back pay computation l Moneymax

There are a myriad of reasons employees leave their employers. You’ve already heard the common ones, such as poor management, impractical office location, or career dead-ends. Well, the COVID-19 pandemic has added “pandemic epiphanies” to the list.

According to Anthony Klotz, a management professor and psychologist from Texas A&M University, the COVID-19 pandemic has pushed people into “Aha!” moments. Presumably, these include the understanding that life is too short to stick to a stressful job, or the appreciation of the practicality of working freelance. It’s safe to say that such realizations have brought about waves of mass resignations around the world, a phenomenon called the “Great Resignation,” another term coined by Klotz.[1]

If you’re jumping on the resignation bandwagon, you’ll feel a thrilling sense of freedom. And you’ll be particularly excited about receiving your final pay. But do you have an idea of how it’s computed? Let this article provide you with the important information about back pay computation.

Read more: Planning to Resign? Consider These Financial Factors Before You Quit Your Job

What is Back Pay?

According to the Department of Labor and Employment (DOLE), back pay, otherwise known as last pay or final pay, refers to the sum or totality of all the wages or monetary benefits that the resigning employees are meant to receive. 

Employees are supposed to receive this regardless of the cause of employment termination.[2]

Is Back Pay Mandatory in the Philippines?

One may have the impression that the government mandates companies to give back pay. But legally speaking, there’s no law that explicitly says that companies are supposed to give back pay to resigned or terminated employees.

As such, we encourage you to ask the company’s HR department if it offers this kind of post-employment benefit before accepting a job offer.

How Should I Compute My Back Pay?

back pay computation - How Should I Compute My Back Pay?

Technically speaking, your back pay is the money that your employer owes you. However, your liabilities to your company will be deducted from the final amount. Listed below are the usual components of back pay and the common liabilities that will be factored in the computation.  

Typical Components of Back Pay

The amount of money that your employer owes you is usually broken down into the following:

1. Unpaid Salary

The prorated amount of your salary is one of the main components of your back pay. The amount will be equal to the number of days you’ve worked in the most recent cut-off.

2. Prorated 13th Month Pay

Remember that you’re still entitled to the 13th month pay, albeit prorated. This means that the amount of your 13th month pay will be equal to the number of months you worked before the end of the year.

3. Leave Conversions

If your employment contract says that your leaves (whether vacation leaves, sick leaves, or both) are convertible to cash, expect that this will be included in the back pay computation.

4. Tax Refunds

Usually, employees resigning before the 12th month of the year receive a refund on tax payments. However, this will only happen if your tax dues are much lower than the sum of your withheld taxes.

5. Separation Pay

Pursuant to Articles 288-289 of the Labor Code (as renumbered), the individual or collective agreement, or company policy, the separation pay must be included in your last pay.

6. Retirement Pay

Pursuant to the Article 302 of the Labor Code (as renumbered), the employer must also release the retirement pay. However, remember that it will also depend on your agreement with your employer.

Deductions from Your Back Pay

Back pays are not without deductions, which greatly depend on the number of your liabilities to your employer. Here are some of the costs that you may owe to your company:

1. Mandated Deductions

Your back pay will be subject to common deductions, which include PhilHealth, SSS, and other contributions.

2. Loans or Cash Advance

If you’ve borrowed money from your company and you aren’t able to pay it before you resign, expect that the amount will be deducted from your last pay as well.

3. Office Liabilities

Is the company laptop broken due to your mishandling? Did you lose your company phone? The cost of damaged or lost office equipment may be counted against your last pay.

Read more: 6 Most Fulfilling Jobs in the World

Sample Back Pay Computation

Now that you know the kinds of payments that your company owes you and the liabilities that you owe them, it’s time to do a back pay computation. 

Take this situation for example: Jenny started working for Company XYZ this April, but she resigned in December. Here’s the breakdown of her back pay computation if she’s earning PHP 26,000 a month (or PHP 1,195 a day). 

Note: For this sample back pay computation, we’re using the interim 3% premium rate for PhilHealth as is the current practice of employers.

