Final Pay Release Requirements (Philippines Labor Code): Everything You Need to Know
For HR, payroll officers, and workers who’ve just resigned, been terminated, or finished a contract. Philippine context; general information, not legal advice.
1) What is “final pay” (a.k.a. back pay/last pay)?
Final pay is the total amount due to an employee upon separation for any reason (resignation, end of contract, termination for just/authorized causes, retirement). It typically includes:
- Unpaid basic wages up to the last actual workday (including salary differentials, COLA if part of wage).
- Overtime, night shift differential, premium pay, holiday pay still unpaid.
- Unused Service Incentive Leave (SIL) cash conversion (at least 5 SIL days/year under the Labor Code; company policy/CBAs may grant more).
- Pro-rated 13th month pay (PD 851) based on actual basic wage earned in the calendar year.
- Non-discretionary bonuses/commissions already earned under a policy or formula (discretionary “ex gratia” bonuses can be excluded unless contractually promised).
- Separation pay (only if due—see §4).
- Tax refund (if year-to-date tax withheld exceeds tax due) or additional tax due.
- Other accrued benefits under company policy/CBAs (e.g., rice/meal allowances if wage-integrated, uniform deposit return, tool deposit return).
Tip: A neat way to check completeness is to start from the payslip ledger: earnings earned but not yet paid minus lawful deductions (see §3).
2) When must final pay be released?
- General rule: release within 30 calendar days from date of separation (the long-standing DOLE benchmark in its labor advisories).
- Earlier if your CBA/company policy promises a shorter timeline; that promise is binding.
- Clearance procedures (return of ID/laptop, exit forms) are allowed but must not unduly delay the 30-day payout. If property is missing, net the proven value (see §3) rather than hold all pay indefinitely.
Certificate of Employment (COE): Must be issued within 3 working days from request, regardless of clearance or pending accountabilities.
3) Deductions: what employers can and cannot withhold
Allowed (lawful) deductions
Statutory contributions and taxes: SSS, PhilHealth, Pag-IBIG, withholding tax (computed to separation date).
Loans/advances expressly authorized in writing by the employee (e.g., SSS salary loan via salary deduction, company loan).
Value of unreturned company property or shortages if:
- There is clear proof of loss/damage;
- The employee had custody/responsibility; and
- Due process was observed (notice and chance to explain). Otherwise, treat as a separate claim—don’t zero out pay.
Prohibited or risky deductions
- Penalties not in law/contract or not acknowledged in writing.
- Liquidated damages or “training bond” without a valid, reasonable agreement and proof of actual loss.
- Across-the-board holds of final pay “until clearance finishes” when the employer can instead net specific, documented liabilities.
Practical workflow: compute final pay, offset only documented amounts, pay the net within 30 days, and continue pursuing any disputed excess separately.
4) When is separation pay part of final pay?
Separation pay is not automatic. It is due mainly for authorized causes under the Labor Code (as amended):
- Redundancy or installation of labor-saving devices: At least one (1) month pay per year of service, or one month pay—whichever is higher.
- Retrenchment to prevent losses or closure/cessation not due to serious losses: At least one-half (1/2) month pay per year of service, or one month pay—whichever is higher.
- Disease (when the employee is found unfit to work and cannot be cured within 6 months): At least one-half (1/2) month pay per year of service, or one month pay—whichever is higher.
Computational notes:
- A fraction of at least 6 months = one whole year for the per-year multiplier.
- “One month pay” follows the employee’s latest salary rate (include wage-integrated allowances per policy/CBAs).
- Separation pay is separate from 13th month and SIL conversion; all are computed independently.
No separation pay for just causes (serious misconduct, fraud, etc.), unless a CBA/policy grants it ex-gratia.
5) Taxes and government reporting
- 13th month pay: Tax-exempt up to the statutory cap (excess is taxable).
- Separation pay: Tax-exempt when due to authorized causes or sickness/disability not due to the employee’s willful act; otherwise generally taxable.
- Final wages and allowances: taxable as usual; apply the withholding tax table to date of separation.
- BIR Form 2316: Provide a signed copy for the year (a) by January 31 of the following year, and (b) earlier upon separation if requested so the worker can transfer to a new employer within the same year.
