How To Compute Back Pay in the Philippines (With FREE Calculator)

An employee moves from one employer to another due to multiple reasons.

It could be because a certain work arrangement that fits the needs of several employees may not be convenient to him. Perhaps it’s the desire to explore better, higher-paying opportunities. One may also leave a job due to personal or family issues. 

Regardless of the reason for the end of employment, knowing how your back pay is computed is necessary so you can plan your finances while waiting for your next employment. 

This article provides the nitty-gritty of back pay computation. 

Table of Contents

Free Download: Back Pay Calculator in Excel

back pay computation 1

No time to do manual computations? No problem! We’ve created a back pay calculator in Excel format so you won’t have to. It includes instructions on how to use it and what information you have to enter to estimate how much back pay you’ll get. 

Ready to get started? Click here to download our free back pay calculator in Excel

What Is Back Pay?

Back pay, also known as “final pay”, is the amount of money you will receive from the company in line with the end of your employment. It’s the amount of money you’ve already worked for and are entitled to.

The DOLE (Department of Labor and Employment) defines back pay as the sum or totality of all the wages and monetary benefits due to the employee1

Back pay includes the following:

  • Basic salary. This shall cover your salary, which was put on hold upon the end of employment due to payroll cut-offs. You should be aware of your payroll cut-off and payout schedule to understand this better. If you are unsure, seek help from HR or the payroll team. For example, if the payroll cut-off is every 15th and end of the month and your end of employment is effective on March 10, 2022, the basic salary to be included in your back pay shall cover only March 1-10, 2022. You will no longer receive your salary on March 15, 2022, since technically, you are already an inactive employee by that point. To accurately use the free back pay Excel calculator above, you will need to input the amount corresponding to the number of working days not covered for a payroll cut-off in the “Absences/LWOP” field. You can obtain the said amount using this formula: Daily rate multiplied by the number of days of LWOP. Using the same example, March 11, 14, and 15 are considered as LWOP assuming Saturday & Sunday (March 12-13) are rest days. By providing this information, you’ll be able to estimate how much you’ll get paid, but only for the work rendered during the payroll coverage of March 1 to 15, 2022.
  • Cash conversion of unused leaves. You can usually find the maximum number of unused leaves for conversion in your employee handbook. If it’s not in your handbook, you can check this with your HR, but the usual computation is the number of unused leaves for conversion multiplied by your daily rate. Take note that not all companies have the same conditions for leave utilization and conversion upon the end of employment. 
  • Prorated 13th-month pay
  • Income tax claims/refund, if applicable
  • Separation pay, if applicable 
  • Retirement pay, if applicable
  • Other types of compensation included in your employment contract like reimbursement of monthly internet allowance, uniform purchase, official business travel expense, etc. 

While it is good to know the inclusions of your back pay, it is also important to be aware of the deductions like government-mandated contributions, LWOPs (leave without pay), tardiness, loans, and other liabilities. 

What Is the Difference Between Back Pay and Separation Pay?

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Back pay is given to any employee separated from the company voluntarily or involuntarily

On the other hand, separation pay is given to employees who are involuntarily terminated based on authorized causes2 below:

  • Introduction of labor-saving device or process automation to improve productivity and efficiency
  • Overlapping of services or roles in the company. This is commonly known as “redundancy”
  • Closure of  the business
  • When an employee is suffering from a disease that is found to be a threat to his health and of his co-workers

If you were terminated due to any of the authorized causes above, you are entitled to receive your back pay, including your separation pay. The money is intended to give you financial support while looking for your next job. 

Who Is Eligible for Back Pay?

Any employee leaving the company is entitled to receive back pay, which includes your earned salary during your render period.

How To Compute Back Pay

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1. Back Pay Computation in Call Centers

In call centers or BPO companies, back pay is computed with the following inclusions:

  • Basic salary 
  • Prorated 13th-month pay 
  • Unused leave credits 
  • Income tax claims/refund
  • Incentives which are commonly given to call center agents for hitting a target or quota on a certain period 
  • Other compensation or allowances

Sample Computation: 

Let’s say a call center employee is earning PHP 30,000 a month. Upon leaving the company, the earnings and deductions, as shown in the table below, will be considered in the back pay computation. 

