Final Pay Computation of Employee with Above Minimum Salary

Final pay is a general term used by most employers to refer to the last pay to be given to an employee who got separated from the company.

Usually, separation is on account of employee’s resignation. Resignation should be voluntary otherwise it can be constructive dismissal at the very least. Separation may also be due to just cause or authorized cause under Articles 297 and 298 of the re-numbered Labor Code, as amended.

An employee who separated from the company is generally entitled to the following:

1. Last salary
2. Proportionate 13^th month pay
3. Service incentive leave

These are mandatory benefits considering that the law requires employers to give them to employees. However, there are benefits that are beyond those required law. These are the so-called company-initiated benefits.

The rule when it comes to these benefits is that when they are given by express policy or practice, they cannot be removed without the consent of employees. Example of these benefits are the monetized vacation leave, allowances, de minimis benefits such as rice subsidy, laundry, etc.

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To constitute as company practice, it must be shown that the giving of benefits by employers to employees: (1) has been done for a considerable long period of time; (2) has been consistently and intentionally done; and (3) has not been a product of erroneous interpretation or construction of a doubtful or difficult question of law. (Vergara vs. Coca Cola Bottlers Philippines, GR 176985, April 1, 2013)

As to how long the practice should have been done, the law is silent. However, decisions of the Supreme Court can guide the parties in judging their respective situation. The Supreme Court even held the view that with regard to the length of time the company practice should have been exercised to constitute voluntary employer practice which cannot be unilaterally withdrawn by the employer jurisprudence has not laid down any rule requiring a specific minimum number of years. (Sevilla Trading Co. vs. Semana, G.R. No. 152456, April 28, 2004)

For instance, in the case of Davao Fruits Corp. vs. Associated Labor Unions (G.R. No. 85073, August 24, 1993), the company, from 1975 to 1981, had freely, voluntarily and continuously included in the computation of its employees’ thirteenth month pay, the payments for sick, vacation and maternity leaves, premiums for work done on rest days and special holidays, and pay for regular holidays. The considerable length of time the questioned items had been included by petitioner indicates a unilateral and voluntary act on its part, sufficient in itself to negate any claim of mistake.

In the above quoted case of Davao Fruits Corporation vs. Associated Labor Unions, the company practice lasted for six (6) years.

In another case, Davao Integrated Port Stevedoring Services vs. Abarquez, the employer, for three (3) years and nine (9) months, approved the commutation to cash of the un-enjoyed portion of the sick leave with pay benefits of its intermittent workers.

While in Tiangco vs. Leogardo, Jr., the employer carried on the practice of giving a fixed monthly emergency allowance from November 1976 to February 1980, or three (3) years and four (4) months.

In all these cases, the SC held that the grant of these benefits has ripened into company practice or policy which cannot be peremptorily withdrawn. In the case of Sevilla Trading the employer kept the practice of including non-basic benefits such as paid leaves for unused sick leave and vacation leave in the computation of their 13th-month pay for at least two (2) years.

The SC ruled that the same constituted voluntary employer practice which cannot be unilaterally withdrawn by the employer without violating Art. 100 of the Labor Code or the rule against elimination or diminution of benefits. – Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.

Hence, assuming that Mr. Gus T. Nahumayo is receiving a monthly salary of PhP20,000.00 and after serving the company for five (5) years, decided to resign effective July 31, 2019. He has not consumed his leave credits.

Assuming further that the company has a ten-day administrative cutoff. This means that the salary every 15^th of the month covers only 21^st of the previous month to 5^th of the current month. While the payroll for the 30^th of the month covers only the 6^th to 20^th of the month.

How should the final pay be computed?

In this case different illustrative scenarios will be shown:

1. Final pay if only labor standards are given
2. Final pay if he is given 10 monetized VL

Date Hired: July 31, 2014

Period of Service: 5 years

Monthly Salary: PhP20,000.00

Factor: 365

Equivalent Daily: PhP657.534247 or PhP657.54 (rounded-off)

Illustration A: Only Labor Standard Benefits are given

Salary for the period July 21 to July 31, 2019:

10 days x PhP647.54 = PhP6,475.70

SIL 2018: 5 days x PhP657.534247 = PhP3,287.67

2019: 5 / 12   = 0.41666667

0.41666667 per month x 7 months = 2.91666667

2.91666667 x PhP657.534247 = PhP1,917.81

Total SIL: PhP3,287.67 + PhP1,917.81 = PhP7,493.15

13^th Month pay: Total Basic Salary Earned / 12

PhP20,000 x 7 months / 12 months

PhP140,000 / 12 months

PhP11,666.6667

Total Final Pay: Last Salary + SIL + 13^th Month

PhP6,475.70 + PhP7,493.15 + PhP11,666.67

= PhP25,635.52

Illustration B: Final pay if he is given 10 monetized VL

Salary for the period July 21 to July 31, 2019:

10 days x PhP647.54 = PhP6,475.70

VL 2018: 10 days x PhP657.534247 = PhP6,575.34

2019: 10 / 12   = 0.83333333

0.83333333 per month x 7 months = 5.83333333

5.83333333 x PhP657.534247 = PhP3,835.62

Total SIL: PhP6,575.34 + PhP3,835.62 = PhP10,410.96

13^th Month pay: Total Basic Salary Earned / 12

PhP20,000 x 7 months / 12 months

PhP140,000 / 12 months

PhP11,666.6667

Total Final Pay: Last Salary + SIL + 13^th Month

PhP6,475.70 + PhP10,410.96 + PhP11,666.67

= PhP28,553.33

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