How final pay is computed in the Philippines: what is included and when it is due

What final pay is and when it must be released

DOLE Labor Advisory No. 06, series of 2020 (LA 06-20), issued on 31 January 2020, defines final pay, last pay, or back pay as the sum of all wages or monetary benefits due to an employee regardless of the cause of the termination of employment. Whether you resigned or were dismissed or retrenched, you are owed what you already earned.

The advisory says final pay must be released within thirty (30) days from the date of separation or termination of employment, unless there is a more favorable company policy, individual agreement, or collective agreement.

What goes into final pay

LA 06-20 lists the following items, including but not limited to:

• Unpaid salary you already earned, up to your last day.
• Cash conversion of unused service incentive leave under Article 95 of the Labor Code.
• Cash conversion of other unused vacation, sick, or other leave, but only if a company policy or an individual or collective agreement provides for it.
• Pro-rated 13th month pay under Presidential Decree No. 851.
• Separation pay under Articles 298 and 299 of the Labor Code, as renumbered, or under a company policy or agreement, if applicable.
• Retirement pay under Article 302 of the Labor Code, if applicable.
• Refund of income tax withheld in excess of what is due, if applicable.
• Other pay promised in an individual or collective agreement.
• Cash bonds or deposits that must be returned to you.

How pro-rated 13th month pay works

Under PD 851 and DOLE rules, rank-and-file employees who worked at least one month in the calendar year are entitled to 13th month pay of at least one-twelfth (1/12) of the total basic salary earned in that year. If you resign or are separated before it is paid, you get a proportionate amount: 1/12 of the basic salary you earned from the start of the calendar year (or from your start date, if later) up to your last day.

Basic salary does not include overtime, premium pay, night shift differential, holiday pay, cost of living allowance (COLA), or the cash value of unused leave, unless your employer treats them as part of basic salary by agreement, practice, or policy. Unpaid absences lower the salary earned. If part of your 13th month pay was paid earlier in the year, only the balance is left.

Unused leave and separation pay

Service incentive leave (SIL) is five days of paid leave a year for employees with at least one year of service (Article 95). Exceptions include employees who already get at least five days of paid vacation leave, establishments regularly employing fewer than ten employees, managerial employees, and field personnel. Unused SIL is converted to cash at your salary rate at the time of conversion, and DOLE's handbook shows SIL for part of a year may be counted pro rata. Other leave is converted to cash only if company policy, a contract, or a CBA says so.

Separation pay is due only when the law, a contract, a CBA, or company policy or practice provides it. Under Article 298, installation of labor-saving devices or redundancy gives at least one month pay or one month pay for every year of service, whichever is higher. Retrenchment to prevent losses, or closure not due to serious losses, gives one month pay or at least half a month pay for every year of service, whichever is higher. Under Article 299, termination because of disease gives at least one month salary or half a month salary for every year of service, whichever is greater. A fraction of at least six months counts as one year.

As the Supreme Court held in PHIMCO Industries v. NLRC (G.R. No. 118041, 1997), voluntary resignation carries no separation pay unless the employment contract or CBA provides it or it is an established company practice or policy. Dismissal for a just cause generally carries none either.

Taxes, deductions, and clearance

If more tax was withheld during the year than is due, LA 06-20 lists the refund of the excess as part of final pay. When employment ends before the year is over, the BIR requires your employer to give you BIR Form 2316 on the same day the last payment of wages is made. Separation pay received because of death, sickness, other physical disability, or any cause beyond your control is excluded from gross income under Section 32(B)(6)(b) of the Tax Code; DOLE's handbook applies this to retrenchment.

Deductions are limited. Article 113 of the Labor Code allows them only for insurance premiums with your consent, union dues where check-off is authorized, and cases authorized by law or DOLE regulations. DOLE Labor Advisory No. 11, series of 2014 also allows deductions you authorize in writing for payment to a third person. It treats deductions for uniforms, cash deposits for loss or damage, protective equipment, and training fees as unauthorized, except loss or damage deductions in private security agencies under set conditions. Ask for the legal basis of every deduction.

Many employers require clearance first. In Milan v. NLRC (G.R. No. 202961, 2015), the Supreme Court said an employer may withhold terminal pay and benefits until the employee returns company property. Return everything early and keep the receipts.

Worked example with fictional numbers

Maria is a fictional rank-and-file employee earning a monthly basic salary of PHP 26,100, paid twice a month, with a payroll daily rate of PHP 1,200. She resigned with proper notice; her last day was 30 June. She had two days of unpaid leave in March and two days of unused SIL, and her company gives no separation pay on resignation.

A tax refund or tax still due depends on the employer's final tax computation, so it is not shown.

• Unpaid salary for 16 to 30 June: PHP 26,100 ÷ 2 = PHP 13,050
• Basic salary earned from January to June: 6 × PHP 26,100 = PHP 156,600, less 2 unpaid days × PHP 1,200 = PHP 2,400, which leaves PHP 154,200
• Pro-rated 13th month pay: PHP 154,200 ÷ 12 = PHP 12,850
• Unused service incentive leave: 2 days × PHP 1,200 = PHP 2,400
• Separation pay: none, because she resigned and no contract or policy provides it
• Total before tax adjustment and any lawful deductions: PHP 13,050 + PHP 12,850 + PHP 2,400 = PHP 28,300
• Release deadline: within 30 days from 30 June, so by 30 July

Your Certificate of Employment

Under LA 06-20, your employer must issue a Certificate of Employment within three (3) days from your request. It states when you were hired and separated and the type or types of work you did. You can ask for one even while still employed. Make the request in writing and keep a copy.

If your final pay is late or wrong

First, ask HR in writing for the itemized computation and release date. If 30 days pass or you dispute the amount, LA 06-20 says the claim goes to the nearest DOLE Regional, Provincial, or Field Office covering the workplace, for conciliation. This goes through the Single Entry Approach (SEnA): you file a Request for Assistance (RFA), and a desk officer helps both sides try to settle within a 30-day conciliation-mediation period. If there is no settlement, the case can be referred to the proper DOLE office or agency, such as a labor arbiter.

Under the 2025 SEnA rules (DOLE Department Order No. 249, series of 2025), you may also file at the DOLE office nearest your home, or file online. The DOLE Hotline is 1349.

Talk to a lawyer, your union, or DOLE before signing anything if you believe you were forced to resign or dismissed without valid cause, or if you are pressed to sign a quitclaim or release to get your final pay.

Common questions