“Deductions from Final Pay Upon Resignation” — A Comprehensive Philippine Guide
1. What counts as “final pay”?
Under DOLE Labor Advisory No. 06-20 (4 February 2020), final pay (often called “last pay” or “back pay”) is all wages or monetary benefits due an employee regardless of the cause of separation. For a voluntary resignation, it usually consists of:
| Component | Statutory / Contractual Basis |
|---|---|
| Unpaid basic salary up to last actual day of work | Labor Code, Art. 102-103 |
| Pro-rated 13th-month pay | Presidential Decree 851 & DO No. 06-20 |
| Cash conversion of unused service incentive leave (SIL) | Labor Code, Art. 95 |
| Cash value of unused company-granted leave (vacation, sick, etc.) | CBA, contract or long-standing practice |
| Retirement benefits (if the plan allows vesting on resignation) | Art. 302 or R.A. 7641 |
| Separation pay only if the employee resigned for an authorized cause (e.g., constructive dismissal, Art. 300) or if contract/CBA provides it | Labor Code & jurisprudence |
| Tax refund or tax payable for the year-to-date | NIRC, Sec. 79(C) |
| Any other benefits expressly provided in a CBA, employment contract, company policy or by law | Civil Code Art. 1306 |
2. General rule on deductions: Article 113, Labor Code
“No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except… (a) in cases where the deduction is authorized by law, or (b) when the deduction is with the written authorization of the employee for payment to a third person and the employer agrees to do so.”
Article 116 adds that it is unlawful to withhold any amount as “deposit for loss or damage” unless the employer can prove actual loss/damage and the employee is heard.
3. Permissible deductions from final pay
| Deduction | Source of authority | Key conditions |
|---|---|---|
| Mandatory government contributions still unpaid (SSS, PhilHealth, Pag-IBIG, employees’ share) | Social Security Act, NHI Act, Pag-IBIG Charter | Employer is statutorily liable; deduction of the employee’s share is allowed. |
| Withholding tax on compensation | NIRC, Sec. 79 | Must follow BIR table and issue BIR Form 2316. |
| Authorized loan payments (e.g., SSS salary loan, Pag-IBIG calamity loan) | Loan agreements & implementing rules | Employee’s written authorization is usually embedded in the loan form. |
| Union dues / agency fees | Labor Code, Art. 259 | Requires written authorization or check-off clause in CBA. |
| Salary advances or company loans | Art. 113(b) | Employee must have given written consent specifying the amount to be deducted. |
| Property loss / damage proven after due process | Art. 116; DOLE D.O. No. 147-15 | 1) Notice to employee, 2) Opportunity to explain, 3) Determination of amount and fault. |
| Training bond liquidated damages | Civil Code Art. 1159; jurisprudence (e.g., Abbott v. Alcaraz, G.R. No. 192571, 22 July 2013) | Bond must be reasonable, freely agreed upon, and cost proportionate to actual training; must survive Art. 1306 limits. |
| ECOLA adjustments mistakenly over-paid | Art. 112 (recovery of overpayment) | Employer must show genuine error; deductions must not exceed 20% of wages per payroll (Art. 113(c)). |
4. Deductions that are NOT allowed
- Unilateral offsetting of unliquidated cash advances without written authorization.
- Penalties or fines not found in a company rule filed with DOLE.
- “Service fees” for processing clearances or releasing the last pay.
- Liquidated damages for breach of a non-compete clause (pro-labor jurisprudence treats these as restraint of trade unless reasonable).
- Deposits for future loss/damage (Art. 116).
- Interest or surcharge not in the original loan authorization.
- Company income tax liabilities—only withholding tax on compensation may be shifted to employees.
If any of the above is deducted, the employer risks (a) money claims, (b) moral and exemplary damages for bad-faith withholding, and (c) administrative fines under DO 174-17.
