When an employee resigns, completes their contract, or is separated from service, employers must execute a final accounting of all monetary entitlements. To eliminate prolonged clearance disputes, the Department of Labor and Employment issued Labor Advisory No. 06, Series of 2020 ("Guidelines on the Payment of Final Pay and Issuance of Certificate of Employment").
1. Mandatory 30-Day Release Timeline
Under Section 2 of DOLE Labor Advisory No. 06-20, final pay shall be released within thirty (30) days from the date of separation or termination of employment. While company clearance procedures must be observed, the 30-day statutory window cannot be unreasonably suspended or prolonged unless a more favorable CBA or company policy exists.
2. Issuance of Certificate of Employment (COE)
Under Section 3 of the same advisory, employers are required to issue a Certificate of Employment (COE) within three (3) days from the time the request is made by the separated employee. The COE must state the dates of employment and the specific positions held, without negative annotations or conditional prerequisites.
3. Mandatory Components of Final Pay
Final pay includes all earned monetary benefits and credits:
- Unpaid Wages: Basic compensation, overtime pay, and night shift differentials earned during the final payroll cut-off period.
- Pro-rated 13th-Month Pay: Proportionate 13th-month pay calculated as one-twelfth of the total basic salary earned from January 1 (or date of hire) up to the final day of employment, minus any mid-year advances received.
- Leave Cash Conversion: Cash equivalent of unused Service Incentive Leave (SIL) credits (minimum 5 days per year for employees with at least 1 year of service). Additional company vacation leaves (VL) must be converted if mandated by employment contract, CBA, or established company policy.
- Separation Pay: Mandatory only if separation is due to authorized causes under the Labor Code (e.g. redundancy, retrenchment, installation of labor-saving devices, closure, or disease). Voluntary resignation generally does not carry separation pay unless contractually stipulated.
- Tax Refund from Annualization: Difference between annual withholding tax due and the cumulative tax withheld across previous pay periods, as reflected on BIR Form 2316.