Overview

When an employer delays paying wages or salary that are already due, the employee is entitled not only to the unpaid principal but also to legal interest as damages for the forbearance or wrongful withholding of money. This article explains the governing rules, the applicable rate, when interest begins to run, how to compute it (with worked examples), and practical pointers for employees, employers, and counsel—grounded in the Civil Code, labor statutes, and controlling Supreme Court doctrine.

Legal Bases

Constitution & Labor Code
- The Constitution guarantees full protection to labor and the right to a living wage.
- The Labor Code (as renumbered) prohibits unlawful withholding of wages and requires payment on time and in legal tender (e.g., Arts. 102–105, 116 [old numbering], and related rules).
- Monetary claims arising from employer–employee relations (e.g., unpaid wages, wage differentials, 13th month pay) are cognizable by DOLE/Regional Director (for simple claims within thresholds) or by the NLRC through Labor Arbiters.
Civil Code on Interest as Damages
- Art. 2209 (damages for breach of an obligation to pay a sum of money) and Art. 2212 (interest accruing from demand when interest is due) supply the default rules on legal interest when a specific statute or contract does not stipulate otherwise.
Supreme Court Doctrine
- Eastern Shipping Lines v. CA (G.R. No. 97412, 12 July 1994) first systematized when and how legal interest applies.
- Nacar v. Gallery Frames (G.R. No. 189871, 13 Aug 2013) refined the rules and, crucially, adopted the 6% per annum legal interest following BSP Monetary Board Circular No. 799 (2013), which reduced the rate from 12% to 6% effective 1 July 2013.
- Subsequent labor cases consistently apply 6% simple interest to monetary awards in labor disputes (e.g., backwages, wage differentials, 13th month pay, separation pay), generally from the proper reckoning date (explained below) and at 6% per annum from finality of judgment until full satisfaction.

The Current Legal Interest Rate

Legal interest = 6% per annum (simple interest) on monetary obligations, including delayed salaries and wage-related awards, absent a different statutory or contractual rate.
The 6% rate has applied since 1 July 2013 and is the benchmark used by courts and labor tribunals for both pre-judgment and post-judgment interest in labor money claims.

Practical note: In labor decisions, the NLRC and courts typically do not compound interest unless expressly directed. The default is simple interest.

When Does Interest Start to Run?

The crucial issue is the reckoning point—the date from which the 6% interest begins to accrue. Use these guideposts:

If the amount due was already liquidated, due, and demandable (e.g., a fixed monthly salary withheld past the company’s regular payday):
- Interest runs from the date of default, typically the day after the due payday, or from extrajudicial demand (written demand), or from the filing of the complaint—whichever is earlier and clearly puts the employer in delay.
- Rationale: This is effectively a forbearance of money.
If the amount required factual or legal determination (unliquidated)—for example, wage differentials that depend on proving an applicable wage order or re-computing offsets:
- Pre-judgment interest generally runs from the date of judicial or quasi-judicial demand (filing of the complaint), not from the date the wage first became due (because the exact amount was uncertain).
- Some rulings start interest from the date of the Labor Arbiter’s decision if the amount was unliquidated until then. The consistent floor rule in labor cases is: from finality of judgment, 6% p.a. on the total award until fully paid.
After Finality of Judgment (Post-judgment Interest)
- Whatever pre-judgment rule applies, once the decision becomes final and executory, the entire monetary award (principal plus any pre-judgment interest already accrued) earns 6% per annum until full satisfaction.

How to pick the reckoning date in practice:

Fixed, missed paydays: count from the day after each missed payday (or the earliest proof of demand).

Disputed/undetermined amounts: count from filing (safer) or from decision if the award was unliquidated until adjudicated.

Always add 6% from finality until paid.

Interaction with Other Labor Remedies

Wage Orders & 13th Month Pay: Underpayment or non-payment leads to the principal amount plus 6% p.a. interest using the reckoning rules above.
Statutory Penalties/Double Indemnity (for minimum wage violations) are distinct from legal interest; if imposed, interest still applies on the monetary award unless the decision says otherwise.
Backwages/Separation Pay: These are often computed as principal sums; courts then impose 6% p.a. from finality (and sometimes from filing for items treated as forbearance).

Prescriptive Periods (Time Limits)

Money claims arising from employer–employee relations generally prescribe in three (3) years from when the cause of action accrued (e.g., each missed payday). Filing interrupts prescription. Illegal dismissal claims (for reinstatement or damages) may follow different prescriptive rules, but money claims connected to them still observe the 3-year limit unless otherwise specified by law or jurisprudence.

Computation: Step-by-Step

A. Simple Interest Formula

For each tranche (period with a stable principal):

Interest  =  Principal  ×  6%  ×  (Number of days in tranche ÷ 365)
Total Due =  Principal  +  Interest

Use 365 as the base (actual/365 convention) unless a decision specifies otherwise.
No compounding unless the decision explicitly orders it. If partial payments occur, recompute using the reduced principal from the payment date forward.

