Overview and legal bases

“Final pay” (often called “back pay” or “last pay”) is the sum of all wages and monetary benefits the employer must release when employment ends—whether by resignation, termination, retirement, expiration of contract, redundancy, retrenchment, closure, or death. The principal sources of law and rules are:

Labor Code of the Philippines (as amended), including provisions on wages, separation pay for authorized causes, service incentive leave, and deductions.
Presidential Decree No. 851 and its rules (13th-month pay).
Civil Code (damages/quitclaims principles).
Tax Code (NIRC) and BIR rulings (withholding and exemptions, including TRAIN thresholds).
DOLE Labor Advisories (notably on release within 30 days and issuance of Certificate of Employment).
Jurisprudence on separation pay, quitclaims, and money claims prescription.

Key timeline: In practice, DOLE guidance requires release of final pay within 30 calendar days from employee’s date of separation, unless a company policy or CBA provides a shorter period. Employers may use a clearance process, but it cannot be used to indefinitely withhold legally due wages.

What must be included in final pay

Depending on the facts, final pay typically consists of:

Unpaid basic wages up to the last actual day worked (including approved paid leaves, if applicable).
Overtime pay, night shift differential, premium pay, holiday pay, rest-day pay, and other statutory differentials that have accrued but remain unpaid.
Pro-rated 13th-month pay (PD 851): computed on basic salary actually earned within the calendar year up to the date of separation.
Conversion to cash of unused Service Incentive Leave (SIL) (up to the statutory 5 days per year if applicable), and other unused company leave credits per policy, CBA, or established practice.
Statutory/service charges share (for enterprises that collect service charges), and commissions or incentives that have become due under the governing plan or policy.
Separation pay, if legally applicable (see next section).
Retirement pay if the employee qualifies under a retirement plan or RA 7641 (Minimum Retirement Pay Law), unless more beneficial company/plan terms apply.
Tax refund for any over-withheld compensation tax during the year, after recomputation at separation.
Other monetary entitlements under CBA, policy, or contract (e.g., loyalty awards, monetization of convertible benefits).

Note: 13th-month pay excludes overtime, premium, and allowances unless a more favorable company practice includes them. Commission’s inclusion depends on whether it forms part of “basic wage” under the plan and jurisprudence.

When separation pay is due (and how much)

Separation pay is not automatic. It is due for specific authorized causes and not for just causes under the Labor Code.

Authorized causes (with minimum amounts)

Redundancy or installation of labor-saving devices: At least one (1) month pay or one (1) month pay per year of service, whichever is higher.
Retrenchment to prevent losses, or closure/cessation not due to serious losses: At least one (1) month pay or one-half (1/2) month pay per year of service, whichever is higher.
Termination due to disease (when continued employment is prohibited by competent public authority and no adequate accommodation is possible): At least one (1) month pay or one-half (1/2) month pay per year of service, whichever is higher.

Fraction of at least six (6) months counts as one whole year for the per-year computation. “One month pay” generally refers to the employee’s latest salary rate plus wage-integrated regular allowances that jurisprudence considers part of wage.

No separation pay in these common cases

Resignation (voluntary) — unless a CBA, contract, or established practice grants it.
Just causes attributable to the employee (e.g., serious misconduct) — wages and earned benefits remain due up to last day worked, but no separation pay (unless a compassionate grant by the employer or provided by CBA/policy).

Illegal dismissal scenarios

If dismissal is adjudged illegal, typical reliefs are reinstatement with full backwages (or separation pay in lieu of reinstatement, at one month pay per year of service as a distinct remedial measure), plus accrued benefits and differentials. These are not the “separation pay” for authorized causes, but a judicial remedy.

