A complete, practitioner-oriented guide to what belongs in an employee’s final pay (“back pay”), when it must be released, what may be deducted, taxation/benefit wrinkles, and practical checklists for both employers and employees.

I. Definitions and Legal Anchors

Final pay / back pay is the total amount due to an employee upon separation for any cause (resignation, end of contract, termination for just cause, redundancy, retrenchment, disease, closure, etc.). It includes all earned but unpaid monetary entitlements, less lawful deductions.
Release timeline. As a general standard under DOLE policy, final pay should be released within 30 calendar days from separation, unless an internal policy or CBA specifies a shorter period. Clearance processes must be reasonable and not used to defeat the 30-day rule.
Certificates.
- Certificate of Employment (COE): Must be issued within 3 working days from the employee’s request (regardless of reason for separation).
- BIR Form 2316: Provide the original signed copy to the ex-employee (and transmit to BIR per annual schedule).
Prescription. Money claims (e.g., final pay items) prescribe in 3 years from accrual; illegal dismissal in 4 years.

Key principle: Separation—for any cause—does not forfeit wages and benefits already earned.

II. What Goes Into Final Pay (Inclusions)

Earned basic salary up to last day worked (including approved work on that day).
Overtime (OT), premium, holiday pay, night shift differential (NSD) that accrued but remain unpaid.
Pro-rated 13th-month pay
- At least 1/12 of basic salary earned within the calendar year up to separation.
- Exclude true allowances not part of “basic salary,” unless company practice treats them otherwise.
Service Incentive Leave (SIL) conversion
- Minimum 5 days/year for eligible employees; convert unused SIL to cash at last daily rate.
Unused leave conversions beyond SIL (if provided by policy/CBA/employment contract).
Commissions/incentives already earned under the plan rules (e.g., billed/collected sales per plan). If subject to true conditions precedent, compute up to separation consistently with plan language and past practice.
Separation pay, if due (see §IV).
Pro-rated allowances/benefits promised as cash (e.g., rice/meal/transport) if the plan states pro-ration on exit.
Service charges share (where applicable) up to separation.

III. What May Be Deducted (Lawful Deductions Only)

Statutory: Withholding tax; SSS/PhilHealth/Pag-IBIG due and unpaid employee portions.
Authorized deductions with written consent: Salary loans, company loans, car plans, etc., if supported by a clear written authorization identifying the amounts/obligees.
Loss/damage deductions: Only if (a) employee is clearly at fault, (b) due process/hearing occurred, and (c) amount is reasonable and documented. Blanket “we’ll charge you” clauses are not enough.
Overpayments/advances duly documented.
Gov’t holds / valid garnishments (if any).

Not allowed: Open-ended “clearance delay” to coerce returns or settle disputes; “penalty” deductions not grounded in law or written consent; deductions that defeat minimum wage or unlawfully claw back earned benefits.

IV. Separation Pay: When Payable and How Much

Separation pay is not universal. It is payable mainly for authorized causes and certain disease cases; not for resignation or termination for just causes, unless a CBA/policy grants it.

Typical authorized causes and baselines (per Labor Code and jurisprudence):

Redundancy / Installation of labor-saving devices: At least 1 month pay per year of service.
Retrenchment to prevent losses / Closure not due to serious losses: At least 1/2 month pay per year of service.
Disease (employee found unfit under rules): At least 1/2 month pay per year of service.

Computation notes

Use the higher of: (a) the statutory formula, or (b) 1 month pay minimum (if statute says “at least”).
“A fraction of at least six (6) months is considered one whole year.”
“One month pay” follows the latest regular wage (include wage-based differentials; exclude purely discretionary bonuses unless company practice treats them as part of wage).

V. Tax Treatment Highlights

13th-month pay and other benefits are tax-exempt up to ₱90,000 (aggregate with other 13th-month-type benefits in the year). Excess is taxable.
Separation benefits due to redundancy, retrenchment, closure not due to willful misconduct, or disease are income tax-exempt if due to causes beyond the employee’s control (NIRC rules).
- Resignation or termination for just cause → separation amounts (if any) are taxable.
Resigned employees: Withholding on taxable items applies; issue BIR 2316.

(Always apply the current BIR issuances and company’s tax compliance procedures.)

VI. Timing and Process (From Notice to Payout)

Trigger event (resignation acceptance, end of fixed-term, termination notice, redundancy memo).
Cutoff computation (HR/Payroll): wages to last day; premiums/OT; 13th-month pro-rate; leaves; commission per plan; separation pay if any.
Clearance: collect returnables (ID, tools, devices, uniforms); finalize accountability sheets. Clearance should not be used to stall beyond 30 days.
Release: cash/transfer or check (avoid offsets not consented to). Provide breakdown and payslip for final pay.
Documents to release:
- COE (within 3 working days of request).
- BIR 2316 (give the signed original).
- Final payslip/breakdown; quitclaim (if used), SSS separation certification (if applicable), and HPF/loan statements as needed.

