Salary deductions are more than just line items on a payslip, they’re bound by legal frameworks that protect employees while enabling employers to recover specific costs. The DOLE rules on salary deduction clearly define what can and cannot be deducted from an employee’s salary.

Under these rules, deductions are permissible only with the employee’s written consent or when mandated by law, such as taxes or government-mandated contributions. Unauthorized deductions can lead to penalties and labor disputes, making compliance essential for every employer.

What are Allowable Salary Deductions in the Philippines?

The list of allowable salary deductions in the Philippines is specific. These include:

1. Government Mandated Contributions: SSS, PhilHealth, and Pag-IBIG contributions are automatically deducted.
2. Tax Withholding: Employers are responsible for deducting and remitting income tax.
3. Authorized Loans or Advances: Loans granted by employers or government agencies like SSS, provided they meet legal guidelines.
4. Losses or Damages: Deducting for losses or damages caused by the employee is allowed but must follow due process and meet DOLE’s criteria.

Employers must ensure transparency, issuing clear explanations on every deduction to maintain trust and avoid potential disputes.

How Much Tax Is Deducted From Salary in the Philippines?

Taxes often make up the largest chunk of deductions, so understanding how much tax is deducted from one’s salary in the Philippines is crucial for both employers and employees. The computation is based on the graduated tax rates outlined in the Tax Reform for Acceleration and Inclusion (TRAIN) law.

For instance:

• Employees earning less than ₱250,000 annually are exempt from income tax.
• Higher earners are taxed on a tiered scale, with rates ranging from 20% to 35%.

Employers are responsible for calculating and withholding the correct tax amount to avoid penalties for underpayment.

Authority to Deduct: Ensuring Legal Compliance

Employers cannot deduct arbitrary amounts from salaries without explicit permission. An authority to deduct from salary must be secured through written consent from the employee. Even then, deductions must comply with DOLE regulations, ensuring they do not exceed 20% of the employee’s total wages in a given pay period.

This safeguard ensures that employees retain enough of their earnings to support their needs while giving employers a structured framework for recovering costs when necessary.

Payday Makes Compliance Simple

Salary deductions are more than just a legal obligation—they’re a matter of trust between employers and employees. Payday ensures that businesses adhere to DOLE rules on salary deduction while simplifying payroll management. Our systems provide precise computations, compliance with allowable salary deductions in the Philippines, and clarity on how much tax is deducted from salary in the Philippines.

With Payday, you’ll never have to worry about missing a detail or breaching regulations. Let us help you build a payroll system that protects your business and respects your employees. Contact us today to learn more.