Final pay

Final pay is required to be paid within 30 calendar days from termination or separation from employment. Payment of final pay may be subjected to clearance process.

1. Concept

Final pay, last pay, or back pay, all of which refer to the same thing as “the sum or totality of all the wages or monetary benefits due the employee regardless of the cause of the termination of employment, including but not limited to:

1) Unpaid earned salary of the employee;

2) Cash conversion of unused Service Incentive Leave (SIL) pursuant to Article 95 of the Labor Code;

3) Cash conversions or remaining unused vacation, sick or other leaves pursuant to a company policy, or individual or collective agreement, if applicable;

4) Pro-rated 13th month pay pursuant to Presidential Decree No. 851 (PD 851);

5) Separation pay pursuant to Articles 298-299 of the Labor Code, as renumbered, company policy, or individual or collective agreement, if applicable;

6) Retirement pay pursuant to Article 302 of the Labor Code, as renumbered, if appliable;

7) Income tax claim for the excess of taxes withheld, if applicable;

8) Other types of compensation stipulated in an individual or collective agreement, if any; and

9) Cash Bond/s or any kind of deposit/s due for return to the employee, if any. (Section 2, Article I, DOLE Labor Advisory No. 06, Series of 2010, henceforth “DOLE LA 06-10”)

2. When paid

The final pay shall be released within thirty (30) days from the date of separation or termination of employment, unless there is a more favorable company policy, individual or collective agreement thereto. (Article I, DOLE LA 06-10)

3. Subject to clearance process

“Requiring clearance before the release of last payments to the employee is a standard procedure among employers, whether public or private. Clearance procedures are instituted to ensure that the properties, real or personal, belonging to the employer but are in the possession of the separated employee, are returned to the employer before the employee’s departure.” (Milan v. NLRC, Solid Mills, Inc., G.R. No. 202961, 04 February 2015)

a. No clearance, no final pay

“The law does not sanction a situation where employees who do not even assert any claim over the employer’s property are allowed to take all the benefits out of their employment while they simultaneously withhold possession of their employer’s property for no rightful reason. Withholding of payment by the employer does not mean that the employer may renege on its obligation to pay employees their wages, termination payments, and due benefits. The employees’ benefits are also not being reduced. It is only subjected to the condition that the employees return properties properly belonging to the employer. This is only consistent with the equitable principle that ‘no one shall be unjustly enriched or benefited at the expense of another.’” (Ibid.)

b. Withholding pending return of properties

An employer is allowed to withhold terminal pay and benefits pending the employee’s return of its properties.

MILAN v. NLRC, G.R. No. 202961, 04 February 2015

[Background]

[The Company] argue[s] that [the complainants’] failure to turn over [the Company’s] property “constituted an unsatisfied accountability” for which reason “[the complainants’] benefits could rightfully be withheld.” The term “accountability” should be given its natural and ordinary meaning. Thus, it should be interpreted as “a state of being liable or responsible,” or “obligation.”

[Resolution]

Institution of clearance procedures has legal bases

⦁ Requiring clearance before the release of last payments to the employee is a standard procedure among employers, whether public or private. Clearance procedures are instituted to ensure that the properties, real or personal, belonging to the employer but are in the possession of the separated employee, are returned to the employer before the employee’s departure.

⦁ As a general rule, employers are prohibited from withholding wages from employees…

⦁ However, our law supports the employers’ institution of clearance procedures before the release of wages. As an exception to the general rule that wages may not be withheld and benefits may not be diminished, the Labor Code provides:

Art. 113. Wage deduction. No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except:

1. In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;

2. For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and

3. In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment…

⦁ The Civil Code provides that the employer is authorized to withhold wages for debts due:

Article 1706. Withholding of the wages, except for a debt due, shall not be made by the employer.

⦁ “Debt” in this case refers to any obligation due from the employee to the employer. It includes any accountability that the employee may have to the employer. There is no reason to limit its scope to uniforms and equipment, as [the Complainants] would argue.

⦁ More importantly, [the Company] and NAFLU, the union representing [the Complainants], agreed that the release of [the Complainants’] benefits shall be “less accountabilities.”

⦁ “Accountability,” in its ordinary sense, means obligation or debt. The ordinary meaning of the term “accountability” does not limit the definition of accountability to those incurred in the worksite. As long as the debt or obligation was incurred by virtue of the employer-employee relationship, generally, it shall be included in the employee’s accountabilities that are subject to clearance procedures.

⦁ It may be true that not all employees enjoyed the privilege of staying in [the Company]’ property. However, this alone does not imply that this privilege when enjoyed was not a result of the employer-employee relationship. Those who did avail of the privilege were employees of [the Company]. [The Complainants’] possession should, therefore, be included in the term “accountability.”

⦁ Accountabilities of employees are personal. They need not be uniform among all employees in order to be included in accountabilities incurred by virtue of an employer-employee relationship. [The Complainants] do not categorically deny [the Company’s] ownership of the property, and they do not claim superior right to it. What can be gathered from the findings of the Labor Arbiter, National Labor Relations Commission, and the Court of Appeals is that [the Company] allowed the use of its property for the benefit of [the Complainants] as its employees. [The Complainants] were merely allowed to possess and use it out of [the Company’s] liberality. The employer may, therefore, demand the property at will.

⦁ The return of the property’s possession became an obligation or liability on the part of the employees when the employer-employee relationship ceased. Thus, [the Company] has the right to withhold [the Complainants’] wages and benefits because of this existing debt or liability. In Solas v. Power and Telephone Supply Phils., Inc., et al., this court recognized this right of the employer when it ruled that the employee in that case was not constructively dismissed. Thus:

There was valid reason for respondents’ withholding of petitioner’s salary for the month of February 2000. Petitioner does not deny that he is indebted to his employer in the amount of around 95,000.00. Respondents explained that petitioner’s salary for the period of February 1-15, 2000 was applied as partial payment for his debt and for withholding taxes on his income; while for the period of February 15-28, 2000, petitioner was already on absence without leave, hence, was not entitled to any pay.

⦁ The law does not sanction a situation where employees who do not even assert any claim over the employer’s property are allowed to take all the benefits out of their employment while they simultaneously withhold possession of their employer’s property for no rightful reason. Withholding of payment by the employer does not mean that the employer may renege on its obligation to pay employees their wages, termination payments, and due benefits. The employees’ benefits are also not being reduced. It is only subjected to the condition that the employees return properties properly belonging to the employer. This is only consistent with the equitable principle that “no one shall be unjustly enriched or benefited at the expense of another.”

⦁ For these reasons, we cannot hold that [the Complainants] are entitled to interest of their withheld separation benefits. These benefits were properly withheld by [the Company] because of their refusal to return its property.

4. ATM for payroll

Is it the employer or the employee who owns the ATM account used for payroll?

The employee will have to check the terms and conditions provided the bank forms when he/she filled it up to create the account. While referred to as “ATM payroll account”, the bank forms usually provide that the account is actually the personal bank account of the employee as the account holder – i.e. the account is not owned by the employer but by the employee. Accordingly, the employee as the account holder is responsible for the account.

Further, the said employee account is like any other regular account, which may be used for deposit and other banking transactions. However, while linked to the employer’s payroll, it comes with certain privileges such as no maintaining balance requirement. When the employee account is no longer linked to payroll, certain privileges are cut off and it becomes like any other regular account subject to similar terms, such as the requirement for a maintaining balance, penalties, and closure for violations.

References

DOLE Labor Advisory No. 06, Series of 2010

/Updated: February 15, 2023

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