Disclaimer: The following discussion is for general informational purposes only and should not be taken as legal advice. For specific concerns or legal interpretation, it is advisable to consult a qualified labor lawyer or the Department of Labor and Employment (DOLE).

Introduction

In the Philippines, the terms “back pay” and “final pay” are frequently used interchangeably to describe the compensation that a resigning or terminated employee is entitled to receive from their former employer. Under Philippine labor law, employees who resign are entitled to certain payments that may include unpaid wages, pro-rated 13th month pay, cash conversions of unused leaves, and other forms of monetary compensation due at the time of separation from the company. This article provides a comprehensive overview of back pay (or final pay) computation for resigned employees in the Philippines, focusing on the legal bases, mandatory components, computation guidelines, and important timelines.

Legal Basis for Final Pay in the Philippines

Labor Code of the Philippines
- While the Labor Code does not explicitly use the term “back pay,” it ensures the protection of wages (Title II, Book III) and outlines provisions for termination of employment (Book VI, Title I). These provisions collectively mandate the timely payment of any amounts due to an employee who has resigned or whose employment is otherwise severed.
DOLE Guidelines
- In 2019, the Department of Labor and Employment issued Labor Advisory No. 06-20 (titled “Guidelines on the Payment of Final Pay and Issuance of Certificate of Employment”) to clarify employers’ obligations. Although the formal issuance date is 2020, it helped standardize best practices for paying final compensation and providing a Certificate of Employment (COE).

Definition of “Back Pay” or “Final Pay”

Final Pay refers to the sum or compensation that an employee is entitled to receive when their employment ends. While “back pay” is sometimes used to indicate retroactive payment (e.g., wages owed due to payroll errors, wage adjustments, or labor disputes), in common parlance it can also mean the same as final pay for employees who have resigned.
Scope of Final Pay:
- Unpaid salaries or wages
- Pro-rated 13th month pay
- Unused and accrued leave credits, if company policy or CBA (Collective Bargaining Agreement) mandates leave encashment
- Separation pay (if applicable under certain conditions)
- Other forms of compensation or benefits as stipulated by company policy or contract (e.g., allowances, bonuses due, etc.)

Mandatory Components of Back Pay / Final Pay

Unpaid Salary or Wages
- This includes any wages for days worked by the employee prior to resignation that have not yet been paid. For instance, if the employee’s last day falls in the middle of a pay cycle, those outstanding days must be computed based on the daily rate or the applicable payroll calculation method.
Pro-Rated 13th Month Pay
- Legal Reference: Presidential Decree No. 851 and subsequent DOLE issuances.
- Every rank-and-file employee in the private sector is entitled to a 13th month pay. Upon resignation, the employee is typically entitled to the proportionate amount of the 13th month pay for the current year, calculated as: [ \text{Pro-rated 13th Month Pay} = \frac{\text{Total Basic Salary Earned}}{12} ] Some employers compute it monthly, while others do a lump-sum approach at year-end. In either case, the departing employee’s share must be adjusted pro rata based on the number of months and fraction of months worked.
Unused Leave Encashment
- Legal Basis: The Labor Code does not mandate conversion of unused vacation leaves or sick leaves to cash, except for the Service Incentive Leave (SIL) under Article 95 (formerly Article 87) which is at least 5 days per year for employees who have worked for at least one year.
- However, many companies grant more generous leave benefits and encash unused leaves upon separation as a matter of policy or through collective bargaining agreements. Check company policy or your CBA to see if leave encashment is provided.
Separation Pay
- For resigning employees, the general rule is that they are not entitled to separation pay unless:
  - The resignation is due to an authorized cause as defined by law (e.g., health reasons, or constructive dismissal situations) or
  - The company’s policy or employment contract grants separation pay even for resigned employees.
- By default, separation pay in the Labor Code is required primarily in cases of retrenchment, redundancy, closure of business not due to the employee’s fault, or illness prejudicial to the employee and/or their co-workers.
Other Benefits per Company Policy
- Depending on the employer’s rules, employees may also receive allowances, commissions, incentives, or bonuses that may be due at the time of resignation. Check your employment contract and the company handbook to ascertain if any additional payments are due.

Sample Computation of Final Pay

The computation will vary depending on the employee’s salary structure, tenure, and company policies. Here is a simplified example:

Example Scenario

Employee’s Monthly Basic Salary: PHP 30,000
Last Day of Work: August 15 (mid-month)
13th Month Pay previously unpaid for the current year
Unused Leave: 5 days (convertible to cash based on daily rate)
No separation pay (since it is a voluntary resignation and no policy grants it)

