Under Philippine labor law, an employee who voluntarily resigns from employment is entitled to the full and prompt settlement of all monetary benefits accrued up to the effective date of separation. This settlement, commonly referred to as final pay, last pay, or back pay, encompasses unpaid wages, pro-rated benefits, and cash equivalents of convertible leave credits. While "backpay" is sometimes used interchangeably with final pay in the context of separation, it may also specifically denote retroactive adjustments or previously unpaid amounts due from prior periods. Employers must compute and release these amounts in accordance with the Labor Code of the Philippines, Presidential Decree No. 851, and relevant Department of Labor and Employment (DOLE) guidelines.

Legal Basis

The governing framework includes:

Labor Code of the Philippines (Presidential Decree No. 442, as amended): Article 285 governs termination by the employee (resignation), requiring at least 30 days' written notice unless the employer consents to a shorter period or the employee has just cause. Articles 102–119 regulate wage payment and prohibitions on unauthorized deductions. Article 95 mandates Service Incentive Leave (SIL). Articles 298–299 (as renumbered) address separation pay, which is generally not required for voluntary resignation absent company policy, collective bargaining agreement (CBA), or contractual stipulation.
Presidential Decree No. 851: Requires 13th-month pay equivalent to one-twelfth of the total basic salary earned in a calendar year, with pro-ration for partial-year service.
DOLE Labor Advisory No. 06, Series of 2020: Clarifies that final pay must be released within 30 calendar days from the date of separation or termination, unless a more favorable company policy, individual contract, or CBA provides otherwise. It also requires issuance of a Certificate of Employment (COE) within three days from request.

Jurisprudence emphasizes prompt payment to prevent undue delay, which may expose employers to liability for interest, damages, or labor complaints.

Distinctions: Final Pay, Backpay, and Separation Pay

Final Pay (or Last Pay/Back Pay in common usage): The aggregate of all wages and monetary benefits due upon separation, regardless of cause. For resigned employees, this settles the employment account comprehensively.
Backpay (in narrower sense): May refer specifically to retroactive wage differentials (e.g., from new wage orders, unpaid overtime, holiday premiums, or corrections of prior underpayments) that are included in the final settlement. It differs from "backwages" awarded in illegal dismissal cases, which cover full compensation from dismissal until actual reinstatement or finality of judgment.
Separation Pay: Governed by Articles 298–299 of the Labor Code and payable in authorized causes (e.g., redundancy, retrenchment, disease) or when stipulated in policy/CBA/contract. Voluntary resignation does not trigger mandatory separation pay.

Resignation Process and Effective Date

An employee must submit a written resignation letter specifying the effective date, observing the 30-day notice period. The employer may accept shorter notice or waive it. The effective date of separation—typically the last day of work after notice—serves as the cutoff for computing accrued benefits. Failure to render the full notice may allow the employer to claim damages, but it does not extinguish the employee's right to final pay.

Probationary employees enjoy the same entitlements upon resignation, provided they meet service thresholds for specific benefits.

Components and Computation of Final Pay

Final pay includes the following, computed up to the effective date of resignation:

Unpaid Earned Salary or Wages
Pay for actual services rendered in the final pay period.
- Monthly-paid employees: (Monthly salary ÷ applicable divisor, often 30 or actual calendar/working days in the month) × days worked.
- Daily-paid or hourly employees: Daily/hourly rate × days/hours worked.
  Include any accrued but unpaid commissions, incentives, or bonuses earned per contract or policy.
Pro-rated 13th-Month Pay
Entitled even upon resignation, provided the employee worked at least one month in the calendar year.
Formula: Total basic salary earned from January 1 to the effective date of resignation ÷ 12.
Equivalently: (Monthly basic salary × number of months worked, including fractions) ÷ 12.
Basic salary includes regular remuneration but generally excludes non-integrated allowances, overtime premiums, and holiday pay unless company practice integrates them. Commissions are included if part of guaranteed compensation.
Cash Equivalent of Unused Service Incentive Leave (SIL)
Covered employees who have rendered at least one year of service (continuous or broken) are entitled to five days of SIL with full pay annually.
Upon resignation, unused SIL credits must be converted to cash.
Formula: Daily rate × number of unused SIL days.
Daily rate is typically monthly salary ÷ 30 (or the employee's actual daily rate).
After the first full year, additional credits are pro-rated (e.g., an employee with 1 year and 6 months earns 5 days + pro-rated portion for the additional months, often 5/12 per month). Unused credits from prior years carry over until used or paid. SIL is commutable upon separation regardless of the reason.
Other Convertible Leaves
Vacation, sick, or other leaves are payable in cash only if provided by company policy, CBA, or employment contract. Computation follows the same daily-rate principle.
Retroactive Adjustments and Specific Backpay Items
Include any unpaid differentials from:
- Wage orders with retroactive effect (difference between old and new rates × periods affected).
- Unpaid overtime (125% or higher of regular rate), night-shift differentials (10–20%), holiday premiums, or rest-day premiums.
- Corrections for misclassified work hours or missed benefits from prior periods.
  These are added to the final settlement as backpay components.
Additional Items (If Applicable)
- Return of cash bonds or deposits.
- Excess tax withheld (refund).
- Other benefits per CBA, company policy, or contract (e.g., prorated bonuses, rice subsidies converted to cash).
  Retirement pay applies only if the employee qualifies under Article 302 or company plan.