- SSS/PhilHealth/Pag-IBIG status updates: Update employment status and cease payroll remittances after the last covered month.
6) Paper trail: what HR should give, what employees should keep
Employer should issue:
- Final pay computation sheet (itemized, with dates and rates).
- Payslip for the payout period.
- COE (within 3 working days from request).
- Quitclaim/Release (optional): if used, ensure it is voluntary, for reasonable consideration, and explained to the employee; it cannot waive future claims for rights not yet accrued or for illegal deductions.
- BIR 2316 and any tax refund check (if applicable).
- Clearance copy and property return receipts.
Employee should keep:
- Last 3–12 months payslips, time records, commission reports, leave ledger, policy/handbook pages on benefits, and copies of loans/authorizations.
7) Special cases
- Project/Fixed-term end: Final pay still due within 30 days; separation pay only if an authorized cause applies or if promised by contract/CBA.
- Resignation: Employee must give at least 30 days’ written notice, but failure to do so does not erase earned wages/benefits—employer may claim provable damages caused by abrupt resignation.
- Probationary employees: Same rules; prorate benefits earned; separation pay only if the cause qualifies.
- Retirement: Apply retirement law/CBA formula separately; still settle unused SIL, 13th-month (pro-rated until retirement date), and any tax refund.
8) Disputes, timelines, and enforcement
- Where to go first: HR/payroll; then escalate via a written demand identifying each unpaid item (amount, basis, date earned).
- SEnA (DOLE Single-Entry Approach): Quick mediation route; many final-pay issues resolve here.
- NLRC money claim: If unresolved, file a complaint for money claims/illegal deductions.
- Prescription: Labor money claims prescribe in 3 years from when the cause of action accrued (usually the 30th day after separation if unpaid by then). Keep evidence.
9) Clean and defensible computation (employer checklist)
- Confirm separation date & cause (drives separation pay and tax).
- Pull year-to-date earnings and taxes; recompute withholding to separation date.
- Compute each component: last wages, OT/NSD/holiday, SIL conversion, 13th month, commissions/guarantees, separation pay (if any).
- Validate deductions: statutory, authorized loans, documented property liabilities.
- Prepare the itemized sheet; obtain employee acknowledgment on receipt (not a waiver unless quitclaim is separately signed).
- Disburse within 30 days (earlier if policy/CBA says so); issue receipts/payslip.
10) FAQs
Q: Can HR withhold my entire pay until I finish “clearance”? They can require clearance, but they should release the net final pay within 30 days. If an item is disputed, they should net provable liabilities and release the rest.
Q: Am I entitled to separation pay if I resigned? Not by default. Separation pay is for authorized causes (redundancy, retrenchment, closure, disease). A contract/CBA may grant “ex-gratia” amounts on resignation, but that’s policy-based.
Q: Are unused vacation leaves convertible to cash? The law mandates at least 5 SIL days per year; many companies treat unused VLs as convertible by policy/CBAs. Follow your policy; the legal minimum is SIL.
Q: What makes a quitclaim valid? It must be voluntary, with no fraud or coercion, and the consideration must be reasonable. Unconscionable quitclaims can be set aside by labor tribunals/courts.
Q: My commissions are paid after client payment; do I lose them on separation? If the commission was earned under your scheme (e.g., sale booked, service delivered) before separation, it’s generally payable when it becomes due, even if paid later—unless the plan clearly and lawfully conditions entitlement otherwise.
11) Key takeaways
- 30 days from separation is the standard window to release final pay (earlier if policy/CBA says so).
- Pay all earned components (wages, 13th month, SIL, OT/NSD/holiday, earned commissions) minus only lawful deductions.
- Separation pay applies only in authorized-cause terminations (or if granted by policy/CBA).
- Issue COE within 3 working days from request; provide itemized computation and official documents (2316, payslip).
- Unpaid final pay is a money claim—use SEnA or NLRC; the 3-year prescriptive period applies.
Need a quick computation sheet?
Share your last daily/monthly rate, separation date and cause, unused SIL days, year-to-date earnings/tax, and any loans/property issues. I can draft a clean, itemized final pay computation you can hand to HR—or use to check theirs.