Final Pay in the Philippines: What’s Included and How to Compute It
What goes into your back pay after resigning or being laid off, when it must be released, how separation pay is computed, and which parts are taxed.
Updated
Final pay, often called back pay, is everything your employer still owes you when you leave the company. It doesn’t matter whether you resigned, finished a contract, or were laid off: you are entitled to the money you already earned. What changes with the reason for leaving is whether separation pay is added on top.
When it must be released
Under DOLE Labor Advisory No. 06, series of 2020, final pay must be released within 30 days from the date of separation, unless your company policy or a collective bargaining agreement gives you a faster or more favorable schedule. The same advisory requires employers to issue a Certificate of Employment within 3 days of your request.
Most companies ask you to complete a clearance first, returning your ID, laptop and other property and settling cash advances. Clearance is a normal step, but it shouldn’t be used to hold your pay well past the 30 days.
What final pay includes
1. Unpaid salary
Pay for the days you worked after your last payday. If your last payday was the 15th and your last day was the 22nd, you are owed the working days in between.
To get a daily rate from a monthly salary, multiply by 12 and divide by the number of days a year you are paid for: 261 for a 5-day work week, 313 for a 6-day week, or 365 if you are paid for every day of the year.
2. Prorated 13th month pay
Every rank-and-file employee who worked at least a month during the year is entitled to 13th month pay under PD 851, even if they leave before December. The prorated amount is your total basic salary earned this year, divided by 12, minus any 13th month already paid to you this year.
3. Unused leave converted to cash
Employees who have served at least one year are entitled to 5 days of Service Incentive Leave (SIL) a year under the Labor Code, and unused SIL must be converted to cash. Vacation and sick leave above that are converted only if your company policy or contract says so, which is common.
4. Separation pay, if the law requires it
Separation pay is required only for authorized causes under Articles 298 and 299 of the Labor Code:
| Reason for separation | Separation pay |
|---|---|
| Redundancy, or installation of labor-saving devices | 1 month’s pay per year of service, or 1 month’s pay, whichever is higher |
| Retrenchment to prevent losses, or closure not due to serious losses | ½ month’s pay per year of service, or 1 month’s pay, whichever is higher |
| Disease that can’t be cured within six months | ½ month’s pay per year of service, or 1 month’s pay, whichever is higher |
| Resignation, end of contract, or dismissal for just cause | None required by law |
| Closure due to serious business losses | None required by law |
A fraction of at least six months counts as one whole year. Three years and seven months of service counts as four years; three years and five months counts as three.
Some companies pay separation pay to resigning employees anyway, as a policy or a term of the contract. If yours does, it is owed to you like any other benefit.
5. Deductions
Your employer can deduct outstanding company loans, cash advances, and the value of unreturned company property, as long as the deduction is allowed by law or you agreed to it.
Worked example
Lea earns ₱25,000 a month on a 5-day work week. She resigns after 3 years and 7 months. This year she worked 9 months, has 5 working days unpaid since her last payday, and 5 days of unused convertible leave.
- Daily rate: ₱25,000 × 12 ÷ 261 = ₱1,149.43
- Unpaid salary: 5 days × ₱1,149.43 = ₱5,747.13
- Prorated 13th month: ₱25,000 × 9 ÷ 12 = ₱18,750.00
- Unused leave: 5 days × ₱1,149.43 = ₱5,747.13
- Separation pay: none, because she resigned
Her final pay is ₱30,244.26.
If Lea’s job had instead been declared redundant, her 3 years and 7 months would count as 4 years, adding 4 × ₱25,000 = ₱100,000 in separation pay, for ₱130,244.26 in total. If the company had retrenched her, she would get ½ month per year: 4 × ₱12,500 = ₱50,000, for ₱80,244.26.
For someone retrenched after just one year, ½ month’s pay would be only ₱12,500, so the one-month minimum applies and separation pay is ₱25,000.
Is final pay taxed?
- Separation pay received because of causes beyond your control, such as redundancy, retrenchment, closure or disease, is tax-exempt.
- 13th month pay and other benefits are tax-free up to ₱90,000 a year combined.
- Your last salary is taxable as usual. Your employer reconciles the year’s tax in your final computation, so you may get a refund or owe a little more.
If your final pay is late or short
Start by asking HR in writing for a breakdown of your final pay. If it is past 30 days, or the amounts don’t match what you are owed, you can file a request for assistance through DOLE’s Single Entry Approach (SEnA), which aims to settle labor disputes quickly without a formal case.
Use the Final Pay Calculator to check your own numbers, and the 13th Month Pay Calculator if you only need the prorated bonus.