Taxes and government contributions

Separation pay due to redundancy, retrenchment, closure not due to serious losses, or disease (i.e., causes beyond the employee’s control) is income tax-exempt under the NIRC’s exclusions for separation benefits, subject to BIR rules.
13th-month and other benefits are non-taxable up to the TRAIN threshold (₱90,000 cap for the aggregate of 13th month and “other benefits”); any excess is taxable.
Backwages are generally subject to withholding as compensation income.
The employer must remit last SSS, PhilHealth, and Pag-IBIG contributions based on the final compensation cycle.

Deductions: what can and cannot be withheld

Employers may only make deductions that are:

Required by law (tax, SSS/PhilHealth/Pag-IBIG), or
For debts or losses due to the employee’s fault with due process and consistent with law/jurisprudence, or
Expressly authorized in writing by the employee for a lawful purpose (e.g., company loan, cooperative), and free from employer coercion.

Common, lawful deductions from final pay (subject to proof and due process):

Unreturned company property (tools, devices, uniforms) valued fairly;
Company loans/advances with written consent for payroll deduction;
Proportionate value of bonded training or scholarship only if a valid training agreement allows cost-sharing and the amount is reasonable (penal clauses and forfeitures are strictly construed against the employer).

Not lawful:

Blanket “penalty” deductions (e.g., automatic forfeiture for failure to give 30-day resignation notice). The employer may seek damages if it suffered loss, but cannot unilaterally impose punitive wage deductions without a clear, lawful basis and due process.

Clearance policies are allowed but cannot be used to withhold statutory wages indefinitely. Any set-off must be specific, proven, and consistent with the rules above.

Certificates and documents the employee may demand

Certificate of Employment (COE): Must be issued within 3 working days upon request, stating dates of employment and nature of work.
Payslips and breakdown of final pay computation.
Tax documents (BIR Form 2316 for the year, reflecting compensation up to separation).
Clearance acknowledgment (if the company uses a clearance process).
Proof of remittances to SSS/PhilHealth/Pag-IBIG upon request.

Deadlines, interest, and penalties

Release of final pay: Within 30 calendar days from separation date (or shorter if company policy/CBA provides).
Delay consequences: Amounts due may earn legal interest from the time of judicial or extrajudicial demand (as applied by jurisprudence), and the employer may face compliance orders, penalties, or damages if the delay is unlawful.

How to enforce your rights (step-by-step)

Make a written demand to HR/Payroll for the breakdown and release of final pay, referencing the separation date and the 30-day rule.
If unresolved, file a Request for Assistance (RFA) under DOLE’s Single-Entry Approach (SEnA) at the DOLE Regional/Field Office with jurisdiction over the workplace. This triggers mandatory conciliation-mediation.
If still unresolved:
- Money claims and illegal dismissal: file a case before the NLRC Labor Arbiter (for illegal dismissal and money claims).
- Pure labor standards claims may also be addressed via DOLE’s visitorial and enforcement powers resulting in a Compliance Order after inspection/conciliation, especially for wage underpayments and benefits.
Prescriptive periods:
- Money claims arising from employer-employee relations (e.g., unpaid wages, 13th month, differentials) generally prescribe in 3 years from when the cause of action accrued (often, the date payment should have been made).
- Illegal dismissal actions are treated as an injury to rights and generally prescribe in 4 years.
- Filing an RFA may interrupt prescription (tolling), consistent with DOLE/NLRC practice and jurisprudence.

Quitclaims, releases, and waivers

A quitclaim is valid only if: (a) it is voluntarily executed; (b) the consideration is reasonable and credible; and (c) there is no vitiated consent (fraud, intimidation, mistake).
Even a signed quitclaim does not bar claims for statutory benefits or for amounts unconscionably low; courts frequently set aside quitclaims that waive minimum labor standards or were obtained through pressure.
If you sign a release, request a detailed computation and ensure it lists every component (wages, 13th, SIL, separation/retirement pay, commissions, service charges, differentials, tax adjustments).

