3 Things You Should Know About Final Pay in the Philippines

There are several reasons why employees choose to be separated from work, like looking for better opportunities, a better work environment, better salaries and benefits, or a role that best suits their passions. During times of separation of employees in their company, the payroll or human resources personnel are tasked with computing his or her final pay. This article tackles the things you should know and consider when verifying or making final payments to employees in the Philippines. 

1. 13th-month pay and other benefits 

One of the items to consider in the computation of final pay is the addition of pro-rated 13th-month pay and other benefits. Employers are required to pay their rank-and-file employees a 13th-month pay benefit. However, this is not required for supervisory and managerial employees and is a company discretionary benefit. 13th-month pay is part of the non-taxable or exempt compensation income, particularly in the 13th-month pay and other benefits up to the Php 90,000 annual limit only. If the 13th-month pay and other benefits exceed Php 90,000, then the excess will be considered taxable compensation. 

Formula: 13^th Month Pay = Total Net Earned During the Year / 12 months 

Sample Computation:  

13^th Month Pay = Php 360,000/12 months = Php 30,000.00 

2. Withholding tax due or refund 

To compute the separated employee’s withholding tax due or refund. The payroll or human resources personnel should consolidate/annualize the separated employee’s payroll registers during the year. Sum up the gross compensation and deduct all the non-taxable or exempt compensation to get the net taxable compensation. The net taxable compensation will then be the basis for the withholding tax on compensation for the covered period. 

Below is the revised withholding tax table, effective January 1, 2023. This table will be used for the computation of the withholding tax. 

Sample Computation: 

The tax due will be compared to the remitted taxes for the year. For example, there is a tax remitted to the BIR (Bureau of Internal Revenue) or the BIR Form No. 1601C from previous months of Php 20,000. Since the correct tax due after consolidation is only Php 17,550, there is a tax refund of Php 2,450. This tax refund will be included in his or her final pay. 

3. Structure of final pay 

Once the 13th-month pay and tax due or refund have been computed, this is to be added or deducted from the gross compensation income of the separated employee. Gross compensation comprises the following but is not limited to: 

1. Net basic salary (Monthly basic pay less late or tardiness, undertime, and absences) 

2. Overtime and night shift differential 

3. Holiday and premium pay 

4. 13^thmonth pay 

5. Other benefits and allowances 

Include an additional tax refund portion if there is an excess of the withheld tax from the annualized withholding tax due. 

Total deductions include the employee’s government contributions to Social Security Services (SSS), Philippine Health Insurance Corporation (PHIC), and Home Development Mutual Fund (HDMF) and any tax due, if any. 

To compute the final pay, add the semi-monthly or monthly gross compensation, 13^th month pay, and tax refund if applicable, then deduct the total deductions like SSS, PHIC, and HDMF contributions and tax due if applicable. 

Sample Computation: 

There are many factors that compose a final pay, and this article shows some of the common features of a final pay, its computation, and how it is done. 

Good news for NCR workers!

Under the Department of Labor & Employment (DOLE)- NCR’s Wage Order No. 17, minimum wage is increase by P30 cost of living allowance (COLA) as follows:

• First tranche – P20 per day upon the effectivity of Wage Order No. 17; and
• Second tranche – P10 per day effective on November 1, 2012.

The new minimum wage rate under the Wage order No. 16 that took effect last 26 May 2011 of P426 for National Capital Region integrating the previous COLA of P22 will remain in force. Integrating the new COLA under the new Wage Order, the new minimum wage for non-agriculture sectors will now become P446.00 (P426+20) upon effectivity of the new Wage Order No. 17, and P456.00 (P446+P10) on November 1, 2012 or equivalent to P13,680.00 a month (P456.00 x 30 days).

In effect, the minimum wage earners will now earn P600 more (P20 x 30 days) upon the effectivity of the new Wage Order, and P900 more (P30 x 30 days) starting November 1, 2012. Coverage of the Minimum Wage Law remains the same in all other aspects (e.g. exemption from the coverage of the Barangay Micro Business Enterprise – BMBE).

For other sectors such as agriculture, private hospitals with bed capacity of 100 or less, retail/service establishments employing not more than 10 workers and manufacturing establishments employing less than 10 workers, minimum wage will be P409 per day upon the effectivity of the new Wage Order, and P419 per day effective November 1, 2012.

Comment:

With the increase of the BIR of the tax-exempt uniform allowance by P1,000 (from P4,000 to P5,000) effective 1 January 2012 under Revenue Regulations No. 18-12, employees could enjoy at least P1,900 tax-exempt compensation every month including the above COLA increase.

Related Posts:

Tax-exempt uniform allowance increased under RR No. 18-2012

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.

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