5. Procedural due process before deducting
| Step | Purpose | Typical evidence |
|---|---|---|
| 1. Written notice to employee | Inform of intended deduction and grounds | Memo / e-mail |
| 2. Employee explanation | Give chance to dispute or admit | Written reply, conference minutes |
| 3. Employer determination | Decide if deduction is warranted | Investigation report, quantification |
| 4. Second written notice | Convey decision and amount | Final notice |
Non-observance exposes the employer to refund plus nominal damages (₱30,000 in Agabon v. NLRC analogy).
6. Timing: when must final pay (after deductions) be released?
- 30-calendar-day rule under Labor Advisory 06-20 (counted from the date of separation, not clearance completion).
- Company policies requiring “full clearance first” cannot override the 30-day mandate; at most, the unreturned-property cost may be withheld but only that amount.
- Interest of 6% per annum (Art. 2209, Civil Code) may be awarded on delayed sums from the date of demand (Nacar v. Gallery Frames, G.R. No. 189871, 13 August 2013).
7. Sample computation
(Assume resignation effective 15 May 2025)
| Item | Amount (₱) |
|---|---|
| Unpaid salary (1 – 15 May) | 30,000 |
| Pro-rated 13th-month pay (4.5/12 × 60k) | 22,500 |
| SIL conversion (5 days × 2,000) | 10,000 |
| Less: SSS/PH/Pag-IBIG (employee share) | (2,500) |
| Less: Withholding tax (computed per BIR table) | (3,200) |
| Less: Remaining company loan (authorized) | (5,000) |
| Net final pay | 51,800 |
8. Key jurisprudence quick-reference
| Case | G.R. No. & Date | Take-away |
|---|---|---|
| Pantranco North Express v. NLRC | 80600, 23 Apr 1990 | Unreturned travel cash advances may be deducted only if liquated and acknowledged. |
| R.B. Michael Press v. Galit | 153510, 20 Jan 2009 | Training costs deductible where bond is reasonable and employee pre-authorized. |
| Abbott Laboratories v. Alcaraz | 192571, 22 Jul 2013 | Training bond enforceable but limited by proportionality. |
| Mabeza v. NLRC | 118506, 18 Apr 1997 | Employer bears burden to show validity of deductions; otherwise refund. |
| Davao Integrated Port v. Abarquez | 229118, 27 Jul 2016 | Clearance procedure must not defeat 30-day release of final pay. |
9. Employee remedies for illegal deductions
- File a money claim with the DOLE Regional Office (single-entry approach then NLRC arbitration).
- Small claims suit (if ≤ ₱1 m) in civil courts—allowed but duplication barred.
- Criminal action for withholding of wages (Art. 303), though rarely pursued.
- Request DOLE inspection—possible issuance of compliance order and penalties.
10. Practical tips & best practices
| For HR / Employers | For Resigning Employees |
|---|---|
| Draft a clear, DOLE-registered deduction policy citing Art. 113. | Request an itemized last-pay computation and compare with payslips. |
| Secure separate written authorizations for every loan or bond. | Give at least 30 days’ notice and finish documentation early. |
| Conduct due-process hearings for loss/damage claims. | Return company property promptly; ask for receipts. |
| Release undisputed amounts within 30 days even if clearance is pending. | If deductions appear excessive, file a Single-Entry Approach (SEnA) request with DOLE. |
| Issue BIR Form 2316 together with net pay. | Keep copies of all signed authorizations to counter unlawful offsets. |
11. Penalties for non-compliance
- Wage Underpayment / Illicit Deduction: ₱40,000–₱200,000 administrative fine (DO 174-17).
- Moral & exemplary damages where bad faith shown (Art. 2224/2229).
- Attorney’s fees (Art. 2208) typically 10%.
- Possible criminal liability (imprisonment of up to 3 years, Art. 303) though rarely imposed.
12. Take-aways
- Deduct only when the law or the employee allows it in writing.
- Follow due process for loss/damage and training bonds.
- Release the net amount within 30 days of resignation date.
- Maintain documentation—it is the employer’s burden to prove every peso withheld.
Disclaimer: This guide summarizes Philippine statutes and jurisprudence up to 1 July 2025. It is not legal advice; consult a labor law practitioner for specific cases.