When an employee passes away, the employer is tasked with settling the deceased's final affairs regarding their employment. This process involves the computation of "Final Pay" (or "Last Pay") and the facilitation of "Death Benefits" under Philippine labor laws, social security systems, and existing company policies.
1. Final Pay (Last Pay) Components
Under Labor Advisory No. 06, Series of 2020, final pay refers to all revenues due to an employee regardless of the cause of termination—in this case, death. The heirs of the deceased are entitled to:
- Unpaid Salary: Pro-rated wages from the last payroll period up to the final day of service.
- Pro-rated 13th Month Pay: Computed as .
- Unused Service Incentive Leaves (SIL): The cash equivalent of unused SIL (5 days per year of service) if the employee has served at least one year.
- Cash Conversions: Any unused vacation or sick leaves if stipulated in the Employment Contract or Collective Bargaining Agreement (CBA).
- Other Entitlements: This includes bonuses, commissions, or allowances earned prior to death.
- Tax Refunds: Any excess withholding tax collected during the calendar year.
Taxation of Final Pay
Pursuant to the Tax Reform for Acceleration and Inclusion (TRAIN) Law, the 13th-month pay and other benefits are non-taxable if the total amount does not exceed ₱90,000. Furthermore, salaries and benefits received by the heirs by reason of the employee's death are generally exempt from income tax under Section 32(B)(6)(b) of the Tax Code.
2. Statutory Death Benefits
Death benefits in the Philippines are primarily administered through the Social Security System (SSS) for private-sector employees and the Government Service Insurance System (GSIS) for public-sector employees.
A. Social Security System (SSS) Benefits
- Death Pension: A monthly stipend granted to the primary beneficiaries (spouse and dependent children).
- Lump Sum Amount: Granted if the deceased did not meet the required 36 monthly contributions for a pension.
- Funeral Grant: A variable amount (currently ranging from ₱20,000 to ₱60,000) reimbursed to whoever paid for the burial expenses, based on the number of contributions and the Average Daily Salary Credit.
B. Employees’ Compensation Program (ECP)
If the death occurred due to a work-related cause (accident or illness), the heirs are entitled to EC Death Benefits in addition to the regular SSS benefits. This includes:
- Increased monthly income benefit.
- Additional funeral assistance.
C. Pag-IBIG Fund (HDMF)
Heirs may claim the Total Accumulated Value (TAV), which includes the employee's contributions, the employer's counterparts, and earned dividends. If the member was an active contributor, a separate Death Benefit (usually ₱6,000) may also be granted.
3. Procedural Requirements for Heirs
To release the Final Pay and process benefits, the employer typically requires the following documentation from the legal heirs:
- Death Certificate (PSA Certified).
- Marriage Contract (if the claimant is the spouse).
- Birth Certificates of children (if claiming for dependents).
- Affidavit of Self-Adjudication or Extrajudicial Settlement (to determine the legal heirs and avoid conflicting claims).
- Notarized Quitclaim and Release (signed by the authorized heir upon receipt of the final pay).
4. Employer Liability and Timeline
The Department of Labor and Employment (DOLE) mandates that final pay should be released within 30 days from the date of the employee's separation. In cases of death, while the timeline may be slightly extended due to the processing of heirship documents, employers are expected to act with "utmost good faith."
Note on Indemnity: Under Article 171 of the Labor Code (as amended), if the death is due to a work-related hazard, the employer may be liable for additional compensation unless they are fully covered by the State Insurance Fund.
Summary Table of Benefits
| Category | Type of Benefit | Source of Fund |
|---|---|---|
| Final Pay | Salary, 13th Month, SIL | Employer |
| Social Security | Pension or Lump Sum | SSS |
| Burial | Funeral Grant | SSS / Pag-IBIG |
| Work-Related | EC Death Pension | State Insurance Fund |
| Savings | Total Accumulated Value | Pag-IBIG Fund |
Jurisprudence and Legal Basis
The computation and release of these benefits are governed by the Labor Code of the Philippines, Republic Act No. 11199 (Social Security Act of 2018), and DOLE Labor Advisory No. 06-20. Failure to release the legal dues to the heirs can result in a money claim case before the Labor Arbiter of the National Labor Relations Commission (NLRC).