Overview

“Final pay” (often called back pay or last pay) is the sum of all amounts an employer must release to a worker upon separation from employment for any reason, including resignation. In the Philippines, timely release is mandated and the composition of final pay is defined by the Labor Code, presidential decrees, and Department of Labor and Employment (DOLE) issuances. This article explains employees’ rights, employer duties, timelines, computations, deductions, and remedies—plus practical checklists and sample calculations.

Not legal advice: This is a general guide based on Philippine labor standards. Individual contracts, CBAs, company policies, and newer issuances can modify application.

Legal Foundations (Philippine Context)

Labor Code of the Philippines (as renumbered): Governs payment of wages, allowable deductions, resignation notice, money claims’ prescription, and service incentive leave (SIL).
Presidential Decree No. 851: Requires 13th-month pay and provides the method of pro-ration.
Retirement Pay Law (RA 7641): May apply if resignation coincides with retirement eligibility under law or company plan.
DOLE Labor Advisories and Department Orders: Provide the standard 30-day release period for final pay (unless a more favorable company policy exists) and the 3-day timeline to issue a Certificate of Employment (COE) upon request.
Tax laws (e.g., TRAIN): Specify tax treatment of 13th-month pay and other benefits; employers must comply with withholding and issue BIR Form 2316.

What Counts as Final Pay?

Final pay generally includes all amounts earned but unpaid up to the last day of work, plus amounts due upon separation:

Unpaid basic salary up to the last working day.
Overtime, night differential, premium pay for work performed but not yet paid.
Holiday pay and rest day pay (if applicable) not yet paid.
Unused Service Incentive Leave (SIL): At least 5 days per year is a statutory minimum; unused SIL is commutable to cash at separation. (Company-granted leave in excess of SIL is governed by company policy/CBAs.)
Pro-rated 13th-month pay for the year of separation.
Other earned incentives/allowances convertible to cash under company policy or CBAs (e.g., sales incentives already earned, de minimis that are payable, rice/meal allowance if cash-equivalent on separation).
Separation benefits only if applicable (e.g., for authorized causes like redundancy or retrenchment). Resignation alone does not create a right to separation pay unless a company policy, plan, or CBA grants it.
Retirement benefits if the employee qualifies under RA 7641 or a company retirement plan (including early/voluntary retirement provisions).
Tax refunds (e.g., if year-to-date withholdings exceed the tax due upon separation computation).
Monetized unused vacation/sick leave beyond SIL if company policy/CBAs provide conversion at separation.

Tip: Check your employment contract, handbook, and any incentive plan rules—many benefits become payable only if certain conditions are met (e.g., “employed on payout date,” pro-rations, or clawbacks).

Timelines & Documents

Release of Final Pay: As a general rule, within 30 calendar days from separation, unless a more favorable company policy applies or an earlier date is agreed.
Certificate of Employment (COE): Must be issued within 3 working days from employee’s request, regardless of clearance status.
Clearance: Employers may run a clearance process to confirm return of company property, liquidation of advances, etc., but wages may not be forfeited. Clearance may affect timing (within the 30-day window) but should not be used to indefinitely delay release.
BIR Form 2316: The previous employer must issue the separated employee’s 2316 (for substituted filing or recordkeeping) by the statutory deadline and/or upon reasonable request to facilitate new employment.

Resignation vs. Other Modes of Separation

Resignation with 30-day notice: Employees must generally give at least 30 days’ written notice unless the employer waives it. Final pay still accrues for work performed; failure to render the full notice may allow proportionate adjustments (e.g., charging unworked days if agreed), but employers still owe earned wages/benefits.
Immediate resignation for just causes: The Labor Code enumerates just causes (e.g., serious insult, inhuman treatment, commission of a crime/offense by the employer or its representative, etc.). Final pay remains due; additional claims may arise from the just cause.
Authorized causes & dismissal: If separation is due to authorized causes (redundancy, retrenchment, closure, disease), statutory separation pay may be due. For just cause dismissal, final pay includes only accrued wages/benefits up to termination, subject to lawful deductions.

Computation Essentials

1) Basic Salary and Differentials

Compute unpaid salary through the last day using your company’s official daily rate divisor.
Add any unpaid OT, night differential (10% of hourly rate for work 10:00 p.m.–6:00 a.m.), and premium pay for holidays/rest days actually worked.

2) Service Incentive Leave (SIL)

Minimum 5 days per year (except exempt employers/categories).
Unused SIL is cash-convertible at separation based on the employee’s current daily rate.

3) 13th-Month Pay (Pro-rated)

Formula (standard): 13th-Month = (Total basic salary earned within the calendar year ÷ 12).
On separation before year-end, use actual basic earnings up to the last day; exclude allowances not integrated into basic pay unless your plan says otherwise.

4) Separation or Retirement Benefits (If Applicable)

Separation pay: Rate depends on the authorized cause (e.g., at least ½ month or 1 month per year of service, whichever applies under the cause). Fraction of at least 6 months is usually treated as one whole year.
Retirement: Statutory minimum commonly computed as 22.5 days per year of service (equivalent to 15 days + 5 SIL + 1/12 of 13th month), unless a superior company plan applies.

5) Taxes & Government Contributions

13th-month pay is tax-exempt up to ₱90,000 (aggregate with other 13th-month/Christmas bonuses and similar benefits). Excess is taxable.
Regular wages and most allowances are taxable; employers must finalize withholding tax and remit SSS, PhilHealth, Pag-IBIG contributions for the final payroll period.

