Ensuring a smooth offboarding process: Philippine lawyer shares insights on requirements, policy alignment, and dispute prevention
The timely release of final pay and employment documents remains a critical obligation for employers in the Philippines, with the Department of Labor and Employment (DOLE) mandating strict timeframes through Labor Advisory No. 06, Series of 2020.
This advisory defines final pay as the totality of wages or monetary benefits due to an employee, including unpaid earned salary, pro-rated 13th-month pay, and cash conversion of unused leaves, which must be paid within 30 days from the date of separation.
Despite these clear regulatory guidelines, many companies continue to struggle with compliance, leading to employee disputes and potential legal complications.
BusinessWorld reported that this continues to be an ongoing challenge, pointing to growing employee complaints on social media about delayed or denied requests for Certificates of Employment (COEs).
The publication notes this issue "has been going on for years," reflecting the broader difficulties companies face in managing employment separations and document releases.
Julie Mae Marie Cantos, a lawyer handling employment disputes and litigation in the Philippines, shares practical insights on how HR professionals can better manage these obligations while maintaining legal compliance.
"Word about a company's employee retention is a significant factor that most employees consider when applying for a job because it shows whether a company has good management. Well, no one wants to work for bad bosses, right?" Cantos notes.
Frequent resignations or terminations not only harm a company's reputation and image but also incur significant costs and consume valuable time.
Moreover, failing to comply with labor laws, such as ensuring employees receive their final pay, can result in disputes.
Final pay entails a considerable amount of money because, on top of the salary earned, the employer must also release the pro-rated 13th-month pay of the employee, Cantos explains.
Typically, the 13th-month pay is distributed before December 24. As a result, it’s common for employers to postpone allocating funds for it until the final quarter of the year.
"The lack of proper documentation or system in record-keeping likewise affects the release of final pay such as when there is a failure to keep track of the attendance and leave credits of the employees which may lead to discrepancies in the computation of the salary for the days worked and the cash conversion of unused leaves," she notes.
An inefficient record-keeping system might also lead to failure to keep track of the requests made by the employees, like requests for issuance of a certificate of employment or COE. That’s because, according to the Department of Labor and Employment, a COE must be released to the employee within three days from the request thereof, Cantos explains.
She adds: "The National Internal Revenue Code of the Philippines, as amended, mandates employers to provide employees with a written statement showing income and payments of tax withheld—a statement which is commonly known as the Bureau of Internal Revenue (BIR) Form 2316, no later than January 31 of the succeeding year."
"Labor laws are codified and put in place to promote just employment practices. Ideally, there should not be any operational constraints if a company's policies are, in the first place, aligned with the labor laws," Cantos states.
She identifies five essential elements of offboarding policies:
"In my practice, I have always emphasized the importance of building peace, rather than escalating issues," Cantos states.
"The more practical approach is to negotiate with the employee and keep open communication. If the company is unable to release the final pay due to financial constraints or operational delay, why not explore the possibility of discussing a more flexible term with the employee?"
Although DOLE Labor Advisory No. 16, series of 2020, specifies that final pay must be issued within 30 days of employment termination, it does not prevent an employee from waiving this timeframe and allowing the employer additional time to fulfill the obligation.
Cantos further emphasizes the importance of dialogue: "Oftentimes, issues escalate because the employer refuses to communicate."
"The power of making people feel heard is that, more often than not, they will also continue to listen. Connection creates possibilities for positive developments; professionalism, when coupled with empathy, builds opportunities for better and more meaningful outcomes," she says.
Although labor laws are generally interpreted in favor of employees, employers shouldn't worry, as they are allowed to withhold an employee's final pay under certain circumstances, Cantos explains.
In case the employee fails or refuses to complete the clearance procedure, the employer may temporarily withhold the release of final pay. “Well, this is to allow the employer to assess whether the employee is cleared from his obligations," she adds.
"It is important, however, that the clearance procedure is clear and known to the employee, and the employer must be able to show the same. Including the offboarding policies and procedures in the employment contract or company handbook alone is not sufficient, the employer must be able to show that the employee was provided with a copy of the same and that the latter understood it."
Another example is when a resigned or terminated employee has outstanding obligations to the company, such as unpaid cash advances, loans, or unreturned company property and equipment, Cantos says.
"In a case, the Supreme Court has explained that this concept is 'consistent with the equitable principle that no one shall be unjustly enriched or benefited at the expense of another.' In any case, there must be proper documentation, and the employer must be able to prove the existence of the said accountabilities."
Companies should adopt a proactive approach to ensuring compliance with the latest amendments and/or issuances relative to labor laws by conducting audits of existing policies and procedures, she says.
"I know this can be burdensome, but including this in the annual strategic planning can spare companies from headaches," Cantos advises.
"It is imperative for business owners to hire or consult HR professionals or legal counsels from the get-go who can guide them in building systems and adopting strategies that mitigate legal risks. After all, compliance is better than receiving a writ of execution."
"Facebook groups created for legal inquiries or forums are flooded with questions about the release of final pay, COE, and BIR Form 2316," Cantos observes, with recent jurisprudence on labor laws mostly tackling illegal or constructive dismissals from employment and nothing particularly related to the timeframe or process of release of final pay and documents.
"This is because in cases involving money claims, it has long been settled that the employer has the burden of proving that their obligations to the employees have been paid. Verily, even at the earliest stage of the legal dispute before the Labor Arbiter, if the employer cannot show payment of wages, the case is resolved in favor of the employee."
Technology and automation ensure the efficient and timely release of final pay.
"Not only that, but it also minimizes error by reducing manual processes and relying on its database, instead of human memory," she explains, adding that employers should conduct periodic audits and work closely with legal professionals to determine if the updates on labor laws are incorporated into the system.
She concludes with a call for better compliance: "Hopefully, though, more employers adhere to labor laws and regulations and stop taking advantage of employees who are not aware of their rights."
