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Final Pay in the Philippines: How It’s Calculated and What’s Included
Find out what final pay in the Philippines should include and how it’s calculated. Get the information you need to ensure you receive the compensation you’ve earned.
Updated Aug 1, 2024
Final Pay in the Philippines: How It’s Calculated and What’s IncludedWhat is Final Pay?
Final pay, often referred to as "called back pay," is the total amount an employee is entitled to receive from their employer upon leaving a job.
This can be due to resignation, termination, retirement, or the completion of a contract. Final pay represents the employee's last earnings from the company and must be calculated accurately to ensure that all legal and contractual obligations are met.
Aside from your earned salary and pro-rated 13th-month pay, employers are not legally required to pay additional amounts unless specified in a company policy, collective bargaining agreement, or employment contract.
Components of Final Pay in the Philippines
The final pay in the Philippines typically includes several components:
1. Unpaid Earned Salary
This is the salary for the days the employee worked but has not yet been paid. If an employee resigns or is terminated before the payroll cut-off, their last salary is calculated pro-rata based on the number of days worked in that period.
2. Pro-Rated 13th Month Pay
Under Philippine labor law, all employees are entitled to a 13th-month pay, which is essentially an extra month's salary paid at the end of the year. If an employee leaves before the year ends, they are still entitled to a pro-rated portion of this pay, depending on how many months they have worked.
3. Leave Conversions
Employees are entitled to convert unused leave days (such as Service Incentive Leaves) into cash. The number of leave days eligible for conversion will depend on the company’s leave policies, and the payment is based on the employee’s daily rate.
4. Separation Pay (if applicable)
Separation pay is granted under certain conditions, such as retrenchment, redundancy, or closure of the business due to non-serious financial losses. The amount of separation pay can vary:
- It could be one month’s pay or one month’s pay for every year of service.
- Alternatively, it could be one-half month’s pay for every year of service, depending on the reason for separation.
5. Retirement Pay (if applicable)
Employees who retire at the age of 60 or older and have served the company for at least five years may be entitled to retirement pay, which is usually equivalent to one-half month’s salary for every year of service.
6. Tax Refunds
If an employee resigns before the end of the year and their total tax withheld exceeds their actual tax liability, they are entitled to a refund of the excess tax paid.
7. Other Compensations
Any additional compensation specified in the employment contract, collective bargaining agreement, or company policies should also be included in the final pay. This can include bonuses, incentives, or cash bonds.
Your final pay should also cover any other compensation stated in agreements and refunds for any cash bonds or deposits you made.
Deductions from Final Pay in the Philippines
When an employee leaves a company in the Philippines, their final pay may be subject to certain deductions. Employers must ensure that all deductions are lawful and comply with the employment contract, collective bargaining agreements, and relevant Philippine labor laws.
Additionally, it is important to maintain transparency with the employee, providing a clear breakdown of the final pay calculation and any deductions made. This helps avoid disputes and ensures a smooth transition as the employee exits the company.
For Singapore employers with Filipino employees, understanding these deductions is vital to ensure that all legal obligations are met and that the final pay process is handled accurately and fairly.
These deductions are generally lawful and are made to settle any outstanding obligations or contributions owed by the employee. Below is a detailed explanation of the possible deductions from final pay:
1. Social Security System (SSS) Contributions
The SSS is a government-mandated program that provides social security protection to workers. Both employers and employees contribute to this fund. If the employee’s final pay period includes days worked, the company will deduct the employee’s portion of the SSS contribution from the final pay.
The deduction is based on a percentage of the employee's salary, as determined by the SSS contribution table.
PhilHealth is the national health insurance program in the Philippines, which provides health coverage for medical expenses. Like SSS, PhilHealth contributions are required by law and are shared between the employer and employee.
The deduction is typically a percentage of the employee’s salary, with the specific rate determined by PhilHealth.
3. Pag-IBIG Fund Contributions
Pag-IBIG is a government savings program primarily focused on housing loans and provident savings. Employers deduct the employee’s share of Pag-IBIG contributions from their salary, including their final pay.
