SSS, PhilHealth & Pag-IBIG Deductions From Final Pay in the Philippines
A practitioner-oriented legal guide (2025 edition)
1. What “final pay” means
Final (or last) pay is every amount the employer still owes an employee on the date the employment relationship ends—whether by resignation, dismissal, retirement, completion of contract, redundancy, or closure. DOLE Labor Advisory No. 06-20 (4 May 2020) requires release within thirty (30) calendar days from the date of separation, unless a shorter period is set in a CBA, company policy, or employment contract. Typical inclusions:
| Component | Statutory basis |
|---|---|
| Unpaid basic salary & allowances | Art. 102–103, Labor Code |
| Pro-rated 13th-month pay | Presidential Decree 851 |
| Monetized unused leaves (if convertible) | CBA/policy / Art. 95 LC |
| Separation, retirement or redundancy pay | Arts. 299-302 LC / RA 7641 |
| Pro-rated service incentive leave pay | Art. 95 LC |
| Others: commissions, bonuses contractually due, etc. | Civil Code & contract |
Only lawful deductions may be withheld from these sums.
2. The general rule on deductions
Article 113 [formerly 110] of the Labor Code prohibits deductions from wages except:
- Those required by law (e.g., income tax, SSS, PhilHealth, Pag-IBIG).
- Those authorized in writing by the employee for payment to a third person (e.g., union dues, loan amortizations).
- Deductions under a CBA.
Because SSS, PhilHealth and Pag-IBIG contributions are mandated by statute, the employer may deduct the employee’s share falling within the month of separation and any unpaid amortizations on government-mandated salary loans, subject to the conditions below. No other offsetting may be made unless the employee signs a clear written authority.
3. Social Security System (SSS)
| Key Authority | Core obligation |
|---|---|
| Republic Act 11199 (Social Security Act of 2018) | Register all employees, deduct & remit contributions, withhold salary-loan amortizations |
| SSS Circulars 2019-012, 2023-003 | Updated contribution table & deadlines |
3.1 Contribution on the final month
- Rate (2025): 14% of MSC*; 4.5 ppt is employee share.
- Deduct only the part corresponding to days actually worked in the final payroll cut-off (prorated if payroll is semimonthly).
- Remit using R-5 / PRN on or before the last day of the month following the applicable month (schedule depends on employer’s SSS number).
*MSC = Monthly Salary Credit, capped at ₱35,000 in 2025.
3.2 Unpaid SSS salary loan amortizations
Loan amortizations are “authorized by law” under RA 11199, hence deductible.
- In the last payroll period, withhold the full monthly amortization due.
- If the employee opts (via written request) to fully settle the outstanding balance, the employer may deduct the remaining principal provided the net pay remains at least the statutory minimum wage.
- Any unpaid balance becomes the employee’s personal responsibility to SSS; the employer must accomplish Loan Collection List (ML-2) indicating the balance.
3.3 Separation documentation
- Certificate of Separation From Employment (SSS Form CLD-9N) – needed if the employee will file for SSS unemployment benefit.
- Update Employment Report (R-1A) marking status “Separated”.
3.4 Penalties for non-compliance
- 2% per month penalty on unremitted amounts plus possible criminal prosecution (fine ₱5,000-₱20,000 + imprisonment 6 yrs-1 day to 12 yrs).
4. Philippine Health Insurance Corporation (PhilHealth)
| Key Authority | Core obligation |
|---|---|
| RA 11223 (Universal Health Care Act) & RA 7875 as amended | Deduct & remit premiums; issue Certificate of Premium Payments on separation |
| PhilHealth Circular 2024-0002 | Premium rate table (2025 onward) |
4.1 Contribution on the final month
- Rate (2025): 5.0 % of monthly basic salary, equally shared (2.5 % + 2.5 %).
- Salary ceiling: ₱100,000; floor: ₱10,000.
- For resignations mid-month, compute premium based on actual compensation paid (PhilHealth rules treat any fraction of a month as a full month, but the premium uses the compensation actually paid).
4.2 Remittance & reporting
- Employers with at least 10 employees must file Electronic Premium Remittance System (EPRS) RF-1 on or before the 11th to 15th of the month following the applicable month (exact day based on employer name).
- On separation, generate “Member Data Record” reflecting with separation code to assist the employee in continuing coverage as self-paying member.
4.3 Penalties
- 3% per month penalty and interest on unremitted premiums plus surcharge; officers may face criminal liability under RA 11223.
5. Home Development Mutual Fund (Pag-IBIG)
| Key Authority | Core obligation |
|---|---|
| RA 9679 (Home Development Mutual Fund Act of 2009) | Deduct & remit contributions; collect loan amortizations via payroll |
| HDMF Circular No. 469 (2014) & HDMF Circular No. 444 (2013) | Contribution & loan collection mechanics |
5.1 Contribution on the final month
- Mandatory contribution: 2% of monthly compensation for each of employer and employee (ceiling ₱5,000 ⇒ max ₱100 each).
- For Pag-IBIG MP2 or provident top-ups: deduct only if the employee confirmed in writing the amount to be applied against final pay—otherwise cease deduction.
5.2 Outstanding Pag-IBIG salary / calamity loans
- Deduct the full unpaid balance in the final pay only if the promissory note or loan agreement authorizes acceleration upon separation and the employee’s written consent appears.
- If the final pay is insufficient, the employer must report the borrower’s status via Notices of Loan Default so Pag-IBIG can collect directly.