B. Tranching the Periods

Break the timeline into clear tranches with their own start dates:

Pre-judgment: From correct reckoning date (missed payday / demand / filing) up to the day before the judgment (or as the decision specifies).
Post-judgment, pre-finality: Only if the decision awards pre-finality interest; otherwise proceed to #3.
Post-finality: From finality date (e.g., receipt of entry of judgment/writ issuance date if specified) until payment.

C. Worked Examples

Example 1: Single Missed Payday (Liquidated Amount)

Monthly net salary due 15 January 2024: ₱30,000.
Employer paid only on 15 July 2024 (182 days late).
Rate: 6% p.a., simple.

Interest = ₱30,000 × 0.06 × (182/365) = ₱897.53
Total due on 15 July 2024 = ₱30,000 + ₱897.53 = ₱30,897.53

If the employee filed a written demand on 20 January 2024, you can still use the day after due date (16 January) because the amount was fixed and already due.

Example 2: Multiple Months, Staggered Payments

Salaries due: ₱30,000 each on Jan 15, Feb 15, Mar 15, 2024 (₱90,000 total).
Employer pays ₱60,000 on 1 June 2024 covering Jan–Feb, and the remaining ₱30,000 on 1 September 2024.
Compute per month from the day after each due date; on 1 June, stop interest on the paid months; continue interest on March salary until 1 Sept.

(January tranche, 138 days: Jan 16 → Jun 1)

₱30,000 × 0.06 × (138/365) = ₱680.55

(February tranche, 107 days: Feb 16 → Jun 1)

₱30,000 × 0.06 × (107/365) = ₱527.12

(March tranche, 170 days: Mar 16 → Sept 1)

₱30,000 × 0.06 × (170/365) = ₱837.53

Total interest = ₱680.55 + ₱527.12 + ₱837.53 = ₱2,045.20

Example 3: Labor Case Award with Post-Finality Interest

Labor Arbiter awards ₱200,000 (wage differentials, 13th month pay).
Decision becomes final on 10 March 2025.
Employer pays 10 September 2025 (184 days later).
Post-finality interest:

₱200,000 × 0.06 × (184/365) = ₱6,041.10
Total due = ₱206,041.10

If the decision also specifies pre-judgment interest from filing (say, 1 June 2023) to 10 March 2025, compute that separately and add it to the principal before applying the post-finality tranche.

Documentation & Proof

Keep pay slips, employment contracts, company policies on pay dates, bank advice, and written demands (emails, letters). These determine due dates and default—critical for selecting the correct reckoning date.
In litigation, attach a clear computation sheet (per month, per tranche) and cite the 6% legal interest rule under Nacar. Courts look favorably on transparent, line-by-line computations.

Common Pitfalls (and How to Avoid Them)

Using 12% after 1 July 2013 – Use 6% unless a governing contract/statute fixes a different lawful rate.
Compounding by default – Legal interest is simple, not compounded, unless the decision orders otherwise.
Wrong reckoning date – For clearly liquidated pay (missed fixed payday), count from the day after the due date. – For unliquidated sums (e.g., wage differentials needing proof), count from filing (or from decision if the amount became certain only then).
Ignoring post-finality interest – After finality, apply 6% p.a. on the entire award until full payment.
Not re-basing after partial payments – Upon each payment, reduce principal and recompute interest on the reduced balance going forward.

Quick Checklist for Practitioners

Identify type of claim (fixed salary vs. differentials/damages).
Establish the due date (company payday, statutory deadline) and default/demand date.
Determine whether the amount was liquidated or unliquidated before judgment.
Apply 6% simple interest from the proper reckoning date.
Add 6% from finality until fully paid.
If there are partial payments, recompute interest per tranche.
Present a clear, dated, and labeled computation.

Frequently Asked Questions

Is interest automatic even without a written demand? If the salary was fixed and already due, interest may run from the day after the missed payday because the obligation was liquidated and the employer was in default. A written demand strengthens the claim and removes doubt about default.

What if the employer disputes the amount? When the exact amount is unliquidated until adjudicated, pre-judgment interest typically runs from filing (or from decision, depending on the ruling), then 6% from finality until payment.

Can parties agree to a different rate? Yes, within lawful limits and absent unconscionability. In the absence of a valid stipulation, 6% applies.

Is interest taxable or subject to deductions? The principal is subject to ordinary statutory deductions (e.g., withholding taxes if applicable to compensation); court-awarded interest is generally treated as interest income/damages and may have tax implications. Employers should withhold/record appropriately; employees should seek tax advice for case-specific treatment.

Bottom Line

For delayed salary in the Philippines, the default legal interest is 6% per annum (simple). Determine the correct start date (missed payday, demand, or filing) based on whether the amount was liquidated or unliquidated, then add 6% from finality of judgment until full payment. Clear documentation and meticulous, tranche-based computations are essential to getting the numbers—and the remedy—right.