VII. Quitclaims and Releases (Validity Rules)

A quitclaim does not automatically bar legitimate claims. For enforceability, it must be:

Voluntary and free from fraud/coercion;
Supported by reasonable consideration (not grossly inadequate); and
The employee must understand what is being waived.

Employees cannot waive non-negotiable labor standards (minimum wage, SIL, 13th-month, OT/NSD/holiday pay). Courts readily invalidate quitclaims that attempt to do so.

VIII. Special Topics

Termination for just causes: Employee still gets all earned wages, pro-rated 13th-month, and SIL conversion; no separation pay, unless policy/CBA provides.
Fixed-term/Project end: Final pay includes earned wages, 13th-month pro-rate, SIL conversion, commissions due; separation pay only if policy/CBA or authorized cause applies.
Commissions/variable pay: Define earn event (sale booking vs. collection). Pay what is already earned under the plan; do not retroactively change rules.
Deduction for unreturned assets: Lawful only with due process and clear proof of value/fault; consider withholding a specific amount proportionate to the item’s value (not the entire back pay).
Government benefits upon involuntary separation:
- SSS Unemployment Benefit is potentially available for authorized causes (not resignation/dismissal for just cause). Secure DOLE/POLO certification of involuntary separation.

IX. Worked Example (Illustrative)

Facts: Resignation effective April 15. Monthly basic ₱30,000; work schedule 6-day week; no allowances. Unused SIL 3 days. No OT/holiday work. No separation pay (resignation).

Salary up to April 15
- Daily rate (Monthly ÷ 26): 30,000 ÷ 26 = ₱1,153.85
- Pay for April 1–15 (assume 12 workdays excluding rest days/holidays): 1,153.85 × 12 = ₱13,846.20
13th-month (Jan 1–Apr 15)
- Basic earned Jan–Mar: 30,000 × 3 = ₱90,000
- April 1–15: 1,153.85 × 12 = ₱13,846.20
- Total basic earned YTD: ₱103,846.20
- 13th-month = 1/12 × 103,846.20 = ₱8,653.85
SIL conversion
- 3 days × 1,153.85 = ₱3,461.55

Gross final pay: 13,846.20 + 8,653.85 + 3,461.55 = ₱25,961.60 Less deductions: appropriate withholding tax (if any on 13th-month exceeds exemption cap; here likely none), SSS/PhilHealth/Pag-IBIG due and unpaid, authorized debts (with written consent). Net final pay: ₱25,961.60 minus lawful deductions.

(Adjust for OT/NSD/holiday pay, commissions, or separation pay where applicable.)

X. Employer Off-Boarding Checklist

Confirm cause and effective date of separation.
Compute all inclusions (salary, OT/premiums/NSD, 13th-month pro-rate, SIL & leaves, commissions, separation pay).
Verify deductions are lawful and documented.
Prepare breakdown sheet and final payslip.
Release final pay within 30 days (or sooner per policy).
Issue COE (≤3 working days of request) and BIR 2316.
Offer quitclaim only if compliant (no coercion; reasonable consideration).
Keep proof of receipt and copies.

XI. Employee Action Checklist

Submit written resignation/receive-copy or keep termination/notice.
Request COE and final pay breakdown in writing.
Return assets; keep turnover receipts.
Validate 13th-month pro-rate and SIL conversion; check commissions.
Ask for BIR 2316 original and SSS separation docs (if involuntary).
If unpaid/delayed beyond policy/30 days: file a SEnA request or DOLE/NLRC complaint with your computation and proofs.

XII. Remedies for Delay or Underpayment

SEnA (Single Entry Approach) with DOLE for quick conciliation.
DOLE Regional Office (labor standards compliance orders) for underpayment/non-payment.
NLRC Labor Arbiter for money claims (often with illegal dismissal or complex issues).
Legal interest (generally 6% p.a.) on adjudged amounts from demand/filing or from finality, depending on the item.

XIII. Key Takeaways

30 days is the standard outer limit for releasing final pay; many firms pay sooner by policy.
Final pay = all earned entitlements (salary, 13th, SIL, premiums, commissions) ± separation pay when due − lawful deductions.
Authorized causes trigger separation pay; resignation/just cause generally do not, absent policy/CBA.
Tax rules matter: 13th-month exemption up to ₱90,000; separation due to causes beyond the employee’s control may be tax-exempt.
COE in 3 working days upon request; withhold nothing unlawfully; use SEnA/DOLE/NLRC if employers delay or short-pay.

This article is for general information. For edge cases (complex commission plans, garden leave, expatriate packages, tax gross-ups, or contested “just cause”), get tailored advice with your contracts, policies, and payroll records in hand.