Special situations

Fixed-term or project employment: Final pay includes all earned wages/benefits up to contract/project end; no separation pay unless a law, CBA, or policy provides otherwise.
Probationary employees: Entitled to earned wages/benefits; separation pay is due only if termination is for an authorized cause.
Death of employee: Final pay and death benefits (including government claimables) are released to legal heirs or to the designated beneficiary per law/company policy.
Enterprise closure due to serious business losses: Separation pay may be not due if the employer proves serious losses; wages and earned benefits remain payable.
Retirement: Apply the retirement plan or RA 7641 minimums (often 1/2 month pay per year of service as defined by law/plan), in addition to earned wages, 13th-month pro-ration, and leave conversions.

Practical checklist (for employees)

Employment details: last day, position, daily/monthly rate, regular allowances.
Ask HR for a written breakdown of: unpaid wages/differentials, 13th-month pro-ration, SIL/leave conversions, commissions/service charges, separation/retirement pay, tax adjustments.
Return company property (document every return) to avoid disputes on deductions.
Request COE and BIR 2316; verify SSS/PhilHealth/Pag-IBIG postings.
If payment is late, send a dated written demand and keep proof; escalate via SEnA if needed.

Practical checklist (for employers)

Calendar the 30-day release window; aim earlier if policy/CBA says so.
Use a clearance flow that is fast and documented; avoid blanket holds.
Compute 13th-month and SIL correctly; respect “6 months = 1 year” rule where applicable to separation pay.
Make only lawful, well-documented deductions with written consent or legal basis.
Provide COE within 3 working days upon request and issue a detailed final pay statement.

Worked example (illustrative)

Facts: Redundancy effective July 15. Monthly basic ₱30,000; 3 years and 8 months of service; 5 unused SIL days; no allowances; no OT; no debts.
Items:
- Unpaid wages for July 1–15: ₱30,000 × (15/30) = ₱15,000
- Pro-rated 13th month (Jan 1–Jul 15 ≈ 6.5 months): ₱30,000 × 6.5 / 12 = ₱16,250
- SIL conversion (5 days; daily rate ₱30,000/26 ≈ ₱1,153.85): ₱5,769.25
- Separation pay (redundancy): higher of 1 month or 1 month per year of service. Service counted as 4 years (3 years + ≥6 months). ⇒ ₱30,000 × 4 = ₱120,000
Gross final pay: ₱157,019.25 (wages + 13th + SIL) + ₱120,000 (separation) = ₱277,019.25
Taxes: Separation pay (authorized cause) tax-exempt; 13th-month non-taxable up to TRAIN ceiling; regular wages taxable per withholding.
Release deadline: on or before August 14 (30th day after July 15), unless a shorter company/CBA period applies.

(Numbers are illustrative; companies may use a 26-day or 30-day divisor depending on payroll scheme and jurisprudence considerations.)

Frequently asked questions

Is the employer allowed to wait for property clearance before paying? A short clearance period is acceptable, but the 30-day outer limit still applies. Only specific, lawful deductions (e.g., unreturned items with proof) may reduce the amount.

Do I get separation pay if I resign? Generally no, unless a policy, CBA, or contract grants it. You still receive all earned wages, pro-rated 13th month, and leave conversions.

What if I did not give 30-day notice when resigning? The employer may pursue damages if it suffered actual loss, but automatic penalties or unilateral wage deductions are restricted by law and due process.

How long do I have to file a claim for unpaid final pay? Most money claims prescribe in 3 years from when payment was due; illegal dismissal actions prescribe in 4 years.

Can a quitclaim stop me from claiming underpayment? Not if the quitclaim was involuntary, unconscionable, or waives statutory benefits. Courts often set aside such waivers.

Bottom line

Everything earned must be paid, and if the separation is for an authorized cause, statutory separation pay applies.
Release within 30 days is the operational rule; COE within 3 working days upon request.
Only lawful, documented deductions are allowed.
Use SEnA and, if needed, file with the NLRC to enforce rights—mind the 3-year/4-year prescription clocks.

This article is for general information and does not replace tailored legal advice for your specific facts and documents.