The contribution rate is generally fixed, but it is based on the employee's salary, with specific amounts outlined by the Pag-IBIG Fund guidelines.
4. Loan Repayments
Employees may have outstanding loans with their employer or through company-facilitated loans, such as salary advances, educational loans, or emergency loans.
The remaining balance of any loans or advances is typically deducted from the final pay to settle these debts.
The amount deducted will be equal to the outstanding loan balance.
5. Company Liabilities
This includes any financial obligations the employee has to the company, such as unreturned office equipment, lost or damaged company property, or unsettled cash advances.
Employers are entitled to deduct the value of any company assets not returned or replaced by the employee.
The deduction amount is usually equivalent to the replacement cost or agreed-upon value of the lost or damaged items.
6. Unpaid Taxes
If an employee owes taxes that have not yet been withheld, these may be deducted from their final pay. This ensures that the employee fulfills their tax obligations before leaving the company.
The deduction is based on the amount of unpaid taxes as calculated according to the Bureau of Internal Revenue (BIR) regulations.
7. Absences and Tardiness
If the employee has unexcused absences or late arrivals that have not yet been deducted from their salary, these can be accounted for in the final pay.
The company may deduct the equivalent salary for the time not worked due to unexcused absences or tardiness.
The deduction is typically calculated based on the employee’s daily or hourly rate.
8. Salary Overpayment
This occurs when an employee has received more salary than they are entitled to, possibly due to payroll errors or advance payments. The company can reclaim any overpaid amounts from the employee’s final pay.
The overpaid amount is directly deducted from the final pay, adjusted to reflect the correct salary.
9. Tax Refund Adjustments
If the employee is eligible for a tax refund due to overpayment of taxes throughout the year, this may be adjusted against the final pay. Instead of paying out a refund separately, the amount may be adjusted against the final pay to balance any dues.
The adjustment is based on the calculated tax liability for the year versus the amount already withheld.
10. Other Authorized Deductions
This can include deductions agreed upon in the employment contract or under specific company policies, such as for uniforms, tools, or employee benefits. Deductions that have been authorized by the employee in writing are legally enforceable.
These deductions vary based on the specific agreements or company policies.
Compliance for Singapore Employers
For Singapore employers managing Filipino employees, it's important to align the final pay calculations with Philippine labor laws.
This ensures that the company meets all legal requirements and avoids potential disputes. Employers should also be aware of the timeline for releasing final pay, which is typically within 30 days after the employee’s separation date, as stipulated by the Department of Labor and Employment (DOLE) in the Philippines.
Employers should work closely with their HR and payroll teams to ensure that all components of the final pay are calculated accurately and that any deductions are made in compliance with local regulations.
Providing clear communication and transparency with the departing employee about their final pay can help maintain a positive relationship and protect the company’s reputation.
What Can Employers Deduct from Employee's Final Pay?
Employers will exclude certain contributions like SSS and PhilHealth from your final pay. They may also deduct expenses or loans if you’ve agreed to this, such as for lost or damaged office equipment or outstanding loans.
It’s your right to receive final pay for the work you’ve completed. Discuss with your HR department or supervisor to ensure you receive all due payments and necessary documents.
Additional Documents Employers Should Send
When leaving a job, employers must send these documents to a resigned employee:
- BIR Form 2316: This form shows your income and the taxes withheld by your employer for the year, proving your income and tax payments.
- Certificate of Employment: This document verifies your employment with the company, including your position and tenure. You should receive this within three days of requesting it.
- Release, Waiver, or Quitclaim: Employers usually require this to be signed when releasing your final pay and other documents, stating that you won’t pursue any further claims against the company.
Make sure to also return any company equipment and remove personal data from company-issued devices.
When Will Employers Send Employee's Final Pay?
According to the Department of Labor and Employment (DOLE) or Labor Advisory No. 06-20, final pay should be given within 30 days after your last working day. However, the timing can vary depending on company policies or agreements.
If your final pay is delayed, reach out to your HR department to expedite the process.
