What is included in an employee's final pay in the Philippines?

Final pay includes: unpaid salary from the last payroll to the separation date, pro-rated 13th month pay, cash conversion of unused leave credits (if company policy allows), separation pay (if applicable for authorized causes), tax refund or collection from year-end annualization, and any other earned but unpaid benefits. Outstanding loan balances and authorized deductions are subtracted.

How many days does an employer have to release final pay after resignation?

Under DOLE Labor Advisory No. 06-20, employers must release final pay within 30 calendar days from the date of separation or termination, regardless of whether separation is voluntary (resignation) or involuntary (termination). There are no extensions to this deadline.

Can I withhold final pay until the employee returns company property?

Employers may require a clearance process, but this must be completed within the 30-day period. DOLE has clarified that the clearance process cannot be used to indefinitely delay final pay beyond 30 days. If property is not returned, the cost may be deducted from final pay only with the employee's written authorization.

How do I compute pro-rated 13th month pay for a mid-year resignation?

Use the standard PD 851 formula: total basic salary earned from January 1 (or hire date) to the separation date, divided by 12. For example, an employee earning P25,000/month who resigns on June 30 has earned P150,000 in basic salary; their pro-rated 13th month pay is P150,000 / 12 = P12,500.

What penalties does an employer face for late release of final pay?

Employees can file a complaint through the Single Entry Approach (SEnA) at the nearest DOLE office. If conciliation fails, the case is elevated to the NLRC. Employers may be ordered to pay the full amount plus potential damages for unreasonable delay, and may face administrative penalties.

Final Pay Computation in the Philippines: DOLE Rules, Deadlines, and Checklist

Final pay (also called "last pay" or "back pay") is the total amount an employer owes to a separated employee. It's one of the most common sources of labor complaints in the Philippines — DOLE receives thousands of SEnA requests annually for delayed or incomplete final pay.

This guide covers every component, the legal deadline, and a step-by-step computation checklist.

The 30-Day Rule

DOLE Labor Advisory No. 06-20 mandates that final pay must be released within 30 calendar days from the date of separation, regardless of the reason:

Separation Type	Deadline
Voluntary resignation	30 days from last day
Termination (just cause)	30 days from effective date
Termination (authorized cause)	30 days from effective date
End of contract	30 days from contract end
Retirement	30 days from retirement date

The 30-day period includes the clearance process. Employers cannot use incomplete clearance as a reason to extend beyond 30 days.

Final Pay Components

1. Unpaid Salary

Salary from the last payroll cutoff to the separation date.

Example: Employee earns P30,000/month (daily rate: P30,000 / 22 = P1,363.64). Last payroll covered up to March 15. Employee's last day is March 22.

Work days from March 16 to March 22: 5 days
Unpaid salary: P1,363.64 x 5 = P6,818.18

2. Pro-Rated 13th Month Pay

If the employee separates before December and hasn't received 13th month pay for the current year:

Pro-rated 13th Month = Total Basic Salary Earned This Year / 12

Example: Employee earning P25,000/month resigns on September 30.

Total basic salary earned (Jan-Sep): P25,000 x 9 = P225,000
Pro-rated 13th month: P225,000 / 12 = P18,750

If the employer already paid a mid-year 13th month advance (e.g., P12,500 in May), deduct that amount: P18,750 - P12,500 = P6,250 remaining.

3. Leave Conversion

Unused vacation leave credits converted to cash, if the company policy allows conversion:

Leave Conversion = Unused Convertible Leave Days x Daily Rate

Example: Employee has 8 unused vacation leave days. Daily rate is P1,363.64.

Leave conversion: 8 x P1,363.64 = P10,909.09

Note: Only leaves marked as "convertible" in company policy are included. Sick leave is typically not convertible.

4. Separation Pay (If Applicable)

Only required for authorized-cause terminations:

Cause	Rate	Computation
Redundancy	1 month/year	Monthly salary x years of service
Labor-saving devices	1 month/year	Monthly salary x years of service
Retrenchment	1/2 month/year	Monthly salary x 0.5 x years of service
Closure (no serious losses)	1/2 month/year	Monthly salary x 0.5 x years of service
Disease	1/2 month/year	Monthly salary x 0.5 x years of service

Voluntary resignation and just-cause termination do not require separation pay.

