Backpay Computation In The Philippines

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Congratulations! The day of your freedom has come. You’ve submitted your resignation letter, had an exit interview with your boss and HR, completed the clearance form and said goodbye to your workmates.

The only thing that is missing is your back pay.

While back pay is not mandatory in the Philippines, some employers give out this monetary benefit to departing employees. If you have recently resigned, your back pay can help you with your expenses as you find new work or until you receive your salary from your new employer.

In this blog post, we will give you a rundown of back pays in the Philippines and how you can compute it.

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What is back pay in the Philippines?

First and foremost, what is backpay?

The backpay meaning is the total amount of wages and other monetary benefits that your employer will give you once you leave the company. It is given regardless of the reason for your separation from employment.

The DOLE, meaning the Department of Labor and Employment in the Philippines, mandates that back pay must be released within 30 days from the date of employment termination. However, this doesn’t mean that back

The term “back pay” has become synonymous with “final pay” and “last pay” and are used interchangeably.

Regarding the amount of backpay, DOLE encourages employers to follow their own company policy or agreement with the employee.

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How to compute back pay

To know how to compute back pay, you must know the factors that will affect the final amount.

The components of your back pay include the following earnings:

• Your salary or compensation that you have already earned
• Unused service incentive leaves (SIL) that are convertible to cash
• Cash conversions of unused sick leaves, vacation leaves or other forms of leave set by your employer
• Separation pay, if applicable
• Retirement pay, if applicable
• 13th month pay
• Reimbursement of excess withholding tax
• Any other compensation or benefits that you are entitled to as indicated in your employment contract, company policy or collective bargaining agreement

On the other hand, these factors will be deducted from your back pay:

• Government benefits like SSS, Pagibig, National health insurance, etc.
• Absences and leaves without pay
• Lates and tardiness
• Company loans and cash advances
• Company liabilities, like laptops, computers, mobile phones, etc.
• To get the amount of your backpay, calculate your earnings like unpaid salary, prorated 13th month pay, SIL and other leave conversions, tax refunds, and other applicable compensation. Add these factors to get your total earnings.

To calculate your deductions, add the amount of your government benefits, absences/LWOPs, tardiness, loans/cash advances and other applicable deductions.

Your net back pay is the difference between your earnings and your deductions.

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Who is eligible for back pay?

Any employee who has resigned or been terminated is entitled to back pay, regardless of the reason for cessation of employment.

How to get your back pay

1. Talk to your boss or HR

First, you want to make sure that your company does offer back pay benefits to its departing employees. Talk to your boss or HR regarding your back pay and the company’s process for claiming it. This is also your chance to clear up any liabilities or other responsibilities.

2. Process your clearance

After you submit your resignation, you will be given a clearance form which contains everything that you need to turn over before you leave the company.

This will depend on the company, but in general the employee clearance form lists down your accountabilities per department. For example, your IT department will need your work equipment (laptop, mobile phone, internet plan, work accounts) while your HR will need your ID, HMO card, payroll card, exit interview and others.

Once you have submitted your turnovers, the respective department heads will sign your clearance, showing that you have been cleared on their end.

3. Back pay disbursement

Usually back pays are disbursed via bank cheque as you will also sign a quit claim. But you can request for a bank transfer instead if that’s the most convenient way for you.

4. Sign your quit claim, or follow up if needed

Your employer can take up to 30 days to release your back pay. Once it’s ready, go to your former workplace, claim your cheque and sign the quit claim form. Delays can happen, so follow up on your HR if your back pay has not been released after 30 days.

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Sample back pay computation

Below is a sample back pay computation of an employee who was earning ₱30,000 a month. Taking note of the factors affecting back pay above, this table can determine the possible final back pay amount.

Earnings	Deductions
Unpaid salary: ₱15,000	Absences/LWOP: ₱0
Prorated 13th month: ₱7,500	Tax: ₱916.67
Converted leaves: ₱4,150	SSS: ₱1,125
Tax refund: ₱5,500	Pagibig: ₱100
Bonus: ₱15,000	National health insurance: ₱283.50
Total earnings: ₱47,150	Total deductions: ₱2,425.17
NET BACK PAY: ₱44,724.83

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Back pay features

Is back pay similar to separation pay?

No, back pay is not similar to separation pay. Separation pay is given to employees who have been terminated from their employment due to the following reasons:

• Retrenchment
• Redundancy
• Business closure
• Loss prevention
• Introduction of devices to reduce labor costs
• Illness of an employee

Is back pay taxable?

Yes, your back pay is taxable under the TRAIN Law.

To check the tax rate on your back pay for the year 2022, you can refer to the table below:

Annual taxable income	Tax rate
₱250,000 and below	0%
Above ₱250,000 to ₱400,000	20% of the excess over ₱250,000
Above ₱400,000 to ₱800,000	₱30,000 + 25% of the excess over ₱400,000
Above ₱800,000 to ₱2 million	₱130,000 + 30% of the excess over ₱800,000
Above ₱2 million to ₱8 million	₱490,000 + 32% of the excess over ₱2 million
₱8 million and higher	₱2.41 million + 35% of the excess over ₱8 million

Aside from backpay, what documents will I receive upon my resignation?

Your employer will give you the following documents upon your resignation:

1. Release waiver and quitclaim – once signed, these documents will show that your employer has released your BIR Form 2316 and certificate of employment, and you have already claimed your final pay.
2. Certificate of employment – contains information about your position and history with the company. Your new employer may require this, if applicable.
3. BIR Form 2316 – this is an official document that contains your gross annual income and the taxes withheld by your employer during the fiscal year.

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