Step-by-Step Computation

Unpaid Salary
- Daily rate = Monthly salary ÷ 26 (common divisor) = PHP 30,000 ÷ 26 ≈ PHP 1,153.85
- Days worked in last pay period = 10 working days (assuming no holidays, for simplicity)
- Unpaid salary = 10 days × PHP 1,153.85 = PHP 11,538.50
Pro-Rated 13th Month Pay
- Total months worked in the current year: 7.5 months (Jan 1 to Aug 15, roughly 7.5 months)
- A straightforward approach:
  [ \text{Pro-rated 13th Month} = \frac{\text{Total basic salary received from Jan to Aug 15}}{12} ]
- Alternatively, many companies do a simpler fraction:
  [ \text{Pro-rated 13th Month} = \text{Monthly Salary} \times \frac{\text{Number of months worked}}{12} ]
- Using the fraction formula:
  [ \text{Pro-rated 13th Month} = 30{,}000 \times \frac{7.5}{12} \approx 18{,}750 ]
Unused Leave Encashment
- 5 days unused leave × daily rate (PHP 1,153.85) ≈ PHP 5,769.25
Separation Pay
- Since this is a voluntary resignation with no special company policy awarding separation pay for resignations, separation pay = PHP 0.
Other Benefits (if any)
- For instance, if there was a mid-year bonus or commission due, it should be calculated as per company policy. In this scenario, assume none.
Gross Final Pay
[ \text{Gross Final Pay} = \text{Unpaid Salary} + \text{Pro-rated 13th Month} + \text{Unused Leave} = 11{,}538.50 + 18{,}750 + 5{,}769.25 = 36{,}057.75 ]
Deductions
- Employers may deduct government-mandated contributions (SSS, PhilHealth, Pag-IBIG) or withholding taxes if these were not yet remitted.
- Other final deductions might include unreturned company property (laptop, uniform, etc.) or remaining salary loans.
- The net final pay is computed after these authorized deductions.

Timelines for Releasing Final Pay

DOLE Advisory No. 06-20 provides that the final pay should be released not later than 30 days from the date of separation or termination of employment. However, legitimate reasons (e.g., ongoing clearance processes, unsettled accountability for company property) can cause delays. If the release is unreasonably delayed beyond 30 days, the employee can file a labor complaint for non-payment of wages or consult the DOLE for possible mediation.
Many companies endeavor to issue final pay after completion of the clearance process—this typically includes returning company properties and settling loans or other obligations.

Practical Considerations

Clearance Process
- It is standard in Philippine workplaces to require employees to obtain a “clearance” before the final release of pay. The clearance process ensures the employee has returned all company-owned items and settled any obligations. Delays in final pay often result from incomplete clearance forms.
Certificate of Employment (COE)
- Alongside final pay, an employer is required by law to issue a Certificate of Employment upon the employee’s request. This serves as proof of the employee’s previous work and tenure with the company.
Company Policies vs. Legal Minimum
- Some companies offer more generous terms or additional benefits (e.g., convertible leaves beyond the statutory 5 service incentive leaves, special bonuses, or gratuities). Employers cannot offer less than what is mandated by law, but they are free to provide more favorable terms.
Dispute Resolution
- Should an employer fail or refuse to pay an employee’s final wages without valid justification, the employee can file a complaint with the DOLE’s regional offices or the National Labor Relations Commission (NLRC). The complaint can cover unpaid wages, 13th month pay, leave encashment, or other contractual entitlements.
Tax and Mandatory Contributions
- Even on your final pay, appropriate taxes (withholding tax) and mandatory government contributions (SSS, PhilHealth, Pag-IBIG) will be deducted if there are any outstanding amounts to be covered for the cutoff period.
Banked Overtime / Offsetting
- If a company has a formal arrangement allowing the accumulation of overtime hours for future leave or pay out, these should also be accounted for in the final pay calculation.

Common Misconceptions

“All Resigning Employees Get Separation Pay”
- Separation pay is not automatically granted for voluntary resignations. It only applies when specifically mandated by law or by company policy.
“The Employee Must Wait for More Than a Month for Clearance and Final Pay”
- Employers are guided by a 30-day release period from the date of separation. While the clearance process can lead to a short delay, it should not be excessive. Employees have recourse if payment is unreasonably withheld.
“13th Month Pay is Only Given in December”
- Employers can provide 13th month pay in monthly installments or in a lump sum on or before December 24 of each year. Upon resignation, employees are still entitled to the proportionate share for the part of the year they have worked.

Conclusion

Calculating and receiving back pay (or final pay) for resigned employees in the Philippines involves understanding several components: unpaid wages, pro-rated 13th month pay, unused leave encashment, and possible deductions. The primary legal foundation stems from the Labor Code and DOLE’s advisories, which set standards on what must be included and how promptly it should be paid out. While there is a general 30-day guideline for releasing final pay, practical factors—such as company clearance processes and authorized deductions—may influence the final amount and timeframe.

Employees who believe that their final pay has been unfairly delayed or miscalculated have options for redress, including contacting the DOLE or filing a labor complaint. As always, specific queries should be taken up with a legal professional or the relevant government agency to ensure compliance with up-to-date regulations.

References

Labor Code of the Philippines, as amended
Presidential Decree No. 851 (13th Month Pay Law)
DOLE Labor Advisory No. 06-20 (Payment of Final Pay and Issuance of Certificate of Employment)

Note: This article is not a substitute for professional legal advice. For any unique or complex circumstances—particularly regarding contractual obligations, company-specific rules, or labor disputes—it is strongly recommended to consult a qualified labor law practitioner or approach the nearest DOLE office.