Unreleased Final Pay and 13th Month Pay: Potential Labor Law Violation in the Philippines

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. For specific concerns about your situation, it is recommended to consult with a qualified attorney or the Department of Labor and Employment (DOLE).

1. Introduction

In the Philippines, the final pay (also called “last pay” or “back pay”) and the 13th month pay are mandatory monetary entitlements that an employee should receive. When an employer withholds or fails to release these benefits without valid justification, it can lead to a potential labor law violation. This article will comprehensively discuss the nature of these entitlements, the legal basis behind them, timelines for payment, and legal remedies available to aggrieved employees.

2. Definitions

2.1 Final Pay

The Department of Labor and Employment (DOLE) defines “final pay” or “last pay” as the sum of all the wages or monetary benefits due to an employee upon the cessation of employment. This may include:

Unpaid salaries or wages for days or hours already worked.
Pro-rated 13th month pay (discussed in detail below).
Unused leaves converted to cash (e.g., service incentive leave, vacation leave if convertible under company policy).
Overtime pay and night differential (if applicable and still unpaid).
Retirement benefits (if covered by a retirement plan, or as required by law for qualified employees).
Separation pay (only in specific circumstances mandated by law, such as retrenchment, redundancy, closure not due to serious losses, or illness that cannot be cured within six months).
Other benefits established by company policy or collective bargaining agreement (CBA), such as commissions, incentives, or allowances.

2.2 13th Month Pay

The 13th month pay is required under Presidential Decree No. 851. It is a mandatory benefit that all rank-and-file employees (subject to certain exceptions) are entitled to receive from their employers. The 13th month pay is computed as follows:

[ \text{13th Month Pay} = \frac{\text{Total Basic Salary Earned for the Year}}{12} ]

By law, it must be paid on or before December 24 of each year.
If an employee separates (resigns, is terminated, or otherwise ceases employment) before December, the employee is entitled to a pro-rated 13th month pay corresponding to the number of months worked in that calendar year.

3. Legal Basis and Governing Regulations

Labor Code of the Philippines (Presidential Decree No. 442)
- While the Labor Code provides general rules on wages, separation from service, and claims for unpaid salaries, it does not specifically fix a strict deadline for releasing final pay. However, it does uphold the right of workers to receive due compensation and imposes penalties on employers who withhold wages.
Presidential Decree No. 851 (13th Month Pay Law)
- Establishes the mandatory 13th month pay for rank-and-file employees.
- Exemptions: Employers are exempt only under very specific conditions (e.g., if already paying equivalent or better than the mandated 13th month pay under an existing agreement or practice, or certain government entities).
DOLE Guidelines/Advisories
- The DOLE often issues labor advisories explaining how to properly compute and release the final pay and 13th month pay.
- A notable issuance is Labor Advisory No. 06, Series of 2020, which provides a non-exhaustive guide on final pay and encourages employers to release it within thirty (30) days from the date of separation or within a “reasonable” period.

4. Timeline for Releasing Final Pay and 13th Month Pay

4.1 Final Pay

Recommended Practice: DOLE encourages employers to release an employee’s final pay within 30 days from the date of separation.
Reasonable Period: In certain cases where clearance processes are complex (e.g., positions handling large sums of money or confidential information), the employer might require a longer clearance period. However, any delay must be justified and should not be unreasonably prolonged.

4.2 13th Month Pay

Still Employed by December 24: The 13th month pay must be given on or before December 24 of the same year.
Separated from Employment:
- An employee who resigns, is terminated, or otherwise separates before December is still entitled to a pro-rated 13th month pay, which should be included in the final pay.
- The employer typically computes this up to the last day of service and includes it in the final pay release.

5. Potential Labor Law Violation

5.1 Grounds for Violation

Failure or refusal to release the final pay (including the pro-rated 13th month pay) can be considered unjust withholding of wages under Philippine labor laws. Specifically:

Article 116 of the Labor Code prohibits withholding of wages.
Article 127 of the Labor Code imposes penalties on employers for failure to pay wages and mandatory benefits.
Non-compliance with Presidential Decree No. 851 regarding the 13th month pay may subject the employer to administrative or even criminal sanctions if done willfully and maliciously.

5.2 Employer Defenses

Some common defenses or reasons an employer might invoke to delay or temporarily withhold the final pay include:

Ongoing clearance process to ascertain if the employee has outstanding liabilities.
Unreturned company property (e.g., laptops, tools, uniforms) that needs to be settled.
Disputed monetary claims (e.g., accounting for advanced loans, damages, or lost company assets).

While these reasons can justify a short delay, an excessive delay or outright refusal to pay final wages and benefits is not permissible and can lead to legal consequences.

6. Remedies for Employees

If an employer unjustly withholds or refuses to release final pay and 13th month pay, an employee may:

File a Complaint with DOLE
- Approach the Single Entry Approach (SENA) desk, where the DOLE will mediate between the employee and employer to reach a settlement.
- If mediation fails, the case can be referred to the appropriate labor arbiter or the National Labor Relations Commission (NLRC).
Elevate the Case to the National Labor Relations Commission (NLRC)
- For larger monetary claims or when settlement proves impossible, the employee can file a formal complaint before the NLRC.
- If the NLRC rules in favor of the employee, it can order the employer to pay the withheld amounts with possible legal interest or other damages.
Consider Civil Action
- In certain cases, if the dispute involves other contractual issues beyond labor matters, employees may also explore civil remedies. However, the primary forum for unpaid wages and benefits is typically the labor tribunal.
Seek Legal Counsel
- Consulting with a labor lawyer or accredited labor consultant can help employees navigate the process, prepare the necessary documentation, and secure rightful claims.

7. Best Practices for Compliance

7.1 Employers

Draft Clear Policies: Maintain written policies on clearance procedures, final pay computation, and timelines for payout.
Communicate Proactively: Inform the departing employee about any requirements (return of equipment, final documentation) to avoid delays.
Document Everything: Keep records of computations, pay slips, and communications regarding final pay.
Release Timely: Strive to release the final pay and pro-rated 13th month pay within 30 days from separation to avoid disputes and maintain good employer-employee relations.

7.2 Employees

Review Employment Contract and Company Handbook: Be aware of any additional policies on final pay, 13th month pay, or clearance.
Complete Clearance Requirements: Promptly return company property or settle any outstanding loans to expedite the process.
Keep Pay Records: Preserve payslips, time records, and other documents to ensure accurate computation.
Follow Up Politely: If the final pay is not released after a reasonable period, follow up in writing and keep a record of such communication.

8. Conclusion

Ensuring that the final pay and 13th month pay are released in a timely manner is both a legal obligation of employers and a fundamental right of employees in the Philippines. Unreasonable or unjustified withholding of these benefits can expose employers to labor complaints and potential penalties. Both parties—employers and employees—are encouraged to be proactive, transparent, and compliant with established labor laws and DOLE guidelines.

When in doubt, consultation with legal experts or the DOLE can clarify obligations, rights, and remedies to address any concerns regarding unreleased final pay and 13th month pay.

References:

Labor Code of the Philippines, as amended (Presidential Decree No. 442).
Presidential Decree No. 851 (Requiring the Payment of 13th Month Pay).
DOLE Labor Advisory No. 06, Series of 2020 (Guidelines on the Payment of Final Pay and Issuance of Certificate of Employment).
DOLE National Labor Relations Commission (NLRC) Rules of Procedure.