In the Philippine labor landscape, the "Final Pay" (also colloquially known as "backpay") is a frequent point of contention between employers and departing employees. Whether a separation is due to resignation, termination for cause, or redundancy, the law provides a specific window for the settlement of all earned wages and benefits.
The Governing Law: DOLE Labor Advisory No. 06-20
Prior to 2020, there was no specific statutory period mandated for the release of final pay, leading many companies to adopt internal policies ranging from 30 to 90 days. However, the Department of Labor and Employment (DOLE) addressed this ambiguity through Labor Advisory No. 06, Series of 2020.
Under this issuance, the general rule is:
Final pay must be released within thirty (30) days from the date of separation from employment, unless there is a more favorable company policy or a collective bargaining agreement (CBA) that mandates a shorter period.
What is Included in Final Pay?
Final pay is not merely the last salary earned. It is an aggregate of all components owed to the employee, which typically includes:
- Unpaid earned salary (pro-rated for the last days worked).
- Cash conversion of unused Service Incentive Leave (SIL) (for those who have served at least one year).
- Pro-rated 13th Month Pay (Total basic salary earned during the year divided by 12).
- Separation Pay (if applicable, such as in cases of redundancy or closure).
- Refund of withheld taxes (excess taxes withheld from the employee’s salary throughout the year).
- Other benefits stipulated in the employment contract or CBA.
The Requirement of "Clearance"
While the 30-day rule is firm, it is intrinsically linked to the clearance process. An employer is legally permitted to withhold final pay until the employee has completed their exit clearance.
- Property Accountability: The employee must return company assets (laptops, IDs, uniforms, etc.).
- Settlement of Liabilities: Any liquidated debts or accountable forms must be settled.
- The "Accountability" Limit: Employers can only deduct amounts from the final pay that are specifically authorized by law or by the employee in writing (e.g., unpaid loans or lost equipment).
If an employee refuses to undergo the clearance process, the employer may have a valid defense for the delay, provided they can prove the employee’s non-cooperation.
The Certificate of Employment
Concurrent with the release of final pay, the employer is also mandated to issue a Certificate of Employment (COE). According to the same DOLE Advisory, the COE must be released within three (3) days from the time of the employee's request.
Legal Remedies for Non-Compliance
If an employer fails to release the final pay within the 30-day window without a valid justification, the employee may take the following steps:
- Written Demand: Send a formal demand letter to the employer or HR department citing DOLE Labor Advisory No. 06-20.
- SENA (Single Entry Approach): File a Request for Assistance (RFA) with the nearest DOLE office. This is a mandatory conciliation-mediation process designed to settle disputes amicably within 30 days.
- Formal Labor Case: If SENA fails, the employee can file a formal complaint before the Labor Arbiter of the National Labor Relations Commission (NLRC) for non-payment of wages and benefits, which may include claims for interest and attorney's fees.
Summary Table: Deadlines and Obligations
| Requirement | Deadline | Legal Basis |
|---|---|---|
| Release of Final Pay | Within 30 days from separation | DOLE LA No. 06-20 |
| Issuance of COE | Within 3 days from request | DOLE LA No. 06-20 |
| 13th Month Pay | Pro-rated and included in final pay | PD No. 851 |
| SIL Conversion | Commuted to cash upon separation | Labor Code Art. 95 |
Next Step
I can draft a formal demand letter template for you to use if your employer has exceeded the 30-day window for your final pay. Would you like me to do that?