Deductions: What Employers May (and May Not) Withhold

Generally allowed only if:

Required by law (tax, SSS/PhilHealth/Pag-IBIG).
Authorized in writing by the employee for a lawful purpose (e.g., company loan).
To recover loss or damage caused by the employee after due process, with clear proof and in line with legal limits/policies.
For cash advances, unliquidated expenses, or unreturned company property, if company policy allows and the employee agreed to such deductions and/or is duly notified.

Not allowed:

Arbitrary or punitive deductions (e.g., “liquidated damages” without legal basis).
Forfeiture of earned wages/benefits.
Deductions that bring net pay below zero without lawful basis and clear employee authorization.

Employers may verify liabilities during clearance, but they should release any undisputed amounts within the standard period and settle disputed balances promptly after resolution.

Sample Final Pay Computation (Illustrative)

Facts:

Monthly basic salary: ₱30,000
Last day of work: July 15
Pay basis: 313-day divisor (monthly → daily rate reference)
Unused SIL at separation: 3 days
No other leave conversion; no loans; no property issues
Year-to-date basic salary earned through July 15: ₱195,000
Unpaid OT: ₱2,000
Withholding tax and contributions computed per usual tables.

Steps:

Unpaid salary (July 1–15): If semi-monthly payroll and first half isn’t yet paid → ₱15,000.
SIL monetization: Daily rate (₱30,000 ÷ 26 ≈ ₱1,153.85 if company uses 26; use your company’s official divisor). × 3 = ₱3,461.55.
13th-month pro-rated: ₱195,000 ÷ 12 = ₱16,250.
Unpaid OT/Night diff/Premiums: ₱2,000.
Gross final pay: 15,000 + 3,461.55 + 16,250 + 2,000 = ₱36,711.55.
Less taxes/contributions per statutory computation (and any authorized deductions).
Net final pay: Gross minus lawful deductions.

Note: Use your company’s official rate divisor (e.g., 26, 22, 261, or 313) and payroll cycle. Many disputes arise from mixing divisors.

Clearances, COE, and Quitclaims

Clearance: Return IDs, laptops, tools; liquidate cash advances; settle property accounts. Employers should not condition issuance of COE on clearance.
COE: Must state dates of employment and position(s); it should be neutral and not defamatory.
Quitclaim/Release: Often required to document settlement. A quitclaim is valid if voluntary, for a reasonable consideration, and the employee understands it. It may be set aside if obtained through fraud, coercion, or grossly inadequate consideration. Signing a quitclaim does not waive claims for benefits not included or unknown at the time without clear, informed consent.

Practical Steps for Employees

Give proper notice (usually 30 days) unless there is just cause or employer waiver.
Request a COE in writing; it should be issued within 3 working days.
Complete clearance promptly to avoid disputes over deductions.
Ask for a final pay breakdown (itemized computation, with divisor and cutoffs).
Check BIR Form 2316 and confirm year-to-date tax treatment.
Keep copies of payslips, handbook, policies, and your resignation letter.

Practical Steps for Employers

Acknowledge resignation and confirm the last working day and turnover plan.
Run clearance concurrently; don’t delay beyond the 30-day payout guideline.
Compute final pay using correct divisors, pro-rations, and documented deductions.
Issue COE within 3 working days of request.
Release undisputed amounts even if there are pending items; reconcile any balance later.
Provide a computation sheet and BIR 2316 in accordance with tax rules.

Disputes & Remedies

Internal escalation: HR/payroll and written request for breakdown.
DOLE SEnA: File a Request for Assistance with the DOLE Regional/Field Office for conciliation-mediation—a fast, non-litigious path to resolve delayed or disputed final pay.
NLRC/Labor Arbiter: For unresolved money claims, file a complaint.
Prescription: 3 years from accrual for money claims under the Labor Code (file sooner to preserve evidence and avoid prescription issues).

Special Topics & FAQs

1) Can an employer withhold final pay until I finish clearance? They may align release to a reasonable clearance process, but not indefinitely. Undisputed portions should be paid within the 30-day standard.

2) Do I get separation pay if I resign? No, not by default. Only if a policy, plan, or CBA grants it, or if the separation is for an authorized cause.

3) What about unused VL/SL beyond the 5-day SIL? Conversion depends on company policy/CBAs. SIL’s 5 days is statutory and cashable at separation.

4) Is 13th-month pay still due if I resign mid-year? Yes, pro-rated based on actual basic earnings during the year.

5) Can the company deduct the cost of an unreturned laptop? Yes only if (a) there is documented accountability, (b) due process is observed, and (c) the deduction is lawful and reasonable under policy and the Labor Code’s rules on deductions.

6) How soon should I receive my COE? Within 3 working days of your request.

7) What if final pay is released late? Document follow-ups; elevate to DOLE SEnA. You may pursue money claims at the NLRC if unresolved.

Checklists

Employee Exit Checklist

Written resignation (date sent, effectivity)
Turnover plan and clearance items listed
COE requested (note date)
Copies of policy/handbook, incentive plans
Final pay breakdown requested and reviewed
BIR Form 2316 obtained/secured timeline

Employer Payroll Checklist

Verify last day and earned wage cutoffs
Compute SIL monetization and 13th-month pro-ration
Resolve loans/advances with documentation
Apply lawful deductions only
Prepare COE and final pay computation sheet
Release within 30 days; keep proof of payment

Key Takeaways

Final pay must be complete, accurate, and timely—within 30 days is the prevailing standard, unless a more favorable policy applies.
Resignation entitles the employee to all accrued wages/benefits and pro-rated 13th-month, plus SIL conversion and any contractual benefits; separation pay is not automatic.
COE within 3 working days of request is mandatory.
Only lawful, documented deductions are permitted.
Unresolved issues can be brought to DOLE SEnA and, if needed, the NLRC within the 3-year prescriptive period.