5.3 Remittance deadlines
- Contributions and loan amortizations are due on or before the 10th day of the month following the applicable month. Electronic remittance via HDMF Employer’s Web Portal is mandatory for 10+ employees.
5.4 Penalties
- 2% per month penalty on unremitted sums plus civil/criminal liability (fine ₱10,000-₱1 million and/or imprisonment up to six years).
6. Tax treatment of statutory deductions in final pay
| Item | Part of taxable income? | Withholding final pay? |
|---|---|---|
| SSS, PhilHealth, Pag-IBIG employee share | No (exempt under Sec. 33, NIRC) | Deduct first before computing withholding tax |
| Employer share | Not taxable to employee | Employer’s expense |
| SSS/Pag-IBIG loan amortization | Not taxable (payment of principal) | Deduct after tax computation |
| Separation pay due to retrenchment, redundancy, sickness, or involuntary causes | Tax-exempt under Sec. 32(B)(6)(b) NIRC | Exclude entirely from withholding tax |
| Voluntary resignation separation pay or excess benefits | Taxable | Subject to regular withholding |
Employer must file BIR Form 2316 (for substituted filing) and BIR Form 1604-C (annual return) reflecting the final-pay computations.
7. Practical 10-Step Workflow for HR & Payroll
- Receive clearance that all company property has been accounted for.
- Determine cut-off period covered by the final timesheet.
- Compute gross final pay (basic salary up to last day + pro-rated benefits).
- Deduct employee share of SSS/PhilHealth/Pag-IBIG for the final month.
- Apply loan amortizations duly authorized.
- Run withholding-tax computation on taxable remainder.
- Prepare statutory reports: SSS R-3, PhilHealth RF-1, Pag-IBIG MCRF.
- Pay government agencies within their respective deadlines.
- Issue documents: payslip, COE, BIR 2316, SSS/PhilHealth premium certificates, Pag-IBIG loan status letter.
- Release net final pay in cash, check, or payroll account ≤ 30 days from separation.
8. Common compliance pitfalls & how to avoid them
| Pitfall | Consequence | Preventive tip |
|---|---|---|
| Delaying remittance while already deducting from final pay | 2–3 % monthly penalties & possible criminal charges | Align final-pay release and government payment schedule; prepare PRNs in advance |
| Deducting past contribution shortfalls without consent | Illegal deduction → DOLE complaint | Collect arrears via installment plan with employee’s written authorization |
| Offsetting company loans first, then statutory contributions | Violation of Art. 113 LC (statutory deductions take priority) | Always rank deductions: (1) SSS/PhilHealth/Pag-IBIG, (2) taxes, (3) other authorized deductions |
| Charging interest or service fees on statutory contributions | Automatically void & punishable | Never add surcharges beyond what the law imposes |
| Forgetting to update employee status in SSS/PhilHealth/Pag-IBIG databases | Employee loses access to unemployment/continuing benefits | Submit separation reports immediately after payroll cutoff |
9. Employee remedies
- SSS: File a complaint with the nearest SSS branch; SSS may issue a Warrant of Distraint/Levy on delinquent employers.
- PhilHealth: Submit Form ER-3 Complaint; PhilHealth Legal Sector may impose fines up to ₱10,000 per affected employee.
- Pag-IBIG: Write to the HDMF Contribution Collection Division; Pag-IBIG can impose surcharges and publish delinquent employers.
- DOLE: Use Single-Entry Approach (SEnA) for conciliation; unresolved cases proceed to NLRC.
- BIR: Report failure to withhold or remit to the BIR Enforcement Service for tax-evasion investigation.
10. Frequently-asked questions
Can an employer deduct the entire outstanding Pag-IBIG loan if the employee consents? Yes, provided the written authorization is explicit, the deduction does not reduce net pay below the minimum wage, and the amount is duly remitted.
Is the employer share of contributions ever chargeable to the employee? No. All three laws expressly forbid passing the employer share to workers, even with their consent.
Must we still deduct SSS if separation occurs on the first work-day of the month? Yes. The law treats any day worked in a month as requiring a full monthly contribution (pro-ration is an internal payroll computation only).
If the employee has negative leave balances, may we offset them against final pay? Only if the employment contract or CBA allows, and after statutory deductions have been taken.
What if final pay is released on the 29th day, but statutory contributions are remitted on the 35th day? The employer is still compliant with DOLE (final pay released < 30 days) but late with SSS/PhilHealth/Pag-IBIG, incurring penalties there. Plan remittances to fall within both timelines.
11. Conclusion
When employment ends, statutory deductions for SSS, PhilHealth, and Pag-IBIG take first priority in the computation of final pay. Each agency has its own rates, deadlines, and enforcement regime, but they share three constants:
- Deduct only the employee’s share for the final month worked (plus any government-mandated loan amortization that is properly authorized);
- Remit on time and submit updated member / separation reports so the employee’s social protection continues seamlessly; and
- Never use statutory deductions to mask company-centric offsets—doing so violates Article 113 of the Labor Code and invites multiple layers of liability.
By building these rules into the standard clearance workflow, employers protect themselves from penalties while guaranteeing that departing workers leave with their full legal entitlements intact and their social benefits up to date.
This article reflects legislation and agency circulars effective 1 January 2025. Always check for subsequent amendments or temporary contribution moratoria before applying the guidance in practice.