Understanding the Salary

Deductions on Your Payslip

Last updated May 18, 2022

What could be more cringe-worthy than a payslip with lots of salary

deductions and a low net pay?

Times are tough these days with the rising inflation and the declining
peso. If you're trying to stretch your monthly budget for the family, it's
important to track your monthly take-home pay. Scrutinize the earnings
and deductions on your payslip to make sure your salary isn't deducted
more than what's authorized by the law.

In doing so, you might also catch errors in the computation of your
payroll deductions. Also, some employers deduct the mandatory
government benefits from their employees' payroll but fail to remit the
contributions to the respective agencies. Keep an eye out for that, too.

Here's a basic guide to help you make sense of salary deductions in the
Philippines and learn how to compute them.

Allowable Salary Deductions in the Philippines

Employers are required by law to deduct the following items from

employee salaries every month:

• Employee's share of SSS, PhilHealth, and Home Development Fund

(HDMF)/Pag-IBIG contributions
• Withholding tax
• Loan payments
• Tardiness
• Absences
• Other deductions from company-specific policies
Read more: Understanding Social Classes in the Philippines: Which Class
Do You Belong to?

Mandatory Government Contributions

Employers and employees share the latter's total monthly contributions

to SSS, PhilHealth, and Pag-IBIG. Only the employees' share of
government contributions is deducted from their monthly salaries.

The salary deductions for SSS, PhilHealth, and Pag-IBIG contributions are
computed based on an employee's monthly basic salary. The higher the
pay is, the higher the deductions.

1. How to Compute the SSS Deduction

The amount deducted every month for the SSS contribution is 3.63% of
an employee's monthly salary credit. Employees earning PHP 15,750 and
above per month have a monthly salary credit of PHP 16,000, which
means the SSS deduction per month is PHP 581.30.

Refer to the SSS contribution table[1] below to check the correct amount
that should be deducted from your payroll. For the employee share, look
at the column under "EE".
2. How to Compute the PhilHealth Deduction

The PhilHealth premium contribution rate is 2.75% of the monthly basic

salary, shared equally by employers and employees. Those who earn
PHP 40,000 and above have the maximum PhilHealth deduction of PHP
550 per month.

Check this PhilHealth premium contribution table to see how much

should be deducted from your payroll every month:
 Monthly Basic Salary Monthly Premium Employee Share Employer Share

PHP 10,000.00 and below PHP 275.00 PHP 137.50 PHP 137.50

PHP 10,000.01 to PHP 39,999.99 PHP 275.02 to PHP 1,099.99 PHP 137.51 to PHP 549.99 PHP 137.51 to PHP 549.99

PHP 40,000.00 and above PHP 1,100.00 PHP 550.00 PHP 550.00

3. How to Compute the Pag-IBIG Deduction

The maximum Pag-IBIG contribution is 2% or PHP 100 per month for

members earning PHP 5,000 and above per month.

Monthly Basic Salary Employer Share Employee Share

PHP 1,500 and below 2% 1%

Over PHP 1,500 2% 2%

Withholding Tax on Compensation

Employers in the Philippines collect and withhold their employees'

personal income tax through payroll deductions. This is why you have
the "withholding tax" on your monthly payslip.

Among salary deductions, the withholding tax is the most painful to

compute as much as it hurts the wallet—except for tax-exempt
employees with a monthly salary of PHP 20,833 and less.

How to Compute Withholding Tax Using an Online Calculator

The easiest and fastest way to determine your withholding tax is to use
an online withholding tax calculator[2]. Simply enter your monthly gross
income, click the button below it, and the tax calculator will automatically
generate your income tax due.