Difference Between Final Pay and Separation Pay
For Singapore employers managing Filipino employees, it's essential to distinguish between these two types of pay to ensure compliance with Philippine labor laws.
Misunderstanding the difference could lead to disputes or legal complications. Final pay is a universal requirement for all departing employees, while separation pay is contingent on the circumstances of the employee’s departure and may not be applicable in every case.
Unlike final pay, separation pay is not applicable in all situations and is typically given in cases where the employee’s separation is initiated by the employer due to reasons such as:
- Retrenchment or Redundancy: When the company needs to downsize or eliminate positions due to economic reasons.
- Business Closure: If the company closes a part or all of its operations that is not due to serious business losses.
- Illness: If an employee can no longer continue working due to a health condition, and this condition is not the result of the employee’s fault.
- Installation of Labor-Saving Devices: When the company introduces machinery or technology that replaces manual labor.
Separation pay is calculated based on the length of service and is usually one month’s salary for every year of service or half a month’s salary for every year of service, depending on the reason for separation and company policy.
When is Your Employees Exempt From Receiving Separation Pay?
Conversely, employees are not entitled to receive separation pay if their termination is due to any of the following reasons:
- Serious Misconduct: Engaging in behavior that severely violates company policies or ethical standards.
- Willful Disobedience: Refusal to follow lawful and reasonable instructions from superiors.
- Fraud or Breach of Trust: Engaging in deceitful activities or actions that compromise the trust between the employer and employee.
- Gross & Habitual Neglect of Duties: Persistent failure to fulfill work responsibilities.
- Commission of a Crime Against the Employer or Other Personnel: Involvement in criminal activities that harm the employer or colleagues.
- Other Analogous Causes: Other serious violations of company policies that warrant termination without benefits.
It's important to note that resigning employees are only entitled to separation pay if the company policy explicitly allows it. For instance, if the policy includes a provision for separation benefits, eligible employees will have this included in their final pay computation.
How to Calculate Employee's Final Pay the the Philippines
Let’s say your employee's monthly salary is ₱25,000 (approximately SGD 615), and your employees worked for six months. Here’s how to calculate your employee final pay:
1. Daily Rate Calculation
Formula: Monthly Salary x 12 ÷ 261 working days (if you have two rest days per week) = Daily Rate
Example: ₱25,000 x 12 ÷ 261 = ₱1,149.43 (approximately SGD 28.30)
2. Total Earnings
Unpaid Salary
Formula: Daily Rate x Days Worked
₱1,149.43 x 15 days = ₱17,241.45 (approximately SGD 424.50)
Pro-rated 13th Month Pay
Formula: Monthly Salary x Months Worked ÷ 12
₱25,000 x 6 ÷ 12 = ₱12,500 (approximately SGD 308)
Leave Conversions
Formula: Daily Rate x Unused Leave Days
₱1,149.43 x 5 = ₱5,745 (approximately SGD 141.50)
Total Earnings: ₱17,241.45 + ₱12,500 + ₱5,745 = ₱35,486.45
3. Total Deductions
- Withholding Tax: ₱366.30
- Pag-IBIG Contribution: ₱100
- SSS Contribution (Monthly Salary Credit×Contribution Rate): ₱25,000 x 0.045 = ₱1,125
- PhilHealth Contribution (Monthly Basic Salary×Premium Rate÷2): ₱25,000 x 0.04 ÷ 2 = ₱500
Total Deductions: ₱366.30 + ₱100 + ₱1,125 + ₱500 = ₱2,091.30 (approximately SGD 51.50)
4. Final Pay Calculation
Formula: Total Earnings - Total Deductions = Net Final Pay
Example: ₱35,486.45 − ₱2,091.30 = ₱33,394.70 (approximately SGD 823)
Navigating the complexities of final pay calculations in the Philippines can be challenging, with the potential for human error leading to delayed payments and dissatisfaction among departing employees. Ensuring accurate and timely final pay is essential for smooth transitions and positive departures.
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Herdina Ika
Digital Marketer
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