5. Tax Refund or Collection

Year-end annualization may result in a tax adjustment:

Refund: If the employee was over-withheld during the year (common for mid-year separations)
Collection: If the employee was under-withheld

This is computed by annualizing the employee's total compensation for the year and comparing actual tax due vs. tax already withheld.

Permitted Deductions from Final Pay

Employers may deduct the following from final pay:

Deduction	Basis
Outstanding loan balances	Active company or government-mandated loans
Government contributions	SSS, PhilHealth, Pag-IBIG for the final period
Withholding tax	BIR tax due for the final period
Property not returned	Only with employee's written authorization
Training bonds	Only if documented in a valid agreement

Important: Employers cannot deduct amounts without the employee's written consent, except for those mandated by law (taxes, government contributions).

Step-by-Step Final Pay Checklist

Determine the separation date and reason for separation
Complete the clearance process across all departments (Property, IT, Finance, HR, Government)
Compute unpaid salary from the last payroll to the separation date
Compute pro-rated 13th month pay (total basic earned / 12)
Compute leave conversion for unused convertible leave days
Compute separation pay if applicable (authorized causes only)
Run year-end tax annualization to determine refund or collection
Deduct outstanding loans and other authorized deductions
Prepare BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld)
Release final pay within 30 calendar days
Issue Certificate of Employment (COE) within 3 days of request

Worked Example: Complete Final Pay

Maria, P30,000/month, resigned June 15, hired January 2024 (2.5 years of service). 5 unused VL days. P8,000 outstanding company loan. Last payroll covered June 1-15.

Component	Computation	Amount
Unpaid salary	Already covered (June 1-15 is last payroll)	P0
Pro-rated 13th month	P30,000 x 5.5 months / 12	P13,750.00
Leave conversion	5 days x (P30,000 / 22)	P6,818.18
Separation pay	Not applicable (voluntary resignation)	P0
Gross final pay		P20,568.18
Less: Outstanding loan		(P8,000.00)
Less: Applicable taxes	Tax on 13th month excess (if any)	P0
Net final pay		P12,568.18

Certificate of Employment (COE)

Under DOLE Labor Advisory No. 06-20, employers must issue a COE within 3 calendar days from the employee's request. The COE must include:

Employee's full name
Date of hire and date of separation
Position/designation
Type of employment (regular, probationary, etc.)

The COE should state only facts — no subjective remarks about the employee's performance or character.

Common Final Pay Mistakes

Exceeding the 30-day deadline — The most common violation. Employers often delay clearance processing. Digitize your clearance workflow to avoid this.
Forgetting pro-rated 13th month — Even employees who resign in January are entitled to pro-rated 13th month pay for the days worked that month.
Deducting without written consent — Deducting the cost of unreturned property or training bonds without the employee's written authorization is illegal.
Not issuing BIR Form 2316 — Separated employees need this form for their annual income tax filing. It must be issued upon separation.
Refusing to issue COE — This is a common retaliation tactic that violates DOLE rules. The COE must be issued within 3 days of request, regardless of the reason for separation.

How TalinoHR Computes Final Pay

TalinoHR automates the final pay process end-to-end:

Automatic computation — Pro-rated 13th month, leave conversion, and remaining salary are calculated based on actual payroll data
Loan balance deduction — Outstanding loan balances are automatically pulled from the loans module and deducted
Clearance workflow — Auto-generated clearance checklist across 5 categories (Property, IT, Finance, HR, Government) with status tracking
Tax annualization — Year-end tax adjustment (refund or collection) is computed automatically using TRAIN Law brackets
BIR 2316 generation — Annual tax certificate generated from payroll data for the separated employee
30-day deadline tracking — The system tracks the separation date and alerts HR as the 30-day deadline approaches

No manual spreadsheets. No missed deadlines. Book a demo to see TalinoHR's final pay automation.