EarningsDeductions
Unpaid salary: PHP 15,000LWOP/Absences: PHP 1,379
Prorated 13th month pay: PHP 7,500Tardiness: PHP 0.00
Leave conversion: PHP 5,516Tax: PHP 916.67
Tax refund: PHP 5,500.02Pag-IBIG: PHP 100
Incentive: PHP 10,000SSS: PHP 1,125
PhilHealth: PHP 390
Total Earnings: PHP 43, 516.02Total Deductions: PHP 3,928.67
NET PAY: PHP 39,587.35

The total amount of back pay for the example above is PHP 39,587.35 

On the earnings tab, the following are included: 

  • Unpaid salary for the payroll period which is assumed to be PHP 15,000 for semi-monthly paid employees 
  • Prorated 13th month pay for 3 months (January to March) 
  • Leave conversion is obtained by multiplying the daily rate by the number of days (PHP 1379 x 4 days unused leaves) = PHP 5,516. You can get your daily rate by following this formula: Monthly Basic Salary X 12 months)/261. This formula is only applicable if you are working 5 days per week.
  • An incentive of PHP 10,000. Take note that this amount is just an example; the incentive amount varies per company
  • The tax refund is obtained by first using the formula Monthly Salary x 12 months = Annual projected gross income. Based on this formula, we have PHP 30,000 x 12 = PHP 360,000. For this case, we shall follow the tax rate for annual taxable income over PHP 250K but not over Php 400k. 
Annual Taxable IncomeTax Rate
Php 250,000 and below0%
Over Php 250,000 but not over Php 400,00020% of the excess over Php 250,000

PHP 360,000 – Php 250,000 = PHP 110,000

Multiplied by 20%

                          PHP 22,000 annual tax deduction 

Assuming this employee is receiving his salary twice per month or semi-monthly, we will divide PHP 22,000 by 24 to get the tax deduction per payroll period. His tax deduction per payout is PHP 916.67. Thus, we can project that his tax refund for this scenario is PHP 5,500.02 (PHP 916.67 x 6 payouts for January to March). 

On the deductions tab, the following are included:

  • Absences/LWOP – for this example, he is on LWOP for one day for the current payroll period (PHP 30,000 monthly basic salary x 12 months)/261 = PHP 1,379 daily rate
  • Government-mandated contributions like Pag-IBIG, PhilHealth, and SSS.

2. Back Pay Computation for Resigned Employees

For other organizations other than the call centers or BPO, back pay is computed using the same pattern above. The difference is the inclusion of other monetary benefits like retirement pay, service incentive, and other allowances. The leave conversion may not be applicable for other organizations since this is mostly being applied in call centers or BPOs. 

3. Back Pay Computation for Terminated Employees

For terminated employees, it is important to know that the severity of the violation of the employee falling under just cause/s may impact the management decision on the release of their incentives as part of their back pay. All other items mentioned above shall be given to the employee per the DOLE Labor Advisory No. 06; Series of 2020. 

How To Get Your Back Pay

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1. Secure Clearance

Company protocols should be followed to ensure the processing of your back pay. The most common and basic rule is completing your clearance before back pay processing. 

Follow the instructions provided by HR on how you will complete your clearance, which involves surrendering any company property under your accountability, to make sure you will get your back pay on time. 

The usual process includes:

  • Securing the clearance from your line manager by completing your turnover tasks 
  • Securing clearance from the IT department by handing over your company-issued equipment
  • Securing clearance from other support teams like Finance, Facilities, Compensation & Benefits, and lastly, HR. 

Ideally, HR will be the last to sign since you will need to surrender your HMO or health cards, company ID, and badges on your last day to them. 

2. Wait for Your Back Pay To Be Processed and Released

At times, people forget to confirm how they will receive their back pay from the company. Ask your HR about this, and don’t forget to declare your active personal contact information to HR so they can notify you when the back pay is ready for release. 

A leaver (resigned or terminated employee) will get a notification from the HR or Payroll Department about crediting the back pay. This could also be communicated during the processing of the clearance. 

Most companies send back pay via bank transfer, while other companies release it via checks. It is important to note that you should have the printed and signed copies of your Certificate of Employment, Quitclaim, and ITR 2316, which you will be receiving along with your back pay. 

Tips & Warnings

  • Monitor the progress of your resignation. It is important to follow up with your line manager if you haven’t received any feedback regarding your offboarding after a few days from the submission date and approval of your resignation.
  • Don’t hesitate to talk to your HR. They will be able to guide you and give you essential information until the release of your back pay.
  • Process your clearance at the soonest possible time. Even if you are still rendering, you can start connecting with different departments to know their prerequisites for signing your clearance.
  • Ask for an appointment. To avoid wasting your time chasing the signatories, it is recommended to send a message first to confirm availability. If there is no feedback, ask HR about the backup for that department so that you can save time on chasing the main point of contact. 
  • If you have questions about the breakdown and computation of your final pay, don’t hesitate to clarify them before signing the Quitclaim and Release Waiver.
  • Make sure to provide your active mobile number and your active email address, which you can frequently check for any updates on your back pay. 
  • If you plan to resign, it is important to assess if your emergency fund can help you get through all your finances while waiting for your first salary for your next employment. 
  • Check if your SSS, Pag-IBIG and PhilHealth contributions are posted. You can now easily look at this via the online portals. If, in any case, there are missing contributions, don’t hesitate to get a copy of your certificate of contributions from your previous employer. You will need to show the certificate to the government offices involved to correct or post actual contributions.
  • Keep any documents related to your employment with the company as you might need them in the future as a reference. 
  • Maintain professional contact with some of the key people from the company. You might need their assistance in the future with your background check. Most employers strictly follow this step before job offers

