Under DOLE Labor Advisory No. 06, s. 2020, final pay must be released within 30 days from separation, unless a more favorable company policy or agreement applies. It includes unpaid salary, prorated 13th month pay, cash conversion of unused service incentive leave, any tax refund, and separation or retirement pay where applicable. A certificate of employment must be issued within 3 days of the employee's request. Unpaid wage claims prescribe after 3 years.
What Is Final Pay?
Final pay (also called back pay) is the total amount an employer owes an employee when employment ends — whether by resignation, termination, end of contract or retirement. It settles everything earned but not yet paid.
The rules come from DOLE Labor Advisory No. 06, Series of 2020 (Guidelines on the Payment of Final Pay and Issuance of Certificate of Employment).
When Must Final Pay Be Released?
Final pay must be released within 30 days from the date of separation, unless a company policy, individual agreement or collective bargaining agreement provides a shorter (more favorable) period.
Employers may require the employee to complete clearance first, and may withhold amounts to answer for accountabilities that are documented and already due, such as unreturned equipment or an outstanding company loan. Clearance should not be used to delay release indefinitely.
What Is Included in Final Pay?
| Component | When it applies |
|---|---|
| Unpaid salary up to the last day worked | Always |
| Prorated 13th month pay | Rank-and-file employees who worked at least one month in the year |
| Cash conversion of unused service incentive leave | Employees with at least one year of service (5 days SIL a year), plus any convertible leave under company policy |
| Tax refund from year-end annualization | When tax withheld during the year exceeds the actual tax due |
| Separation pay | Authorized-cause terminations (e.g., redundancy, retrenchment, closure not due to losses), or if the contract or policy grants it |
| Retirement pay | Employees retiring under the law or a company retirement plan |
| Other benefits | Anything owed under the contract, company policy or CBA |
Less: any authorized deductions, such as the employee's share of statutory contributions for the last payroll and documented accountabilities.
How to Compute Final Pay: Worked Example
Employee resigns effective October 15, 2026. Monthly basic salary: ₱24,000, paid semi-monthly. Daily rate (using 261 working days a year): ₱24,000 × 12 ÷ 261 = ₱1,103.45.
- Unpaid salary for October 1–15 (one semi-monthly cutoff): ₱12,000
- Prorated 13th month pay: basic salary earned January 1 – October 15 = ₱24,000 × 9.5 = ₱228,000; ÷ 12 = ₱19,000
- Unused service incentive leave: 3 days × ₱1,103.45 = ₱3,310.35
- Gross final pay: ₱12,000 + ₱19,000 + ₱3,310.35 = ₱34,310.35
- Less the employee share of SSS, PhilHealth and Pag-IBIG for the last cutoff and any tax adjustment from year-end annualization.
The 13th month portion is tax-exempt as long as it stays within the ₱90,000 annual ceiling for 13th month pay and other benefits. See the 13th month pay guide for prorating rules.
What Should an Employee Do if Final Pay or Wages Are Withheld?
If wages or final pay are not released on time, the usual path is:
- Ask in writing — email or letter to HR, stating the amounts and dates.
- File a request for assistance under SEnA (Single Entry Approach) at the nearest DOLE field office or online. SEnA is a mandatory 30-day conciliation-mediation step under Republic Act No. 10396, meant to settle the claim quickly without a formal case.
- If not settled, the case is referred to the proper office — DOLE for labor standards cases, or the NLRC Labor Arbiter for money claims that fall under its jurisdiction.
Money claims arising from employment must be filed within 3 years from when the cause of action arose (Labor Code, Article 306, formerly Article 291).
How to Process Final Pay: Employer Checklist
- Confirm the effective date of separation and the reason.
- Run clearance and list any documented accountabilities.
- Compute unpaid salary, prorated 13th month, leave conversion and any separation or retirement pay.
- Annualize the employee's withholding tax and compute any refund or balance due.
- Release final pay within 30 days, with a written breakdown.
- Issue BIR Form 2316 for the year (see our BIR 2316 guide) and a certificate of employment within 3 days of request.
Kinsweldo computes prorated 13th month pay, leave balances and tax annualization from your payroll history, so a final pay computation takes minutes. It's free for up to 5 employees.
Frequently Asked Questions
Within 30 days from the date of separation, under DOLE Labor Advisory No. 06, s. 2020, unless a company policy or agreement gives a shorter period.
Yes. Resigned employees are entitled to unpaid salary, prorated 13th month pay, convertible unused leave and any tax refund. Separation pay generally does not apply to voluntary resignation unless the contract or company policy grants it.
Employers may require clearance and may withhold amounts for documented accountabilities that are already due. They should still settle within the 30-day period and not use clearance to delay payment indefinitely.
Three years from when the cause of action arose, under Article 306 (formerly Article 291) of the Labor Code. Claims usually start with a SEnA request at DOLE.
Unpaid salary is taxable as regular compensation. Prorated 13th month pay is tax-exempt within the ₱90,000 ceiling. Separation pay due to causes beyond the employee's control, such as redundancy, is generally tax-exempt.
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