How To Compute Back Pay In The Philippines: 2020 Update

6 min. read By eCompareMo on

After weeks or even months of thinking, you’ve done it. You submitted your resignation letter to your boss and now you are more than ready to explore the world for career and personal growth. But wait a minute, after resigning, did you ever stop and think about what you can get from the company once you leave?

Two words: Back. Pay. Sweet, sweet back pay!

In this article, I will explain to you everything you need to know about back pay and back pay computation.

Back Pay vs. Separation Pay

First things first: Once you leave your employer, you need to understand the difference between back pay and separation pay. These two are totally different payments and can be tricky to understand at times.

Back Pay in the Philippines

What is back pay anyway? Back pay, or “Final Pay,” means that this will be the last salary your employer will give you once you end your service with them—whether you resigned or were terminated.

The most important fact you need to know is that back pay for employees is not mandated by the law, which means there is no law stating that every company needs to provide back pay for employees that have resigned or was terminated.

So, expect that not all of the companies or employers in the Philippines offer this kind of incentive. Double-check your contract or ask your HR just to be sure.

Basically, to compute your last pay you need add all of the wages below and that is what the company will give you:

  • Last Salary Due Pro-rated
  • 13th-month pay
  • Leave conversion: Vacation Leave, Sick Leave; Conversions of unused leaves (if the contract says that it is convertible to cash)
  • Tax Refund: These are for withheld excess taxes

(Read: Employee Benefits in the Philippines: Complete List, Guide, and FAQs)

Back Pay computation

How does one compute back pay for resigned employees? Let’s try to keep it simple and look at the following example:

To compute your last pay
Basic Daily Wage P10,000
13th Month Pay P15,000
Leave Conversions P2,500
Tax Refund P300
TOTAL P27,800

Remember, there will be deductions from your back pay either from lost equipment, absences, tardiness, etc.

Compute for deductions
Absences P500
Tardiness P0
Witholding Tax P0
PHIC P200
HDMF P150
HDMF Loan P0
SSS Loan P0
TOTAL P850

Going by these computations, the total amount of back pay that the resigned employee will receive is:

Last pay – Deductions = Back pay

P27,800 – P850 = P26,950

Some employers will release the final payment within 30 to 60 days, depending on your contract or how fast the papers will be processed.

It is also important to keep in mind that if your employer has not given you your back pay or final pay in an extended period of time, you are entitled to file a complaint at the Department of Labor and Employment (DOLE).

If the employee still has not received the back pay even with the help of DOLE, it can be escalated to the National Labor Relations Commission (NLRC). Just make sure that you have proof of all of your claims.

(Read: 12 Telltale Signs You Should Move On From Your Current Job)

2. Separation Pay in the Philippines

Separation pay, on the other hand, is when an employee is forced to resign from their employer due to retrenchment, labor-saving devices, redundancy, closure, cessation of operations of the establishment or if the employee is suffering from a disease.

Whatever the reason may be, according to the Labor Code in the Philippines, it is mandated that a separation pay must be given to employees who have been separated from their service (if the reason for termination is stated above).

You are NOT ENTITLED to separation pay if you were terminated because:

  • Neglection of duties
  • Willful disobedience
  • Serious misconduct
  • If the employee has committed fraud or a willful breach of the trust given to him or her by a duly authorized representative
  • Commission of crime against the employer
  • Commission of crime against any duly authorized personnel

Of course, for employees who voluntarily resigned from their employers, they will not be entitled to this benefit UNLESS the company or the employer has written it in the contract of the employee or if they have been a company practice ever since.

How to compute Separation Pay

The employee will receive a separation pay with at least a month equivalent to their salary or a one-month salary for every year of service, whichever is higher.

For employees who were terminated due to retrenchment or other valid reasons, their separation pay is either a month worth of their salary or at least half a month of their salary for every year of their service, whichever is higher.

Here are two examples to help you understand it better.

Example No. 1: This computation is for employees who have terminated because of Labor-Saving Devices or Redundancy

Jane was a customer sales representative and has been earning a monthly salary of P8,000. She has been working for the company Valor & Co. for 6 months and was terminated due to REDUNDANCY. How much will her separation pay be?

One month salary x Years of service

P8,000 x 1 = P8,000

Jane’s separation pay will still be P8,000 because she did not last a year in her company. But what if she did?

Let us pretend that Jane lasted three years in Valor & Co.. How much will her separation by then?

One month salary x Years of service

P8,000 x 3 = P24,000

Since her one-month salary multiplied by the three years she served, Jane’s separation pay will be P24,000.

Example No. 2: This computation is applicable for employees who have been terminated because of Retrenchment, Closure, Disease or Cessation of Operations of the Establishment

Let’s say John has been working for five years now, his salary in a month is P10,000. He was terminated due to RETRENCHMENT. How much will his separation pay be?

Half month salary x Years of service

P5,000 x 5 = P25,000

Since one month salary for John is P10,000 but the higher amount is P25,000, which he will get from computing half his monthly salary multiplied by his years of service, what he will get for separation pay is P25,000.

What if John only worked for five months? How much will his separation pay be if that was the case? Well, let us first establish that P10,000 is John’s monthly salary. Now, let’s compute what he will receive if we use the formula of half a month salary multiplied by years of service.

Half a month salary x Years of service

P5,000 x 1 = P5,000

Since the higher amount is what John will get from his salary for one month, John will receive that amount. So his separation pay is P10,000.

(Read: How to Deal with Burn-out: Tips To Keep Your Career Moving Happily Forward)

Quick review

Back Pay or Final Pay is when YOU LEFT your employer. This is not mandated by the DOLE backpay policy.

The computation for your back pay will be based on these criteria:

  • Last Salary Due
  • Pro-rated 13th-month pay
  • Leave conversions
  • Tax Refund

Separation Pay is when the company or your employer has to let you go due to labor-saving devices, redundancy, retrenchment, closure, disease or cessation of operations of the establishment. Separation Pay is mandated by the Philippine Labor Code.

The computation will be based on how you were terminated. You can get a month’s worth of your salary or half a month multiplied by the years you served.

(This article was written on Aug 23, 2019, and updated on January 6, 2020.)

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eCompareMo

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