With so many people being laid off from work, both temporary and permanent, there are thousands of people questioning their rights for their final pay and Certificate of Employment (CoE). For all those that are being terminated, retrenched, or made redundant, knowing the rules on how to get your Final Pay and CoE are important.
Labor Advisory No. 6, Series of 2020, issued on January 31, 2020, gives a definition of the DOLE guidelines on the issuance of Final Pay and CoE for employers and employees alike. The advisory defines the terms and explains what you can get as your Final Pay and the rules around how long your employer has to issue your CoE. It also sets out the specific period prescribed for the release of an employee’s final pay and Certificate of Employment, imposing an obligation on the employer to comply with these newly prescribed periods.
Non-compliance with the provisions of LA 06-20 may expose an employer to a complaint for such violation, which shall be dealt with accordingly by the DOLE.
Also known as “Last Pay” or “Back Pay”, your final pay is the last payment from your former employer. You are entitled to this whether you were terminated for any reason or you decided to resign. Your final pay is made up of a number of things that your employer owes you, and must be paid to you without illegal deductions. Illegal deductions are those that have not been authorized by you, or are not permitted under the Labor Code.
Your final pay can include, but is not limited to:
- Unpaid earned salary of the employee;
- Cash conversion of unused Service Incentive Leave (SIL) pursuant to Article 95 of the Labor Code;
- Cash conversions of remaining unused vacation, sick or other leaves pursuant to a company policy, or individual or collective agreement, if applicable;
- Pro-rated 13th month pay pursuant to Presidential Decree No. 851 (PD 851);
- Separation pay pursuant to Articles 298-299 of the Labor Code, as renumbered, company policy, or individual or collective agreement, if applicable;
- Retirement pay pursuant to Article 302 of the Labor Code, as renumbered, if applicable;
- Income tax claim for the excess of taxes withheld, if applicable;
- Other types of compensation stipulated in an individual or collective agreement, if any; and
- Cash Bond/s or any kind of deposit/s due for return to the employee, if any.
13th Month Pay
The 13th month pay refers to the payment of one-twelfth of your annual salary made in December. If your resignation or termination is before December, then your 13th month pay will be pro-rated based on the number of months you have worked. For example, if you worked for seven months, and earned 20,000 a month, the basic formula for your pro-rated 13th month pay is:
(Monthly Salary x Number of Whole Months Worked) / 12 months or (20,000 x 7)/12 = 11,666.66
For this computation, a part of a month is not counted, so if you worked for seven months and 12 days, you only get seven months as your Number of Months Worked.
It must be noted that, unless your 13th month pay exceeds 90,000 pesos, it is NOT taxable.
Release of Final Pay
According to the Labor Advisory, final pay should be released to the employee within 30 days from the date of their separation or termination of employment, unless the company has a more favorable policy, or any collective or individual agreement.
It should be noted that the 30-day prescriptive period begins when the employee is separated or terminated, NOT when they have completed their clearance from the company. However, there is a legal exception that allows the prescribed period to be extended, in those cases where the clearance is not completed correctly or fully. In the case of Milan v. NLRC (G.R. No. 202961, 04 February 2015), the Supreme Court ruled that an employer could withhold final pay in the event that the employee has not yet returned company property, has pending accountabilities (financial only), or has other outstanding clearance requirements, such as but not limited to: return of company identification or medical card, return of other company property, authorization to deduct pending financial accountabilities, etc.
For an employee that completes all of their clearance requirements prior to the 30th day, that employee must be paid their final pay, without further delays.
Certificate of Employment
Your Certificate of Employment, or CoE, is the certificate that you receive from your employer that specifies the dates of your engagement and termination, and the type of work for which you were engaged. This is usually used to show that you have completed your employment and are eligible to take on a new employment with a different employer, with no liabilities. It should be noted that the CoE should NOT include anything other than the period of engagement and type of work done. It must not include infractions, violations, disciplinary actions, or other irrelevant information not pertaining to your period and type of employment.
According to Labor Advisory No. 06-20, the employer must issue the CoE within three days of the request from the former employee. This is not an extendable period, and must be followed.
Enforcement of Violations
The DOLE has its own enforcement mechanism for violations of the Labor Advisory. The advisory states that any issue, claim, complaint, or dispute arising out of r relating to the payment of final pay or the issuance of a valid and correct Certificate of Employment should be filed before the regional, provincial, of field office of the NLRC (DOLE), and which has jurisdiction over the region of the place of work.
In light of this recently-issued Labor Advisory, any employer that withholds the final pay without valid reason after the 30-day period, or refuses to issue the CoE within the three-day prescribed period, will be held liable and accountable to the DOLE. The decision and penalties for such infractions shall be made at the discretion of the Labor Arbiter, the Commission, the Court of Appeals, or the Supreme Court, pending the initiation of the correct appeals process. The standard conciliation and arbitration process shall be used and the any and all issues, complaints, and claims are subject to the DOLE’s existing enforcement mechanism.
In view of this, it behooves the employers to understand and follow this newly-issued rule, and make sure that they follow the correct procedure and prescribed periods in order to minimize the possibility of litigation. No longer can an employer force you to wait for 60-90 days for your final pay.