No mandatory separation or retirement pay arises from voluntary resignation alone.

Deductions

Authorized deductions under Article 113 of the Labor Code include:

Mandatory contributions (employee shares for SSS, PhilHealth, Pag-IBIG).
Withholding taxes on compensation.
Advances, loans, or damages to company property (with employee consent or per rules).
Union dues or other authorized withholdings.

Deductions must be lawful, reasonable, and documented. Employers cannot withhold final pay to offset unliquidated claims without agreement.

Payment Timeline and Process

Employers must release final pay within 30 calendar days from the separation date, subject to completion of reasonable clearance procedures (e.g., return of company property, turnover of accounts). Undue delay may result in administrative complaints, interest at legal rates, and potential liability for damages.

The COE must be issued within three days of request. A detailed computation breakdown should be provided to the employee, often accompanied by a signed receipt or quitclaim. Quitclaims are valid if voluntary, reasonable, and supported by adequate consideration, but courts scrutinize them for unconscionability.

Tax Implications

Final pay components are generally subject to income tax withholding, treated as compensation income. The 13th-month pay (and other bonuses) enjoys exemption up to ₱90,000 annually under prevailing BIR rules. Employers must issue the corresponding BIR Form 2316 or equivalent.

Remedies for Non-Payment or Underpayment

Employees may file a money claim:

With the DOLE Regional Office for claims below a certain threshold (simple money claims).
With the National Labor Relations Commission (NLRC) for adjudication.

The prescriptive period for money claims is three years from the time the cause of action accrues (typically the date final pay should have been paid). Awards may include the unpaid amounts, 10% attorney's fees, legal interest, and, in cases of bad faith, moral and exemplary damages.

Special Considerations

Constructive Dismissal: If resignation stems from unbearable working conditions attributable to the employer, it may be treated as involuntary, entitling the employee to separation pay and potential backwages.
Multiple Employers or Part-Time Work: Pro-rated benefits apply per employer.
Company Policies and CBAs: These may provide more generous terms (e.g., additional leaves, resignation bonuses) that prevail over minimum standards.
Record-Keeping: Employers must maintain accurate payroll, attendance, and leave records for at least three years to facilitate proper computation.

Sample Computation

Scenario: Monthly-paid employee (₱30,000 basic salary, daily rate ₱1,000) with 2 years and 4 months of service resigns effective July 15 after rendering 10 working days in July. Unused SIL: 8 days. Total basic salary earned January–July 15: ₱210,000. No other benefits or deductions for simplicity.

Last salary: ₱30,000 ÷ 30 × 10 days = ₱10,000.
Pro-rated 13th-month pay: ₱210,000 ÷ 12 = ₱17,500.
SIL cash equivalent: ₱1,000 × 8 days = ₱8,000 (covering full prior years plus pro-rated fraction).
Total gross final pay: ₱10,000 + ₱17,500 + ₱8,000 = ₱35,500.

Add any backpay differentials (e.g., retroactive wage increase of ₱2,000 for prior 3 months: ₱2,000 × 3 = ₱6,000). Subtract taxes and contributions to arrive at net amount.

Another Illustration (Backpay Focus): If a new wage order increased the daily rate by ₱50 retroactive for the past 60 working days: Backpay = ₱50 × 60 = ₱3,000, added to the final pay.

Employers and employees are encouraged to maintain transparent records and resolve computations amicably. Compliance ensures harmonious industrial relations and protects the constitutional right to just and humane conditions of work.