Frequently Asked Questions

1. Is back pay mandatory in the Philippines?

No law says back pay is mandatory in the Philippines. You shall confirm with your HR if the company offers this post-employment benefit ideally before signing a job offer. 

2. Is back pay taxable?

Yes, the corresponding tax rules will still apply following the TRAIN law. It is important to note that tax deductions per payroll period are projected at an annual rate. The presentation above under “How to Compute Back Pay” will give you a detailed explanation of how to compute.  

Here’s a quick reference for the income tax rates until December 31, 2022 : 

Annual Taxable IncomeTax Rate
Php 250,000 and below0%
Over Php 250,000 but not over Php 400,00020% of the excess over Php 250,000
Over Php 400,000 but not over Php 800,000Php 30,000 + 25% of the excess over Php 400,000
Over Php 800,000 but not over Php 2 millionPhp 130,000 + 30% of the excess over Php 800,000
Over Php 2 million but not over Php 8 millionPhp 490,000 + 32% of the excess over Php 2 million
Over Php 8 millionPhp 2.41 million + 35% of the excess over Php 8 million

You can get more information here: How To Compute Your Income Tax Using the New BIR Tax Rate Table

3. How many days do I wait before the release of my back pay?

Your back pay should be released at least 30 days from the date of separation as per DOLE Labor Advisory No. 06-20: Guidelines on the Payment of Final Pay. Note that you need to complete your clearance first for the company to start with the computation and processing of your back pay. 

4. Besides the back pay, what else should I receive from my employer upon resignation?

Upon leaving the company, you should also ask for the following documents:

  • Certificate of Employment – this is an important document since you will need it as proof that the company employed you. You may also use it for personal reasons like applications for postpaid internet, personal bank loans, and home or auto loans.
  • BIR Form 2316 – this is an income document that you may also need for personal reasons. It also shows that the corresponding taxes were deducted from your salary 
  • Copy of your signed Quitclaim and Release Waiver – this document shows that both parties are releasing the other party from liability

5. Can I get a detailed breakdown of the computation of my back pay?

Yes, the employer should give this proactively, but you can also request it if it was not provided along with the other documents. 

6. Can I dispute or file a complaint if the amount released is smaller than expected?

If the amount seems smaller than expected, the detailed breakdown can help you identify which item/s are missing or lacking. You can further discuss it with HR or Payroll. 

7. What happens if an employer refuses to release my back pay?

If an employer refuses to release your back pay, you will need to check and understand why. There are some cases when an employee has liabilities on his end that should be settled first before the release of the back pay. 

If there’s no liability from your end, you can file a complaint to DOLE under Article 116 of the Labor Code of the Philippines: Withholding of Wages3. Note that you can only file for the basic salary being put on hold; the release of your leave conversion, prorated 13th-month pay, tax refund, and other allowances will be subjected to DOLE’s review.

References

  1. Department of Labor and Employment (DOLE). (2020). Labor Advisory No. 06, Series of 2020: Guidelines on the Payment of Final Pay and Issuance of Certificate of Employment. Retrieved from https://www.dole.gov.ph/news/labor-advisory-no-06-20-guidelines-on-the-payment-of-final-pay-and-issuance-of-certificate-of-emplo/
  2. Rillorta, P. Separation Pay. Retrieved 8 May 2022, from https://car.dole.gov.ph/news/separation-pay/
  3. Department of Labor and Employment (DOLE). (2015). The Labor Code of The Philippines, Renumbered (DOLE Edition) [Ebook]. Intramuros, Manila. Retrieved from https://www.dole.gov.ph/php_assets/uploads/2017/11/LaborCodeofthePhilippines20171.pdf

Elaine Joy Balajadia

Elaine Joy "EJ" Balajadia is an HR professional with almost 12 years of work experience in different HR facets such as labor and employee relations, compensation and benefits, culture and engagement, talent management, and organizational development. She is a registered nurse in the Philippines but her heart leads her to HR where she can help both the employees and the company she is working for. She is currently the HR Deputy Manager for a global IT-BPO company. For inquiries, you may reach her via Facebook Messenger (https://m.me/bulletbalajadia) or email ([email protected]).

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