Updated for general guidance based on the Labor Code of the Philippines, DOLE issuances, and standard practice. This is informational, not a substitute for legal advice.

I. What counts as “final pay”

“Final pay” (sometimes called last pay or back pay) is the sum of all monetary entitlements that have accrued to an employee up to the effective date of separation, less only lawful deductions. In practice, the package commonly includes:

Unpaid basic wages up to the last working day (including wage differentials, if any)
Premiums (overtime, night shift differential, rest day/holiday pay) that have accrued but are unpaid
Pro-rated 13th-month pay (under P.D. 851) computed on basic salary actually earned during the calendar year up to the date of separation
Monetization of unused leaves according to law and policy
- Service Incentive Leave (SIL): at least five (5) days per year for eligible employees; unused SIL is commutable to cash at the end of the year or upon separation
- Company-granted leaves (e.g., VL/SL beyond SIL) are convertible only if company policy/CBA provides
Separation pay, if legally due, e.g., redundancy, retrenchment, installation of labor-saving devices, closure not due to serious losses, or disease not curable within six months (statutory rates apply)
Retirement benefits, if due under a company plan or under the Retirement Pay Law (R.A. 7641), net of overlaps with separation pay when applicable
Tax adjustments (refunds or payables) based on year-to-date withholding
Other final benefits under policy/CBA (e.g., prorated allowances, incentives earned, commission true-ups subject to agreed plan rules)
Cash conversion for bond/deposits posted by the employee, if refundable

II. Release timeline and documentary deliverables

A. Release of final pay

General rule: Final pay should be released within thirty (30) calendar days from the date of separation, unless a shorter/longer period is set by company policy, employment contract, or CBA that is more favorable to the employee.
Good practice: If payroll cutoffs permit, many employers release on the nearest payroll run, provided computations (e.g., premiums, commissions) are reasonably finalized.

B. Certificate of Employment (COE)

Timeline: The COE must be issued within three (3) working days from an employee’s request.
Content: At minimum, position and inclusive dates of employment; compensation may be included upon request.

C. Clearance vs. release of pay

Employers may implement clearance to account for return of property, liquidation of cash advances, or completion of turnover.
However, clearance cannot be used to indefinitely delay the release of amounts that are already due and demandable. The employer may:
- Deduct lawfully authorized amounts (see Section IV) and still release the balance within the 30-day period, or
- Release undisputed amounts and place in suspense only the specific, properly documented items under challenge, with written computation provided to the employee.

III. Computation highlights (practical pointers)

Cut-off alignment: If the regular payroll cutoff is after separation, run a special final payroll so the 30-day rule is met.
13th month: Pro-rate based on basic pay actually earned in the calendar year ÷ 12. Exclude allowances/benefits not considered “basic wage” by law, unless company policy says otherwise.
SIL conversion: Cash equivalent = current daily rate × unused SIL days (commonly 5 days/year for eligible employees).
Separation pay (if due):
- Redundancy/installation of labor-saving devices: At least one (1) month pay per year of service, or such higher rate under jurisprudence/policy; some causes use one-half (1/2) month per year, counting a fraction of six (6) months or more as one whole year.
- Closure not due to serious losses / retrenchment: At least one-half (1/2) month pay per year of service.
- Disease: At least one-half (1/2) month pay per year of service, if separation is justified by a competent public health authority and due process is observed.
Retirement pay (if due): At least one-half (1/2) month salary for every year of service (with the law’s definition of “1/2 month”), in the absence of a better plan.

Note: Do not “net off” separation and retirement benefits unless the law or plan specifically allows; if both seem to apply, compute both and pay whichever is more beneficial (or the non-overlapping portions, per policy/plan).

IV. What deductions are legal from final pay

A. Mandatory statutory deductions

Withholding tax under the NIRC and BIR regulations (subject to special exemptions)
Government contributions and loan repayments, where applicable and due:
- SSS (contributions and SSS salary/Calamity loan amortizations)
- PhilHealth contributions
- Pag-IBIG contributions and Pag-IBIG loan amortizations
Court-ordered garnishments or levies, if any, to the extent allowed by law

B. Deductions authorized by the Labor Code and its rules

Deductions may be made only when at least one of these bases exists and all conditions are satisfied:

Authorized by law or government regulation.
Employee’s free and written authorization for a specific purpose and without employer gain, such as:
- Premiums on approved insurance;
- Payments to a third party (e.g., co-op) explicitly designated by the employee;
- Union dues or agency fees consistent with a CBA or check-off arrangement.
Salary advances and company loans that are due and properly documented.
Losses or damages to the employer’s property if and only if:
- The employee is clearly shown to be responsible;
- The employee is given due process (notice and opportunity to be heard);
- The amount is reasonable and commensurate to the actual loss; and
- Installment deductions do not unduly impair wage protection (as a conservative rule of thumb, cap periodic deductions to a reasonable portion of wages).
Unreturned company property (e.g., laptop, tools, ID) or unliquidated cash advances where the above due-process safeguards are met and the actual, documented value is used.

C. Deductions that are generally not allowed

Blanket “penalties” or liquidated damages without a clear legal/policy basis and due process
Training bonds that function as unlawful restraints on employment or penal clauses disproportionate to demonstrable costs
Forfeiture of earned wages/benefits because of clearance delay alone
Set-off beyond what is lawful (e.g., deducting speculative losses, future targets/chargebacks outside a valid plan, or amounts that would cause the employer to “profit” from the deduction)

Minimum wage rule: Compliance with statutory minimum wage is measured on gross pay for the work rendered; net pay may fall below minimum after lawful statutory deductions (tax, SSS, PhilHealth, Pag-IBIG). Unlawful deductions that reduce take-home pay are prohibited.

