In the Philippine labor landscape, the separation of an employee from service—whether through resignation, termination for cause, or authorized causes—triggers specific legal obligations for the employer. Chief among these are the release of "Final Pay" and the proof of "Remittance of Mandatory Benefits."
Under the Labor Code of the Philippines and relevant Department of Labor and Employment (DOLE) issuances, these are not mere company policies but statutory rights.
I. Final Pay (Last Pay)
Final pay refers to the sum of all wages and monetary benefits due to an employee regardless of the cause of termination.
1. Components of Final Pay
While the exact amount varies based on the contract, it generally includes:
- Unpaid Salary: Wages earned for actual days worked prior to separation.
- Pro-rated 13th Month Pay: Calculated as .
- Service Incentive Leave (SIL) Pay: Conversion of unused SIL (5 days per year for those with at least one year of service).
- Cash Conversions: Any unused vacation or sick leaves if stipulated in the employment contract or Collective Bargaining Agreement (CBA).
- Separation Pay: Only if the separation is due to "Authorized Causes" (e.g., redundancy, retrenchment, disease) or as a result of a legal compromise. It is not required for voluntary resignation or termination for "Just Cause" (e.g., serious misconduct).
- Refund of Tax Overheld: If the total tax withheld exceeds the tax due on the employee’s income for the year.
2. Statutory Deadline for Payment
Pursuant to DOLE Labor Advisory No. 06, Series of 2020, final pay must be released within thirty (30) calendar days from the date of separation, unless a more favorable company policy or CBA exists.
3. The Release and Quitclaim
Employers often require the signing of a "Release, Waiver, and Quitclaim" before releasing final pay. While Philippine courts generally look upon quitclaims with disfavor as being contrary to public policy, they are valid if:
- The settlement is reasonable.
- The employee signed voluntarily without fraud or coercion.
- The consideration is not unconscionable.
II. Unremitted Mandatory Benefits
Employers act as withholding agents for mandatory government contributions. Failure to remit these funds is a criminal offense under Philippine law.
1. The Three Pillars
- Social Security System (SSS): Failure to remit contributions or loan amortizations is a violation of the Social Security Act of 2018 (R.A. 11199). It carries penalties of fines and imprisonment.
- Philippine Health Insurance Corporation (PhilHealth): Governed by the Universal Health Care Act, non-remittance deprives the employee of health coverage benefits.
- Home Development Mutual Fund (Pag-IBIG): Non-remittance of savings and loan payments violates R.A. 9679.
2. Employer Liability
Even if the employer deducted the employee's share from their salary, the employer remains liable if those funds were not actually remitted to the respective agencies. This is often discovered when an employee attempts to claim benefits (e.g., maternity or sickness) only to find they are "inactive."
III. Legal Remedies and Procedure
If an employer refuses to release final pay or has failed to remit contributions, the employee has several avenues for redress:
| Step | Action | Description |
|---|---|---|
| 1. Demand Letter | Formal Notice | A written demand sent to the employer via registered mail, providing a final opportunity to settle. |
| 2. SEnA | Single Entry Approach | A mandatory 30-day conciliation-mediation process at the nearest DOLE office to reach an amicable settlement. |
| 3. Labor Arbiter | Formal Complaint | If SEnA fails, a formal complaint is filed with the National Labor Relations Commission (NLRC). |
| 4. Agency Complaints | SSS/PhilHealth/Pag-IBIG | Concurrent with labor cases, employees can file complaints directly with the legal departments of these agencies for non-remittance. |
IV. The Principle of Management Prerogative vs. Employee Rights
Employers often attempt to withhold final pay as a "penalty" for failure to complete a turnover or for alleged damages.
Jurisprudence Note: The Supreme Court has ruled that while an employer may withhold a portion of the final pay for existing debts (e.g., unreturned company property or liquidated damages), they cannot indefinitely withhold the entire amount, especially the portion representing wages earned and the 13th-month pay.
V. Issuance of Certificate of Employment
Regardless of the dispute, an employer is mandated to issue a Certificate of Employment (COE) within three (3) days from the request of the employee, specifying the dates of service and the nature of the work performed.