A Guide to Payroll Deductions in the Philippines

Understanding payroll deductions is important for both employers and employees. In the Philippines, certain contributions and taxes must be withheld by law, while others are optional with employee consent. Here, we’ll explain how it works, so you know exactly where your money goes.

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What is a payroll deduction?

Payroll deductions are amounts taken out of an employee’s gross pay before it’s received in their bank account or digital wallet. These deductions cover obligations like taxes and social insurance contributions.

Under the Labor Code, an employer can only deduct money from an employee's pay for a few reasons:

1. Mandatory payroll deductions: Deductions such as withholding tax (BIR), SSS, PhilHealth, and Pag-IBIG contributions that are required by law.
2. Voluntary deductions: These deductions require the employee’s written authorization. They may include insurance premiums, union dues or other payments.
3. Court ordered deductions: Employers may be required by a court order or government agencies like the Bureau of Internal Revenue (BIR) to make deductions.

How much is typically deducted in the Philippines?

Payroll deductions in the Philippines are standardized nationwide. That means you don’t have to worry about different rules across states or territories.

The main mandatory payroll deductions Philippines employers need to know are:

• SSS (Social Insurance System): For private employees
• GSIS (Government Service Insurance System): For government employees
• PhilHealth: National health insurance
• Pag-IBIG (HDMF): Housing and development fund
• BIR: Income tax or withholding tax

Here are the main mandatory deductions and their current rates as of September 2025:

Figures accurate as of September 2025

Example: On a salary of ₱20,000 per month, a typical employee will see deductions for SSS, PhilHealth, Pag-IBIG, and income tax. These can add up to a few thousand pesos monthly, depending on contribution brackets.

We’ll cover each in more detail below under Types of Deductions

Deductions that aren’t allowed under the Philippine Labor Code

Employers can’t deduct money from their employee’s pay without a good reason. So, what are illegal payroll deductions? According to the Philippine Labor Code, a payroll deduction is illegal if:

• It directly or indirectly benefits the employer in an unreasonable way
• It isn’t authorized by law or court order
• If the employee didn’t sign a payroll deduction authorization document
• The employee is under 18 and their parent/guardian hasn’t agreed in writing

Types of deductions

Payroll deductions in the Philippines generally fall into four categories. Some are required by law, while others depend on the employee’s consent or specific agreements. Here’s how they break down:

1. Mandatory payroll deductions
2. Voluntary payroll deductions
3. Pre-tax deductions
4. Post-tax deductions

Let’s unpack each of these:

1. Mandatory payroll deductions

Employers are required by law to withhold and remit these deductions:

1. SSS (Social Insurance System) / GSIS (Government Service Insurance System)

• Provides employees with retirement, disability and sickness benefits
• Contribution rates depend on salary brackets. For example, in 2025, employees earning ₱20,000 contribute around ₱900+ to SSS

2. PhilHealth

• Supports universal healthcare
• Contributions are shared between employer and employee, usually around 5% of salary (split equally)

3. BIR (Income Tax / Withholding Tax)

• Employers withhold tax from salaries based on BIR tax tables
• Rates are progressive, so higher earners pay more

4. Pag-IBIG (HDMF)

• A savings and loan program for housing and personal needs
• The minimum contribution is ₱100 per month, with employers matching the amount

2. Voluntary payroll deductions

These optional deductions require employee consent and authority to deduct from payroll. 

Examples include:

• Retirement or pension fund contributions beyond the mandatory amounts
• Union fees for professional associations
• Child support payroll deductions, if ordered by the courts
• Salary loans such as SSS salary loans or Pag-IBIG housing loans

Employees usually sign a payroll deduction authorization document to allow these.

3. Pre-Tax and Post-Tax Deductions

In the Philippines, deductions generally fall into two timing categories—those taken before tax calculations and those applied after. Pre-tax payroll deductions are taken from an employee’s gross pay before any taxes are withheld.

Understanding the difference between pre and post-tax deductions helps both employers and employees stay payroll compliant. Here are some examples:

Choosing a payroll system to help with your deductions

Payroll in the Philippines involves multiple agencies, strict rules, and a mix of mandatory and voluntary deductions. A payroll mistake can mean penalties or employee complaints.

When choosing a payroll system in the Philippines, make sure it can:

• Accurately compute SSS, PhilHealth, Pag-IBIG and BIR contributions
• Generate pay slips that comply with the Philippine Labor Code
• Keep track of voluntary deductions like loans and savings
• Stay compliant and organized with payroll records