Withholding Last Pay and 13th-Month After Termination in the Philippines: Everything You Need to Know

For informational purposes only and not a substitute for legal advice.

1) Quick Primer

“Last pay” (often called “final pay”) is the total of all amounts an employee is entitled to upon separation: unpaid wages and overtime, pro-rated 13th-month, converted unused leaves (if company policy or CBA allows), separation pay (if legally due), and any other earned benefits.
13th-month pay is a statutory benefit under P.D. 851: at least one-twelfth (1/12) of the basic salary earned within the calendar year. It is owed pro-rata even if the employee resigns or is terminated before December.
Release timeline (practice/DOLE guidance): employers are expected to release final pay within about 30 days from separation (or earlier if company policy/CBA provides). Certificates of Employment (COE) must be issued promptly upon request (commonly within 3 working days).

When employers withhold without valid basis or delay unreasonably, workers can pursue DOLE conciliation (SEnA) and, if needed, NLRC/Labor Arbiter remedies for money claims, interest, and fees.

2) What Exactly Makes Up “Last Pay”?

Earned but unpaid wages up to last day of work Includes regular pay, differentials, and legally mandated wage increases.
Overtime, premium pay, and night shift differential If actually worked and not yet paid.
Pro-rated 13th-month Calculated as:

$$ \text{13th-month}=\frac{\text{Basic salary actually earned in the year}}{12} $$
- “Basic salary” excludes overtime, premium pay, night differential, holiday pay, and COLA.
- Commissions/incentives: Included only if they are part of the basic salary structure or wage (e.g., sales commissions that are wage-integrated); excluded if they are truly extra or contingent benefits.
Unused leaves convertible to cash Only if CBA, company policy, or employment contract provides for conversion. There is no general law that forces conversion absent a policy, but many employers do convert unused SIL in practice.
Separation pay (when due)
- Authorized causes (Labor Code):
  - Redundancy: at least 1 month pay per year of service (fraction ≥ 6 months = 1 year), or company policy/CBA if higher.
  - Retrenchment to prevent losses / closure not due to serious losses / disease: at least ½ month pay per year of service, or one month, whichever is higher when applicable.
- Just cause dismissals: no separation pay as a rule, though courts sometimes award ex gratia on equity in exceptional cases (not a right).
- Illegal dismissal (if proven): backwages, reinstatement or separation pay in lieu, plus attorney’s fees/interest.
Other accrued benefits e.g., prorated mid-year/Christmas bonuses (if contractual), cashable points, and similar.
Deductions Only lawful deductions are allowed: tax, SSS/PhilHealth/HDMF, government-mandated loans, court orders, or employee-authorized deductions. Employers cannot deduct losses/shortages without written authorization and due process.

3) 13th-Month Pay: Core Rules

Who is covered? All rank-and-file private-sector employees regardless of position, designation, or method of payment—so long as they’ve worked at least one month during the year. (Supervisory/managerial employees typically receive 13th month by policy/company practice, but the strict statutory coverage is rank-and-file.)
When payable? Not later than 24 December each year. For separated employees, the pro-rated share is due with the final pay.
Computation nuances
- No work, no 13th-month for the period not worked (e.g., unpaid leaves). Paid leaves that count as part of “basic salary” per policy may be included.
- Allowances (e.g., COLA) and overtime/premiums are excluded from “basic salary” unless your contract or CBA expressly integrates them.
- Commission-based pay: If the commission is integrated into wage for work rendered (not a discretionary bonus), it may be counted in “basic salary” for 13th-month computation.
Taxation Under the TRAIN Law, 13th-month and other benefits are non-taxable up to ₱90,000 annually. Any excess over ₱90,000 is taxable.

4) Can the Employer Withhold Final Pay Pending “Clearance”?

Clearance systems (return of IDs, tools, laptops, settlement of cash advances, etc.) are allowed, but they cannot be used to delay wages unreasonably or to impose unauthorized deductions.
Employers may temporarily withhold the portion reasonably necessary to cover documented accountabilities—after due process—but should release the undisputed balance promptly.
Prolonged or blanket withholding (“no clearance, no pay at all”) without lawful basis risks wage law violations and penalties.

5) Timelines That Matter

Final pay release: Commonly within 30 days from separation (earlier if company policy/CBA says so).
COE: Issue upon request, typically within 3 working days.
Authorized cause terminations: Employer must give 30-day prior written notice to both employee and DOLE.
Prescriptive periods:
- Money claims (wages, 13th-month, separation pay): 3 years from when the claim accrued.
- Illegal dismissal: generally 4 years (as a violation of a right), though backwages and money components still follow money-claim rules for computation; consult counsel for strategy.

6) Practical Checklist for Employees

Assemble documents
- Employment contract/handbook/CBA
- Payslips, time records, sales/commission reports
- Company policies on leave conversion and bonuses
- Resignation letter or termination notice; clearance form
- Any emails/texts acknowledging amounts due
Compute your entitlements (working sheet)
- Unpaid wages + OT/premiums actually worked
- Pro-rated 13th-month: (Basic salary earned Jan–Dec ÷ 12)
- Leave conversion per policy
- Separation pay, if applicable
- Less lawful deductions only
Send a concise demand (see template below) giving a reasonable deadline (e.g., 7–10 days).
Escalate via DOLE SEnA (conciliation-mediation) if unpaid after your deadline.
If unresolved, file a case with the NLRC Labor Arbiter for money claims and, if applicable, illegal dismissal. You may claim 6% legal interest from default and attorney’s fees (commonly 10%) when litigation is necessary.