How to Compute Withholding Tax Manually

If you want to better understand how your employer computes your
taxes, you can try to calculate them manually. Here are the steps to
computing your withholding tax manually:

1. Get Your Taxable Income

Taxable income is the gross income minus any salary deductions and tax
exemptions. Follow this formula to compute your taxable income:

Taxable Income = (Monthly Basic Salary + Overtime Pay + Holiday Pay + Night Differential) -
(SSS, PhilHealth, and Pag-IBIG Contributions + Tardiness + Absences)

An employee who earns PHP 30,000 monthly (including the OT pay,

holiday pay, and night differential) has the following salary deductions:

• SSS contribution: PHP 581.30

• PhilHealth contribution: PHP 412.50
• Pag-IBIG contribution: PHP 100

The total deductions (assuming that the employee has no tardiness and
absences during a pay period) is PHP 1,093.80. When you subtract that
from the PHP 30,000 income, the taxable income would be PHP 30,000 -
PHP 1,093.80 = PHP 28,906.20

Read More: Here’s How to Compute Your Holiday Pay

2. Compute Your Tax Using the BIR Withholding Tax Table

Tax Bracket Monthly Salary Tax Rate (2018-2022)

1 PHP 20,833 and below 0%

2 PHP 20,833 - PHP 33,332 20% of the excess over PHP 20,833.33

3 PHP 33,333 - PHP 66,666 PHP 2,500 + 25% of the excess over PHP 33,333

4 PHP 66,667 - PHP 166,666 PHP 10,833.33 + 30% of the excess over PHP 66,667

5 PHP 166,667 - PHP 666,666 PHP 40,833.33 + 32% of the excess over PHP 166,667

6 PHP 666,667 and above PHP 200,833.33 + 35% of the excess over PHP 666,667
Check the Bureau of Internal Revenue's (BIR) revised withholding tax
table[3] and look for the tax bracket where your taxable income falls. In
our example above, the taxable income of PHP 28,906.20 is under
bracket 2. Using the tax rate formula for bracket 2 (20% of the excess
over PHP 20,833.33), here's how to compute your withholding tax:

(PHP 28,906.20 - PHP 20,833.33) x 0.20 = PHP 1,614.57

Non-Taxable Income

Certain sources of income other than the basic salary are excluded from
the withholding tax computation. According to BIR revenue regulations[4],
the following are tax exempt:

• 13th month pay and other benefits not exceeding PHP 90,000,
including Christmas bonus, loyalty award, productivity incentive
bonus, etc.
• De minimis benefits[5] within the prescribed maximum
amount (PHP 2,000 monthly rice subsidy, PHP 6,000 monthly
uniform and clothing allowance, PHP 250 monthly medical cash
allowance, etc.)
• Non-taxable retirement benefits and separation pay

If your 13th month pay and/or de minimis benefits go beyond the

prescribed limit, the excess amount is already taxable and added to your
withholding tax computation.

Other Salary Deductions

Photo by Katemangostar via Freepik.com

In addition to government contributions and withholding taxes,

deductions due to lates, absences, and loan payments are also applied
to a paycheck.

1. Tardiness and Undertime

Most companies in the Philippines deduct from the salaries of

employees who come late to work or leave work early. Employers vary in
the way they deduct tardiness. They may compute it by the minute,
quarter of an hour, or half an hour of work.

To know if you're deducted correctly for your lates and undertime, check
your company's attendance policy and how the deductions for tardiness
and undertime are computed. When you see a discrepancy, don't
hesitate to approach your HR department for a clarification and a
possible salary adjustment on the next payday.
2. Absences

When you've used up all your available paid leaves within a pay period,
any absence will be unpaid and will incur a salary deduction. This is also
the case when you forget to file your leaves and when your boss doesn't
approve your filed leaves.

Avoid a huge deduction from your payroll by planning your leaves well,
making sure you file them correctly and get your boss' approval, and
checking with your HR team the number of leave credits you can still use.

3. Pag-IBIG and SSS Loan Payments

When you avail of an SSS salary loan or Pag-IBIG multi-purpose loan,

your employer is responsible for collecting your loan payments via
monthly salary deductions and remitting them to SSS or Pag-IBIG.

Both Pag-IBIG and SSS loans are paid over two years, which means your
payroll gets deducted for 24 months until your loan is fully paid off. When
you move to a new job, inform your new employer immediately about
your outstanding balance. This will ensure that you continue your loan
payments through salary deductions and avoid accumulating penalty
fees for late payments.

4. Deductions from Specific Company Policies

Payroll deductions in the Philippines may include those that fall under
company policies such as union dues, company loan payments, and
additional insurance premiums that companies provide to their
employees.

Final Thoughts

You don't have to be a math whiz to understand the salary deductions

on your payslip. If you have questions or disputes about certain
deductions from your pay, discuss your concerns immediately with your
HR department.