized in writing.
Avoid withholding final pay to force loan settlement with SSS, as this is not legally required.
Ensure transparency in the computation of final pay to avoid disputes.

Conclusion

In the Philippine context, final pay is a statutory right, and any deductions must comply with the Labor Code and DOLE regulations. Employers cannot arbitrarily withhold pay or COE, and SSS loan balances remain a personal obligation of the employee, not something automatically deducted from final pay. By observing legal standards, both employers and employees can ensure a fair and orderly separation process.

Would you like me to also prepare a sample final pay computation template (with deductions and COE issuance notes) that employers can use as a compliance guide?