7) Practical Checklist for Employers

Audit promptly on separation; target ≤30 days release.
Pay undisputed amounts even if some items remain under review.
Document any chargeable accountabilities, get written consent where the law requires, and observe due process.
Compute 13th-month accurately; treat managers per policy, and rank-and-file per P.D. 851.
Issue COE quickly; avoid conditioning COE on waivers.
Use SEnA in good faith to settle disputes early.

8) Common Scenarios

A. Resigned employee with sales commissions

Due: unpaid wages, pro-rated 13th-month (including commissions if wage-integrated), leave conversion per policy.
Not due: separation pay (resignation, absent contrary policy).
Tip: Show that commissions are regular wage components (e.g., policy, payslip breakdown).

B. Termination for just cause (e.g., serious misconduct)

Due: unpaid wages to last day, pro-rated 13th-month, leave conversion per policy.
Not due: separation pay (as a rule).
Caution: Employer still must observe twin-notice and hearing; due process lapses can lead to nominal damages.

C. Redundancy or retrenchment

Due: separation pay (rates above), unpaid wages, pro-rated 13th-month, leave conversion per policy.
Process: 30-day prior notice to employee and DOLE; proof of good faith/business necessity (for retrenchment).

D. Clearance with unreturned laptop

Employer may charge the fair, documented value (or agreed depreciated value) after due process and written consent for deduction; cannot withhold all pay indefinitely. Pay the net immediately and continue to pursue recovery for the balance if any.

9) Remedies, Step-by-Step

Step 1: Internal demand

Write HR/payroll citing your itemized computation and a deadline.

Step 2: DOLE SEnA (Single-Entry Approach)

File a Request for Assistance (RFA) at the DOLE Regional/Field Office covering the workplace.
A neutral officer will facilitate conciliation-mediation; many cases settle here quickly (often with an agreed release schedule).

Step 3: Formal case

NLRC Labor Arbiter has original jurisdiction over most money claims and illegal dismissal cases.
You may claim legal interest (6% p.a.) from default until full payment and attorney’s fees when litigation was necessary.
DOLE field inspection is another route if there are widespread compliance issues (visitorial powers).

Step 4: Execution

If you win and the employer still doesn’t pay, pursue writ of execution against the employer’s assets and garnishable accounts.

10) Evidence That Helps You Win (or Avoid a Case)

Payslips and bank credits (to show underpayment or non-payment)
Timekeeping and production/sales reports (to prove hours or commissions earned)
Company policy/CBA on leave conversion, bonuses, and clearance
Notices (resignation/termination), memoranda, COE request
Your demand letter and proof of delivery (email timestamps, registry receipts)

11) Frequently Asked Questions

Q: Can my employer refuse to pay my 13th-month because I resigned? A: No. 13th-month is pro-rated based on actual basic salary earned in the calendar year.

Q: My company says “no clearance, no last pay.” Is that legal? A: Employers may operate clearance procedures, but they cannot unreasonably delay all final pay or make blanket withholdings. Only lawful, documented deductions are permitted; undisputed amounts should be released.

Q: I was terminated for cause. Do I still get separation pay? A: Generally no. But you still get unpaid wages and pro-rated 13th-month, and any cash-convertible leaves per policy.

Q: How far back can I claim unpaid 13th-month or last pay? A: Three (3) years from when the claim accrued (money-claim prescriptive period).

Q: Is 13th-month tax-free? A: Non-taxable up to ₱90,000 (combined cap with “other benefits”) in a year; any excess is taxable.

12) Simple Demand Letter Template (Fill-in-the-Blanks)

Subject: Final Pay and Pro-Rated 13th-Month – Demand for Release To: HR/Payroll – $Company Name$ From: $Your Name$, $Position$ Date: $Date$

I separated from the company effective $Last Working Day$. As of today, my final pay and pro-rated 13th-month remain unpaid. My computation is as follows:

Unpaid wages (from $dates$): ₱$amount$

Pro-rated 13th-month: ₱$amount$ (Basic salary earned ₱$amount$ ÷ 12)

Leave conversion (per policy/CBA): ₱$amount$

Separation pay (if applicable): ₱$amount$ Subtotal: ₱$amount$ Less lawful deductions: ₱$amount$ (itemize) Net due: ₱$amount$

Kindly release payment within $7–10$ calendar days of receipt of this letter and issue my COE. Otherwise, I will seek assistance through DOLE SEnA and, if necessary, file before the NLRC, including claims for legal interest and attorney’s fees. Thank you.

13) Key Takeaways

You are entitled to your final pay and pro-rated 13th-month after separation—resigned or terminated.
Clearance cannot justify indefinite withholding or unauthorized deductions.
Use a paper trail, compute precisely, and escalate via SEnA → NLRC within the 3-year prescriptive period for money claims (and 4 years for illegal dismissal).
Don’t overlook tax treatment and interest—they often add up.

If you want, tell me your facts (dates, pay, policies), and I’ll compute a clean, itemized last-pay and 13th-month worksheet you can attach to your demand.