V. Tax treatment at separation (quick guide)

Separation benefits due to causes beyond the employee’s control (e.g., authorized causes like redundancy/retrenchment/closure or permanent disability/death) are tax-exempt under the NIRC’s exemptions.
Separation pay on resignation or terminations attributable to the employee (e.g., just causes) are taxable as compensation.
13th-month pay and “other benefits” thresholds and exemptions apply per current BIR rules.
Always reconcile year-to-date (YTD) withholding; issue the BIR Form 2316 as required.

VI. Procedural checklist for employers

Acknowledge separation in writing with effective date and cause.
Freeze and gather payroll data: hours, premiums, allowances, commissions, leave balances, loans, advances.
Compute entitlements (wages, 13th-month, SIL, separation/retirement pay if due) and identify only lawful deductions with documentation.
Offer due process before any deduction for loss/damage/unreturned property (written notice, hearing/opportunity to explain, determination, written decision).
Target release within 30 calendar days; if any portion is disputed, release undisputed amounts and explain the withheld item in writing.
Issue COE within 3 working days from request; prepare clearance and property turn-over records.
Provide a breakdown: a final payroll statement showing gross items and each deduction’s basis.
Remit/statutory filings (SSS/PhilHealth/Pag-IBIG, BIR) and give the 2316 as applicable.

VII. Procedural checklist for employees

Request a written breakdown of computations and deductions.
Ask for COE (and, if needed, a Payslip/Final Pay Statement) promptly; keep copies.
Return company property and liquidate cash advances to avoid deductions.
Verify government postings (SSS, PhilHealth, Pag-IBIG) after the final month.
If final pay isn’t released within 30 days or contains unlawful deductions, seek assistance via DOLE Single-Entry Approach (SEnA) or file a money claim (prescriptive period for wage claims is generally three (3) years).

VIII. Common edge cases and how to handle them

Commissions and chargebacks: Follow the written plan. Pay earned commissions up to separation; chargebacks must be expressly allowed, tied to objective reversals (e.g., cancellations/returns), and computed per plan.
Negative leave balances: If the policy allows advance leave credits, you may deduct the salary equivalent of the negative balance, provided this is clearly authorized in policy/contract and shown in the computation.
Laptop or phone not yet returned: You may withhold only the documented replacement cost (or depreciated book value if policy so provides) after due process; do not withhold the entire final pay if the net balance is positive.
Overpayments due to payroll error: Rectify via written acknowledgment and mutually agreed deduction schedule; avoid netting out amounts that would contravene wage protection if the employee contests liability.
Probationary employees: Entitlements and timelines are the same; separation pay applies only if the cause falls under those authorized by law.
Project/fixed-term employees: Pay all accrued statutory benefits to end-of-term; separation pay applies only if the law so requires for the cause of termination, not merely because the term ended.

IX. Model contents of a Final Pay Statement (illustrative)

Employee name / ID; Position; Date hired; Date separated; Cause of separation
EARNINGS
- Basic salary (From ___ to ___)
- Overtime / NSD / Holiday / Rest Day premiums (itemized)
- 13th-month pay (pro-rated)
- SIL conversion (unused days × daily rate)
- Separation/retirement pay (if applicable: show formula)
- Other earned incentives/commissions (attach computation)
DEDUCTIONS (legal only)
- Withholding tax (YTD reconciliation)
- SSS / PhilHealth / Pag-IBIG (and loan amortizations, if due)
- Salary advances / company loans (show authorization)
- Loss/damage/unreturned property (show due-process memo and valuation)
NET AMOUNT DUE and Release date (≤ 30 calendar days from separation)
Payment method; sign-off and acknowledgment

X. Documentation to keep on file

Computation worksheet and supporting payslips/timecards
Written notices and employee responses (for any contested deduction)
COE copy; clearance forms; property turnover receipts
Proof of payment/remittances; BIR 2316; government postings

XI. Quick FAQs

1) Can an employer wait for a client to pay before releasing commissions or final pay? Not for final pay as a whole. Commissions may have plan-specific rules; earned amounts must still be paid within the 30-day window unless the plan lawfully defines earn-out timing and the item is not yet “earned.”

2) Can the company withhold everything until the laptop is returned? No. Only the documented value (after due process) may be offset; the balance must be released on time.

3) If I resign, am I entitled to separation pay? Generally no, unless your resignation is part of a mutually agreed package or provided by policy/CBA. Authorized-cause terminations may entitle you to statutory separation pay.

4) Are training bonds enforceable? Only if reasonable, time-bound, tied to actual training costs, and not an unlawful restraint on trade. Overbroad “penalty” deductions are generally disallowed.

XII. Compliance posture and risk tips

Write it down: Adopt a Final Pay SOP with fixed checkpoints and a 30-day SLA.
Show your math: Always give an itemized statement with legal bases for each deduction.
Due process first: No deduction for losses/damages without notice, explanation, and a reasoned finding.
Employee choice matters: Where deduction relies on employee authorization, it must be specific, voluntary, and in writing—not a blanket consent.
Favor release: If in doubt, release the undisputed portion; document the balance under review.

Disclaimer

This article provides general information on Philippine final pay timelines and lawful deductions and reflects common interpretations of DOLE advisories and the Labor Code. For a specific case (cause of separation, plan rules, CBA terms, tax nuances), consult a Philippine labor lawyer or your DOLE Regional Office.