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Payroll: Guidelines in Final Pay

What is Final Pay?

Employees receive salary and benefits in accordance with their agreement with the company. Accordingly, once an employee resigns, they are entitled to receive compensation they have worked from the last time they received their salary, up to the day they resigned from the company. This compensation is called Final Pay, also known as last pay or back pay.

Final Pay is composed of, but not limited to the following:

  1. Unpaid Earned Salary – number of days an employee worked until their most recent cut-off or salary.

  2. Leave Conversions - any unused Service Incentive Leaves (SILs) and other Leaves provided by the company is converted to cash. This is in accordance with Article 95 of the Labor Code. Note: If the company only complies with the minimal five (5) days of service incentive leave (SIL) requirements, employees’ unused SILs are convertible to cash.

  3. Prorated 13th Month Pay – According to Presidential Decree No. 851 (PD 851), employees are entitled to 13th-month compensation after resignation. The amount of 13th month pay is depending on how many months an employee is working for the company before the year ends.

  4. Separation Pay - Only those employees who were fired from their jobs for reasons other than their own negligence or fault are eligible for separation pay. The separation pay consists of either ½ month or 1 month pay per year of service, depending on the authorized cause under the Articles 298-299 of the Labor Code. Note: Employees who resign are not entitled to Separation Pay.

  5. Retirement Pay – This is for employees who are 60 years of age and older. They must receive retirement benefits equal to at least ½ of their annual wage in accordance with Article 302 of the Labor Code.

  6. Tax Refunds - Employees will be reimbursed for their tax refunds if they left their position before the 12th month of the year. If their tax dues are less than the total of their withheld taxes, they are entitled to tax refund.

When is Final Pay given to the resigned/terminated employee?

It should be emphasized that businesses are required to provide workers their last paycheck within 30 days of the time of their separation or termination. This is in accordance with Labor Advisory No. 06-20 from the DOLE.

Are Employees Entitled to Final Pay in the absence of Clearance?

Employers have the legal authority to withhold an employee's final paycheck in order to cover any unpaid debts, obligations, or accountabilities to the company. According to the unjust enrichment principle, the employee's benefits in this situation are not decreased; rather, they are simply subject to the requirement that they bring back the employer's property.


The nearest DOLE Regional/Provincial/Field Office with authority over the workplace must be consulted in the event that a problem or dispute arises regarding the payment of final pay or the issuance of a certificate of employment.

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