Understanding Final Pay in the Philippines

At some point, you’re bound to move on from your current company. Whether you’re leaving with fond farewells or under a dark cloud, you’re entitled to the remuneration you’ve worked hard for.

As you seek greener pastures, you may ask what final pay is and how to compute it properly.

The truth is, computing final pay in the Philippines isn’t as straightforward as it seems. After all, each member of your team receives different basic pay amounts. Moreover, your colleagues are entitled to benefits like redundancy pay, bonuses, and other financial incentive schemes your company offers.

We’ve put together a simple guide to help you understand final pay better and get paid for your work until the end.

What is Final Pay?

Final pay, also known as back pay, refers to how much a company owes you after leaving it. It’s the last salary your employer gives you, regardless of why you’re leaving the company.

Besides an employee’s earned salary, pro-rated 13th-month pay, and amounts stated in a relevant company policy, collective bargaining agreement, or employment contract, the law doesn’t require an employer to pay any additional amounts to a resigning employee.

Here’s a list of what your final pay should include:

• Unpaid earned salary. Your pro-rated last salary is equal to how many days you’ve worked until the most recent cut-off.
• Leave conversions. These conversions apply to unused service incentive leaves (SILs) and other leaves your company offers.
  • If your employer observes only the minimum five (5) days of Service Incentive Leaves (SILs) requirement, your unused SILs are convertible to cash.
  • If your company offers vacation and sick leaves, that means your employer met the SIL requirement. As a result, your company’s leave conversion policy applies, whether or not those other leaves are convertible to cash.
• Pro-rated 13th month pay. After leaving a company, you're entitled to 13th month pay. The amount depends on how many months you worked for the company before the year ends.
• Separation pay. If you get laid off or stop working because of illness, you should receive:
  • Separation pay equal to at least your one month’s pay or one month’s pay for every year of service; OR
  • Separation pay equal to at least your one month’s pay or one-half month’s salary for every year of service
• Retirement pay. Some employers include retirement pay in a worker’s back pay. Employees aged 60 years old must receive retirement pay equal to at least one-half of their salary for every year of service.
• Tax refunds. If you resign before the 12th month of the year, you’ll receive a refund on your tax payments if your tax dues are less than the sum of your withheld taxes.

Additionally, your final pay should cover other types of compensation specified in an individual or collective agreement and cash bonds or deposits you’ve made.

What Will Your Employer Deduct From Your Final Pay?

For one, your final pay excludes your SSS and PhilHealth contributions. Employers can also deduct certain expenses and loan amortizations from your last paycheck if you’ve agreed to it. These deductions happen because of company liabilities like lost or damaged office equipment or if you still have pending loans or cash bonds to pay.

As an outgoing employee, you have the right to receive your final pay as payment for the work you’ve done until your last day with your company. Talk to your immediate supervisor or HR department about your final pay and the documents your next job needs.

What Else Are You Entitled To?

Along with your final pay, you should ask your employer to issue these documents.

• BIR Form 2316 - The BIR Form 2316 includes your income and the corresponding taxes that your employer withheld from you during the year. The document proves that you’ve earned income and indicates the taxes withheld for your income.
• Certificate of Employment - This certificate contains your personal information and verifies your employment history with your company. Your employer should give you a certificate of employment three days after you’ve requested it.
• Release, Waiver, or Quitclaim - Typically, an employer will require you to sign and execute a release, waiver, or quitclaim upon releasing your final pay, certificate of employment, and BIR Form 2316. This document declares that the company won’t be liable for monetary claims, illegal dismissal, and other legal issues.

On top of obtaining all necessary documents, visit HR and your IT department to surrender computers, office supplies, or other equipment. Remove your personal information from your company-issued devices beforehand to protect your privacy.

When Can You Claim Your Final Pay?

DOLE (the Department of Labor and Employment)’s final pay guidelines, or Labor Advisory No. 06-20, requires employers to give workers their last pay within 30 days after their separation or termination date.

However, companies can remit a resigned employee’s final pay before or beyond the mentioned period. Their current policies or individual or collective agreements determine when you’ll receive your back pay.

If you’re still waiting for your final pay, contact your HR department to expedite its release.

How is Final Pay Different from Separation Pay?

The terms final pay and separation pay describe the benefits you’ll receive upon resigning. Yet, some misuse and use these terms interchangeably.

To avoid confusion, let’s discuss separation pay and how it’s different from final pay.

What is Separation Pay?

Employers give separation pay to employees who resign for any of these reasons:

• Retrenchment
• Redundancy
• Closure of all or a part of the business establishment not due to serious business losses 
• Termination due to disease 
• Installation of labor-saving devices (such as robotic installers and other gadgets that eliminate human participation in a manual process)

Remember, though, that employers can’t give separation pay if they close their businesses after gaining serious losses.

When Are You Exempt From Receiving Separation Pay?

Conversely, you’re not entitled to receive separation pay because of:

• Serious misconduct
• Willful disobedience
• Fraud or breach of trust
• Gross & habitual neglect of duties
• Commission of crime against the employer or other personnel
• Other analogous causes, such as terminable violations of the company code of conduct

That said, resigning employees are only entitled to separation pay if company policy allows it. For example, the policy states that employees can receive a separation benefit. If you’re qualified for the benefit, your employer will include it in your final pay computation.

How Do You Compute Your Final Pay?

Your last day may fall before the last day of the month, meaning you’ll have to calculate how much your employer owes you.

For your back pay computation, let’s say you earned a monthly basic salary of ₱25,000 over six months. Get your daily rate with this formula:

Monthly basic salary x 12 months ÷ 261 working days (if you get two rest days per week) = daily rate

Here’s how we calculated the daily rate:

₱25,000 x 12 ÷ 261 = ₱1,149.43

Next, get your total earnings with your unpaid salary, pro-rated 13th-month pay, leave conversions, and tax refund (if applicable). Your computation should look like this:

After computing your total earnings, add your total deductibles. Here’s a sample breakdown:

Note: We used the formulas below to compute our sample withholding tax.

1. Monthly salary - total deductions = taxable income
2. (Taxable income - compensation level) x taxable rate = n% over compensation level
3. Fixed tax + n% over compensation level = withholding/income tax

Here’s how we calculated the withholding tax.

1. ₱25,000 - ₱1,725 (₱1,125 + ₱500 + ₱100) = ₱23,275
2. ₱23,275 - ₱20,833 = ₱2,442 x 0.15 = ₱366.30 (We used the 15% over ₱20,833 rate for salaries over ₱20,833 in the BIR’s revised withholding tax table for 2023.)
3. ₱0.00 + ₱366.30 = ₱366.30

Finally, compute your final pay with this formula:

Total earnings - total deductions = net final pay

With our sample total earnings and total deductibles, we get:

₱35,486.45 - ₱2,091.30 = ₱33,394.70

Get Accurate Final Pay Calculations

Calculating final pay in the Philippines is complicated, with risks of human error. Incorrect computations cause delayed payments that frustrate outgoing employees. Hence, knowing how to calculate final pay properly is crucial to accurate, prompt payments and graceful exits.
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About the Author

Atty. Lester Nazarene Ople

Head of Business Development and Legal Counsel

Lester Nazarene Ople has been an HR professional since 2007. He is currently the Head of Business Development and an HR Evangelist for Sprout Solutions. Lester is also a fellow at the Arellano Law Center for Legal Education and Research and faculty at the Philippine Law School teaching Labor Law.