Did you know that as an employee, you have the right to receive your final pay or last pay once you resign or were unlawfully terminated at a company? Whether you chose to leave or were let go, your employer is obliged to compensate you for all the work you rendered prior to your departure. It is your right to be paid correctly. 

Calculating your final pay may be complex since the amount varies depending on factors like unused leave credits, deductions, and whether the company offers financial incentives or not.

If you have been terminated, it is also common to feel confused about the difference between final pay and separation pay, and which one you are entitled to receive.

In this blog, we will break down what is included and excluded in your last pay, how to compute it using a simple formula, and what documents you should expect to receive after leaving your job.

What is a Final Pay?

final pay or last pay

A final pay is also known as a last pay and back pay. It is the sum or totality of all the accrued wages or monetary benefits, as defined by the Department of Labor and Employment (DOLE). It is also the compensation an employee receives from the company due to resignation, termination, or retirement.

Can I Get Final Pay If I Resign?

Yes, you are eligible for final pay if you resigned or voluntarily left the company. This covers the unpaid last salary, earned and unused vacation leave (if the company has leave cash conversion policies), tax refund (if applicable), pro-rated 13th month pay, and other accrued entitlements (if applicable).

Can Terminated Employees Receive Final Pay?

Yes, you are still entitled to receive final pay if you are terminated for just causes. This includes your unpaid last salary, pro-rated 13th month pay, and tax refund (if applicable). If you have been terminated due to authorized causes, then you are entitled to receive separation pay or severance pay, and will likewise form part of your  final pay. 

Am I Entitled to Receive Final Pay Without Rendering the 30-Day Notice Period?

Resignation is the employee’s voluntary act to terminate their employment. According to the Department of Labor and Employment (DOLE), employees are required to comply with the 30-day render notice. However, the render notice may not be necessary under certain situations such as severe mistreatment, unsafe working conditions, or health-related concerns.

If you fail to comply with 30-day notice, you will not be entitled to receive your final pay and other benefits. In other cases, your employer may hold you liable for damages.

What Does Final Pay Include?

According to the Labor Advisory No. 6 Series of 2020, the payment of final pay includes and not limited to:

  • Unpaid earned salary of the employee;
  • Cash conversion of unused Service Incentive Leave (SIL);
  • Cash conversions or remaining unused vacation leave, sick leave, and other leaves depending on the company policy, individual or collective agreement;
  • Pro-rated 13th-month pay;
  • Separation pay;
  • Retirement pay;
  • Income tax claim for the excess of taxes withheld;
  • Other types of compensation stipulated in an individual or collective agreement; and 
  • Cash bond/s or any kind of deposit/s due for return to the employee.

What is Deducted from Final Pay?

Final pay does not include your Social Security System (SSS) and PhilHealth contributions. Your employer can also deduct certain expenses and loan amortization from your last paycheck if you have agreed to it. These deductions happen because of your company liabilities, such as lost or damaged office equipment, or if you still have pending loans or cash bonds to pay.

How to Compute Final Pay?

Before computing your final pay, you must first get the total amount of your unpaid salary, last salary balance, unused leave credits, pro-rated 13th-month pay, and deductions by using the following formulas:

Unpaid Salary 

Daily Rate x Unpaid Days = Unpaid Salary

Tax Refund

(if applicable)

Overwithheld Taxes (Total taxes withheld less tax due upon annualization of salaries)  

Unused Leave Credits

Daily Rate x Number of Unused Leave Days 

Pro-rated 13th Month Pay

Total basic salary earned for the year  ÷ 12

Deductions

Outstanding Loan Balance, Government Contributions (SSS, PhilHealth, Pag-Ibig), and Company Liabilities (e.g. laptops, phones, car, etc.)

After getting the total amount of the following, use this formula to get the amount of your final pay:

(Unpaid Salary + Unused Leave Credits + Pro-rated 13th Month Pay + Tax Refund (if applicable) – Deductions = Amount of Final Pay

How Long Does Final Pay Take?

According to DOLE Labor Advisory No. 6, the final pay or last pay should be released within thirty (30) days from the date of separation or termination of employment, unless there is a more favorable company policy, individual or collective agreement.   However, final pay may be released beyond the 30 days period if the employee has not been cleared of accountabilities from the company, e.g., unreturned company assets/equipment. etc.

How Do I Ask for Final Pay to My Employer?

talking to an employer

As an employee, you have the right to receive your final pay as payment for the work you have done until your last day of employment. 

Upon your resignation or termination, talk to the human resources (HR) department to know if there are any instructions and clarifications regarding your final pay. You may also inform them of your preferred mode of payment. More importantly, ensure to complete your clearance form as this indicates the release of your final pay.

What is the Difference between Final Pay and Separation Pay?

Final pay is the total amount of last salary and benefits an employee receives from their employer after they leave. While separation pay or severance pay is a monetary benefit that employees receive from the company due to the reasons specified under the Labor Code of the Philippines.

Who May Receive Separation Pay?

Under Articles 298 and 299 of the Labor Code, employees who got terminated because of the following reasons are entitled to receive separation pay:

  • Retrenchment 
  • Redundancy
  • Closure of business operations
  • Suffering from a disease not treatable within six (6) months

Note that separation pay is not provided if the company closes due to bankruptcy.

What Documents Are You Entitled to Receive Upon Leaving a Company?

Aside from your back pay or final pay, your employer must issue these documents upon your leave from the company:

  • BIR Form 2316 includes your income and the corresponding taxes that your employer withheld for your income.
  • Certificate of Employment (COE) contains your personal information and verifies your employment history with your company. Your employer should give you this certificate three (3) days after you have requested it.
  • Release, Waiver or Quitclaim will be issued to you upon the release of your final pay. This document declares that your employer will not be liable for any monetary claims, illegal dismissal, and legal issues. 

Additionally, you will be required to surrender the computer or laptop, office supplies, and other equipment that the company issued for you to use. Remember to remove any of your personal information from your company-issued devices beforehand to protect your privacy.

Need further information and assistance regarding Final Pay or Back Pay? Talk to our team at Duran & Duran-Schulze Law in Bonifacio Global City, Taguig, Philippines to know more about the requirements and process. Call us today at (+632) 8478 5826 or +63 917 194 0482, or send an email to info@duranschulze.com for more information.

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