Executive summary

In the Philippines, an employer cannot withhold a resigning employee’s final pay beyond what is necessary to complete a reasonable clearance process and compute lawful deductions. As a general rule, final pay should be released within 30 days from separation, unless a shorter period applies under company policy or a collective bargaining agreement (CBA). Only lawful deductions (e.g., statutory taxes, verified losses or unreturned property with proper basis, government-mandated contributions, and amounts the employee expressly authorized in writing) may be offset against final pay. Employers may not impose blanket or punitive holds, and they cannot require a quitclaim that waives statutory rights as a condition for releasing pay.

Legal bases (key provisions)

Labor Code (as renumbered)
- Art. 102–116 (Wages; prohibitions) – wages must be paid in legal tender; unlawful withholding and unlawful deductions are prohibited.
- Art. 113/114 (Deductions from wages) – deductions are allowed only if: (i) authorized by law; (ii) the employee gives written authorization for a specific purpose/beneficiary; or (iii) they fall under recognized exceptions (e.g., verified loss/damage subject to due process).
- Art. 95 (Service Incentive Leave) – unused SIL (5 days/year for covered employees) is convertible to cash upon separation.
- Art. 300 [formerly 285] (Termination by employee) – resignation generally requires 30-day written notice, unless for justifiable causes allowing immediate resignation.
- Art. 297–299 (Termination by employer) & Art. 301–302 (Authorized causes) – separation pay rules (note: resignation does not entitle the employee to separation pay unless provided by policy/CBA/contract).
- Art. 306 [formerly 291] (Prescriptive period) – money claims arising from employer-employee relations generally prescribe in three (3) years from accrual.
Presidential Decree No. 851 (13th-Month Pay Law) and its rules – prorated 13th-month pay is due up to the time of separation for rank-and-file employees.
Tax Code & BIR regulations – mandate correct withholding taxes on compensation and issuance of BIR Form 2316; any tax refund is part of the final pay computation.
DOLE labor advisories and handbook guidance – operationalize timelines and documentation (e.g., final pay within 30 days from separation; Certificate of Employment within 3 days from request).

Courts consistently hold that quitclaims do not bar claims for statutory or unpaid lawful benefits when the waiver is involuntary, obtained through undue pressure, or for unconscionably low consideration. Voluntary quitclaims supported by reasonable consideration remain generally valid—but cannot waive minimum labor standards.

What counts as “final pay” upon resignation

Depending on the employee’s status and company policies/CBA, final pay typically includes:

Unpaid basic salary up to last day worked (including guaranteed allowances).
Prorated 13th-month pay (PD 851).
Conversion to cash of unused leaves:
- Service Incentive Leave (SIL): 5 days for eligible employees must be monetized if unused at separation.
- Additional leaves (vacation/sick) per company policy or CBA.
Overtime, night shift differential, premium/holiday pay, and other earned differentials not yet paid.
Commissions/bonuses that are earned and determinable under the plan/policy as of separation (discretionary bonuses may be excluded unless a right has vested).
Authorized deductions/refunds:
- Tax withholding adjustments and tax refund, if applicable.
- SSS/PhilHealth/Pag-IBIG contribution catch-ups, if any.
- Salary loans (SSS/Pag-IBIG/company) only if there’s written authorization or legal basis.
Separation pay – not due for resignation, unless contract/CBA/company policy specifically grants it.

May the employer withhold final pay pending clearance?

The rule

Employers may implement a reasonable clearance procedure (return of company property, settlement of accountability, turn-over, etc.).
Holding the release of final pay only to the extent reasonably necessary to verify accountabilities and compute lawful deductions is permitted.
Unreasonable or indefinite holds (e.g., “until further notice,” “until the investigation ends,” or conditioning release on signing a broad quitclaim) are not allowed.

Practical timeline

Final pay: release within 30 days from separation (or earlier if policy/CBA says so).
Certificate of Employment (COE): issue within 3 days from request—cannot be conditioned on clearance or quitclaim.
If the employee lawfully resigns with notice and has completed turn-over, the employer should not delay beyond the above timeline merely because a department has yet to sign a form.

Lawful vs. unlawful deductions (quick guide)

Scenario	Lawful to Deduct from Final Pay?	Conditions
Taxes and government-mandated contributions	Yes	As required by law; adjust/refund as needed.
SSS/Pag-IBIG/company loans	Yes	Must have clear written authorization or legal mandate; observe any ceilings in policy/regulation.
Verified loss/damage to employer property (e.g., unreturned laptop)	Yes, with safeguards	Employee must be heard; fault/negligence clearly shown; fair and reasonable amount; avoid punitive estimates. Ideally supported by written accountability agreement and asset valuation.
Cash shortages for cash-handling employees	Yes, with safeguards	Liability must be clearly established (audit, incident report); deductions should be reasonable and documented.
Penalties/liquidated damages not grounded in law or contract	No	Purely punitive “fines” or arbitrary penalties are prohibited.
Uniform/tool deposits or “forfeiture” of wages as security	No	Wage withholding as security is unlawful.
Requiring a quitclaim to release final pay	No (as a condition)	Final pay cannot be conditioned on waiving statutory rights; quitclaims must be voluntary and for reasonable consideration.

