Overview
When an employment relationship in the Philippines ends—whether by resignation, termination for just or authorized cause, completion of contract, or retirement—the employer has two core post-employment duties:
- Release the employee’s “final pay” (often called “last pay”).
- Issue a Certificate of Employment (COE).
While these obligations were already rooted in long-standing jurisprudence and various Labor Code provisions, the Department of Labor and Employment (DOLE) consolidated and clarified the rules through Labor Advisory No. 06-20 (January 31 , 2020) – “Guidelines on the Payment of Final Pay and Issuance of Certificate of Employment.” This advisory remains the principal reference as of July 10 , 2025.
1. Legal Foundations
| Source | Key Provision(s) |
|---|---|
| Labor Code of the Philippines (Presidential Decree 442, as renumbered) | • Art. 297-299 (former Arts. 282-284) – separation pay for authorized causes • Art. 94 – holiday pay • Art. 95 – service incentive leave (SIL) conversion • Art. 103 – 13ᵗʰ-month pay (implemented by Presidential Decree 851) • Art. 116 – prohibition on withholding wages |
| Labor Advisory No. 06-20 (DOLE) | • Defines “final pay” • Sets 30-day release period (shorter if company policy/CBA so provides) • Requires COE within 3 calendar days from request |
| Department Order No. 174-17 (Rules on contracting) | Sec. 10(c) restates duty to furnish COE on demand |
| Bureau of Internal Revenue (BIR) Regulations | • RR 2-98, as amended – tax clearance, BIR Form 2316 • Annualization rules for withholding taxes upon separation |
| Civil Code (Art. 1700 et seq.) | Reinforces employer’s obligation to pay wages |
| Jurisprudence | e.g., Intercontinental Broadcasting Corp. v. Benito (G.R. 202349, Oct 5 2016) on entitlement to SIL and 13ᵗʰ-month pay in final pay; Acesite Phils. Hotel Corp. v. Zamora (G.R. 183804, Feb 15 2012) on COE as proof of tenure |
2. What Counts as Final Pay?
“Final pay” is the sum or totality of all monetary benefits due the employee, regardless of the cause of separation.” — DOLE LA 06-20
Typical items:
| Component | Statutory / Contractual Basis | Notes |
|---|---|---|
| Unpaid basic salary & allowances | Art. 94, 102-105 | Up to last day actually worked |
| Pro-rated 13ᵗʰ-Month Pay | PD 851 + DO 06-20 | Compute = (total basic salary earned ÷ 12) |
| Cash conversion of unused Service Incentive Leave (SIL) | Art. 95 | 5 days per year in cash if unused |
| Separation pay (authorized causes) | Art. 298-299 | ½ or 1 month per year of service |
| Retirement pay | Art. 302 & RA 7641 | At least ½-month salary per year, subject to CBA/company plan |
| Backwages/monetary awards | Labor judgments | If reinstatement not viable |
| Tax refund or tax due | BIR RR 2-98 | Employer must “annualize” taxes upon separation |
| Other accrued benefits | Company policy/CBA | e.g., unused vacation leaves beyond SIL, bonuses, commissions |
3. Deadline for Release
| Rule | Period |
|---|---|
| LA 06-20 default | 30 calendar days from date of separation |
| Company CBA / policy | May impose shorter period (never longer) |
| Termination disputes | Employer may still release uncontested amounts; disputed items await resolution |
Employers frequently condition release on clearance procedures. Clearance is permissible only if it is reasonable, nondiscriminatory, and does not defeat the 30-day rule. Delays beyond the period expose the employer to:
- money claims/complaints before DOLE-Regional Office (Art. 129) or the NLRC (Art. 224);
- possible legal interest (currently 6 % p.a.) on delayed sums;
- administrative fines under DOLE Rules on Labor Standards.
4. Certificate of Employment (COE)
4.1 Definition & Minimum Content
A COE is a simple written statement specifying:
- full name of employee;
- date of engagement and date of separation;
- nature of work / position;
- cause of separation (optional, unless the employee expressly requests inclusion).
4.2 Release Period
| Trigger | Period |
|---|---|
| Upon oral or written request of employee | Within 3 calendar days (LA 06-20) |
The COE must be free of charge. It can be in digital form (PDF/email) if the employee agrees.
4.3 Purposes
- Proof of employment experience for new job applications
- Evidence for SSS/PhilHealth/Pag-IBIG/GSIS benefit claims
- Visa processing and bank loans
4.4 Employer’s Liability for Refusal or Delay
- Labor Standards / Single-Entry Approach (SEnA): employees file request for assistance.