Unpaid Salary (15 working days): PHP 17,925Tardiness: PHP .00
Prorated 13 Month Pay: PHP 19,500Absences: PHP .00
Sick Leave Conversion (5 Days): PHP 5,975Withholding Tax: PHP 710.33
Tax Refund: PHP .00Pag-IBIG Contribution: PHP 100
SSS Contribution: PHP 1,125
PhilHealth Contribution: PHP 390
Total Pay: PHP 43,400Deductions in Total: PHP 2,325.33
Net Pay: PHP 41,704.67

To get an idea how much you’ll receive, you can also use this salary and 13th month pay calculator from Sweldong Pinoy.[3]

Read more: High-Paying Jobs for Fresh Graduates in the Philippines

When Should I Expect My Back Pay?

According to the Department of Labor and Employment (DOLE), the back pay must be released within thirty (30) days from the date of separation or termination of employment. Nevertheless, the labor department encourages employers to execute their policy or the individual or collective agreement if it’s deemed much more favorable.

What’s the Difference Between Back Pay and Separation Pay?

back pay computation - What’s the Difference Between Back Pay and Separation Pay?

It’s understandable that employees are confused about back pay and separation pay. Technically, separation pay can be part of your back pay, as the DOLE lists it as one of the components of your last pay.

However, separation pay can only be given to an employee whose tenure has been terminated due to the following reasons:

  • Redundancy
  • Retrenchment
  • Closure of business (or a part of it) as long as it’s not attributed to serious business losses
  • Installation of labor-saving equipment (e.g. advanced robots, automated machines, among others)
  • Termination due to a disease

On the other other hand, the following circumstances will keep you from receiving your separation pay:

  • Serious misconduct
  • Willful disobedience
  • Gross and habitual neglect of duties and responsibilities
  • Fraud or willful breach of trust
  • Commission of a crime by the employee against the employer and other personnel
  • Other analogous causes

Read more: Legit Online Job Sites to Help You Look for Work During the Pandemic

What Else Should I Receive Upon Resignation?

back pay computation - talk to your HR

When you leave your employer, you won’t only be receiving your back pay. Your former company is obliged to provide the following documents. Similarly, it’s your duty to ask for them:

1. Certificate of Employment

This particular document validates that you’ve worked with your employer. Normally, it contains your personal information and details of your tenure.

2. BIR Form 2316

Usually called 2316, this BIR form details your income and the taxes that your company withheld within the year. This also proves your connection with the company and the payment of your taxes.

3. Back Pay Release Waiver and Quitclaim

The company usually requires resigned employees to sign a quitclaim or release waiver. Depending on the nature of your employer’s industry, this document may keep you from enticing away employees or clients from your employer.

How to Fast Track the Release of Your Back Pay

You definitely want your back pay to be released to you as soon as possible. To speed up the process, you need to plan things accordingly even before you resign. Here are some tips that may help you out:

1. Talk to Your Human Resources Department Upon Resignation

Upon tendering your resignation, talk to your Human Resources Department who will then give you further instructions for your exit. Take this opportunity to ask if you have any liabilities with the company, which will be covered by your back pay computation. Moreover, clarify any confusing sections in your employment contract.

2. Complete Your Clearance Requirements as Soon as Possible

Once you’re issued a clearance form, complete it as soon as possible. If you delay this, the release of your back pay will likely be delayed, too. Turn over your company equipment and supplies to the administrative department, and settle all your dues and monetary liabilities with the finance department. Schedule your appointment with your bosses to get their signatures as well. 

3. Decide On Your Back Pay Disbursement Mode Early 

While you’re processing your clearance, you may want to ask your HR Department about your back pay’s mode of disbursement. If you’re lucky, you may be given options, from check to wire transfer. Pick the most convenient one.

4. Follow Up On the Status of Your Back Pay Release

While your last pay is supposed to be released within 30 days, delays may happen. If you experience this, it doesn’t hurt to follow up with your HR Department.

Read more: Be Productive During Lockdown and Learn These New Skills

Final Thoughts

Resigning from your work can be bittersweet. You’ll be leaving your friends behind. But at the same time, you’re excited about what the future has in store for you.

While your back pay seems to be the most important part of your resignation (and it is), it also pays to prioritize your graceful exit. You can do this by dealing with your liabilities, turning over your projects transparently, and maintaining contact with a few key people.  

Moneymax Newsletter