An employee is usually required to sign a quitclaim deed and discharge the company of any liability upon receipt of the final pay (including the 13th month, income tax refund, etc) in the Philippines. This is done after the completion of the turnover and clearance from the company.

This article will help you to understand the following:

  • What is a Quitclaim deed?
  • The Validity of a Quitclaim deed
  • Components of the Final Pay
  • Example on Computation of Final Pay
  • The legality for Withholding of Final Pay

What is a Quitclaim deed?

An employer usually requires the employee to sign a quitclaim deed to quitclaim, release and discharge the employer of any liability to prevent the employee from any future monetary claims by reason of or arising from the employment with the employer.

The quitclaim deed shall serve as proof of complete and final settlement of all claims the employee has against the employer. Therefore the employee has waived the right to make future claims against the employer pertaining to the employment.

Download a sample of the Quitclaim deed here.

Is Quitclaim deed a valid legal document?

The quitclaim shall be held a valid legal document if:

  • The employee executes a deed of quitclaim voluntarily;
  • There was no fraud or deceit on the part of any of the parties;
  • The consideration for the quitclaim is credible and reasonable; and
  • The contract is not contrary to law, public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law.

What does final pay include?

The final pay generally includes the following:

  • The last salary due to the employee;
  • Monetized unused leave credits;
  • Income tax claim for the excess withholding tax withheld;
  • Prorated 13th-month pay;
  • Separation pay if applicable; and
  • Other compensation agreed upon in the collective bargaining agreement (CBA) or employment contract.

Example: How to compute final pay?

Illustration

An employee with monthly salary P16,000 worked for 9 full months in the calendar year and resigned.

Items Amount
Daily Rate – using 261 day factor: P735.63
Last Salary: P14,000
Unused Leave Credits – 5days: P3,678.15
Income Tax Refund: P8,402.13
Pro-rated 13th-month: P12,000
Total: P38,080.28

 

Can an employer withhold the final pay of the employee?

It is a common practice in the Philippines for employers to withhold the last salary or final pay due to the separated employee until the employee has been cleared of all accountability and liabilities from the company.

According to the Civil Code article 1706, “Withholding of the wages, except for a debt due, shall not be made by the employer.” Debt shall refer to any obligation due including any accountability that the employee may have to the employer. Therefore the institution of clearance procedures before the release of the employees’ final pay is a valid exercise of management prerogative, granted that it is within the limits of the law. This was also seen in the case of Emer Milan, et al. vs NLRC, et al. Despite so, the company is obligated to make the payment within a reasonable time after the employee has completed the clearance.

For more information on the Civil Code of the Philippines, please refer to Republic Act No. 386.