Tip for employers: If property is not returned on time, charge only the actual, supported replacement or repair cost (net of depreciation if appropriate) and document the basis. Do not withhold the entire final pay when a smaller, determinable deduction solves the issue.

Resignation mechanics that affect final pay

30-day notice (Art. 300). Employer and employee may agree in writing to shorten the period. Immediate resignation is allowed for just causes (e.g., serious insult, inhuman treatment, commission of a crime by employer, or health reasons).
Turn-over and clearance should be bounded (e.g., 3–10 working days) with a checklist of accountabilities; delays by internal units should not defeat the 30-day payout guidance.
Prorations:
- 13th-month pay is computed on basic wage earned within the calendar year up to the date of separation.
- Leave conversions follow policy and the SIL rule.
Commissions/variable pay: Follow the plan’s accrual/vesting rules; pay what is earned and determinable by separation. If amounts depend on post-separation collections, set an objective cut-off and true-up schedule in writing.

Quitclaims and waivers

Valid if executed voluntarily, with full understanding, and for a reasonable consideration.
Invalid/ineffective if obtained through fraud, coercion, mistake, or unconscionable terms, or if they waive statutory minimums (e.g., SIL, 13th-month, overtime).
Best practice: Release undisputed final pay without demanding a blanket waiver; if a quitclaim is used, limit it to clearly identified, non-statutory items and recite the consideration.

Certificates and records

COE (employment dates, position, final pay period) must be issued within 3 days of request—no conditions.
Provide a breakdown of final pay and deductions, including tax computations, SSS/PhilHealth/Pag-IBIG updates, and any loan offset notices.
Issue BIR Form 2316 for the year (or upon separation if needed for new employer’s tax reporting).

Remedies if final pay is wrongfully withheld

Internal escalation: HR/payroll, then management; request written breakdown and the legal basis for any hold/deduction.
DOLE Single-Entry Approach (SEnA) – Request for Assistance (RFA): quick, non-litigious conciliation.
Money claims / labor standards complaint with DOLE or labor arbiters (for claims intertwined with illegal dismissal/constructive dismissal).
Civil action for amounts not covered by labor jurisdiction, when appropriate.
Prescription: File within 3 years from the time the monetary claim accrued.

Employer compliance checklist (policy template)

☐ Written final pay policy stating a 30-day (or shorter) release period.
☐ Clearance workflow with defined turn-over deadlines and a named case owner.
☐ Standard final pay computation sheet (salary, 13th-month, leave conversions, differentials, taxes, refunds).
☐ Deductions protocol: require documentation, employee notice and chance to explain, and written authorization where needed.
☐ COE issuance within 3 days of request; not contingent on quitclaim.
☐ Records retention: payslips, payroll registers, asset receipts, loan authorizations, and tax forms.

Frequently asked questions

1) Can an employer hold final pay until the employee signs a quitclaim? No. Final pay for undisputed, statutory items should be released within the policy timeline. A quitclaim cannot waive legal minimums and should never be used to coerce release.

2) Can final pay be withheld because the employee did not serve the 30-day notice? The employer may treat the short notice as a breach and recover provable damages (if any) consistent with law and contract—but it cannot forfeit wages or statutory benefits. Any offset must be lawful, documented, and reasonable.

3) What if the employee fails to return company property? The employer may deduct the actual, supported replacement/repair cost after informing the employee and allowing an explanation. It should release the balance of final pay on time.

4) Are resigning employees entitled to separation pay? Generally no, unless granted by CBA/policy/contract. (Separation pay is for authorized causes or certain terminations by the employer.)

5) How is 13th-month computed on resignation? Sum of basic wages actually earned from January 1 through the separation date, divided by 12. Pay the prorated result, less taxes if applicable.

6) Must unused leave be paid? SIL (5 days) must be monetized if unused. Additional leaves follow company policy/CBA.

Bottom line

Employers may not use “withholding” as leverage.
Release final pay within 30 days of separation (or earlier if policy/CBA says so).
Only lawful, well-documented deductions are allowed, and employees retain the right to challenge improper holds via DOLE/SEnA or money claims.
Clear, written policies and prompt documentation protect both parties.