- NLRC complaint for damages if delay caused loss of job opportunity.
- Possible criminal sanction under Art. 303 (Unlawful Withholding of Wages), albeit rarely pursued.
5. Computation Framework & Examples
Example (rank-and-file resigned June 15, 2025) Monthly salary: ₱30,000 Unused SIL: 2 days Tenure: 3 years, 4 months Other benefits: none
| Item | Computation | Amount |
|---|---|---|
| Salary (June 1-15) | ₱30,000 / 30 × 15 | ₱15,000 |
| SIL cash conversion | ₱30,000 / 26 × 2 | ₱2,308 |
| 13ᵗʰ-month (Jan 1-Jun 15) | (₱30,000 × 5.5 months)/12 | ₱13,750 |
| Gross Final Pay | ₱31,058 | |
| Less: W/Tax, SSS, PhilHealth, Pag-IBIG | per BIR tables | (varies) |
Employer must remit deductions and give BIR 2316 reflecting final pay.
6. Special Scenarios
Project-based / fixed-term contracts – Final pay same rule; separation pay not due unless by law/CBA.
Just-cause dismissal – No separation pay, but unpaid wages, SIL, 13ᵗʰ-month remain payable. – Employer must still issue COE.
Business closure or redundancy – Separation pay: 1 month per year of service or ½, depending on cause.
Retrenchment during bankruptcy – Separation pay may be reduced upon proof of serious losses; still part of final pay.
Probationary employees – Entitled to earned wages, SIL, pro-rated 13ᵗʰ-month, COE.
7. Employee Remedies for Non-Compliance
- SEnA (DOLE) Request for Assistance – 10-day conciliation.
- Article 129 (small money claims < ₱5,000) via DOLE Regional Director.
- NLRC (Art. 224) complaint – money claim, damages, attorney’s fees.
- Writ of execution once judgment final—sheriff levy on employer assets.
- Criminal action under Art. 303 (rare).
Prescription: money claims = three (3) years from accrual; action for COE issuance = four (4) years under Civil Code Art. 1146.
8. Tax, Payroll & Regulatory Filings
- Withholding tax must be recomputed (“annualized”) to include all earnings year-to-date; excess tax withheld shall be refunded in final pay.
- Employer issues BIR Form 2316 on or before January 31 of following year—or earlier upon employee’s request.
- For SSS/PhilHealth/Pag-IBIG, employer updates R-3/E-4 or equivalent termination report within thirty (30) days.
9. Interplay with Company Policies & CBAs
- Policies or CBAs may shorten the 30-day/3-day periods and may grant additional benefits, but cannot diminish statutory/LA 06-20 minima.
- Clearance rules: must be enumerated, reasonable in scope (e.g., return of ID, tools). Blanket “release only after replacement is hired” clauses are illegal.
10. Compliance Checklist for Employers
- ✔ Compute all due amounts on or before 30th day.
- ✔ Prepare payroll register & tax annualization.
- ✔ Secure employee clearance promptly.
- ✔ Issue COE within 3 days of request (template ready).
- ✔ Release BIR 2316, payslip, and any government forms.
- ✔ Document release with quitclaim written in plain language; employee signature must be voluntary.
- ✔ Keep proof of release for 3 years (Labor Code record-keeping).
11. Frequently Asked Questions
| Question | Answer (Philippine context) |
|---|---|
| Can an employer offset debts vs. final pay? | Yes, but only for amounts “due the employer” that are (a) liquidated and (b) consented to in writing by the employee, per Art. 113. |
| Must the COE state the reason for dismissal? | Not mandatory. Include only upon the employee’s specific request. |
| Does resignation forfeit 13ᵗʰ-month pay? | No; pro-rated 13ᵗʰ-month is mandatory. |
| Is interest automatically imposed on delayed final pay? | The NLRC often imposes 6 % annual legal interest from date of demand or filing. |
| Are managerial employees covered by LA 06-20? | Yes. Advisory applies to all employees, managerial or rank-and-file, regular or probationary, private sector. |
Conclusion
The timely release of final pay and the prompt issuance of a Certificate of Employment are statutory rights of every employee in the Philippines. DOLE Labor Advisory 06-20 crystallized long-established principles into firm procedural deadlines—30 days for money, 3 days for documentation—backed by sanctions for delay. Employers that integrate these rules into their off-boarding process not only avoid liability but also foster a culture of fairness and compliance. Employees, for their part, should be aware of the scope of their entitlements and the remedies available should an employer fall short.
This article is for general information only and should not be taken as formal legal advice. For specific situations, consult competent Philippine labor counsel or the nearest DOLE Regional Office.