When are you required to release the final pay of an employee? How many days do you have until you have to release a Certificate of Employment? Are there hard and fast rules related to this? We tackle this in today's article.
In the past, the release of the final pay varied with individual employers. Each had their own clearance and exit procedures so it was difficult to gauge when exactly the last pay would be released.
Labor Advisory 6-20 tackles that now
Now, the DOLE wants to standardize the timeline when it comes to the release of the final pay. Employers are now expected to release it within 30 days from the date of separation. The full text of the labor advisory may be seen in this post by the DOLE and the PDF of the Department order may be downloaded here.
The labor advisory also stated how employers should treat requests for certificate of employment. The DOLE now directs that Certificates be released within 3 days from the request.
In this article, I want to explore 3 ways this will affect employers.
You should carry out the clearance process immediately
Now that there is a definite time limit, employers should have a strong clearance process in place so that any liabilities that the employee has may be deducted or reconciled with the final pay. This clearance process has to take into account all the possible deductions that apply to the employee.
What I ask myself when clearing employees
The main question when I'm dealing with clearance is: are there any things that the employee owes the employer?
Typical examples include:
- Are there remaining amounts which require liquidation such as for travel expenses or advances made on behalf of the company
- Are there cash advances that were availed of, but agreed to be due if the employee leaves the employer?
- Is there company property assigned to the employee which is subject to return such as company laptops, cellphones or cars?
Why is this important?
It is difficult to get back any money after the release of the final pay. In case there are discrepancies, then you may have to resort to demand letters or filing a subsequent case to recover. That's why you need to get it right the first time around. It's easier to tackle this with the employee there to talk to you and clarify.
Know the difference between a Certificate of Employment and a clearance so you issue the right one
Next, you have know what a Certificate of Employment is versus a clearance. As I said in my previous article "When should a Certificate of Employment be issued?" here's the difference:
No, these are two different things. From a legal standpoint, here's what they say:
Certificate of Employment says, "Yes, you worked for me." How well? Not indicated. Did it end well? Depends if the employer puts the manner of termination on the certificate (optional). Does it mention anything else? No, just the fact that you worked.
Clearance says, "Now that you're leaving the company, we checked if you have pending liabilities with us, and we found none. You're free to go." The clearance speaks more towards unfinished business, pending tasks and any liabilities left unsatisfied.
What does the Certificate of employment have to say?
If you need help drafting a Certificate of Employment, I wrote about that in the article "When Should an Employment Certificate be Issued?" which included the suggested format:
"CERTIFICATE OF EMPLOYMENT
This is to certify that Mr./Ms. ____________________ has been employed with me as (Position) for 5 years from ____________ to _______________.
This is simple, but I'm happy because it gets the job done.
Don't panic... you have time to sort things out
What the labor advisory tackles is the certificate of employment, not the clearance. Let's be clear with that. Some people panic and say, "Attorney, we can't possibly check all liabilities with 3 days!"
Well, the law doesn't expect you to. You have 30 days to sort out liabilities. You are only expected to certify the fact of employment within the 3 days. Therefore, you can maximize the 30 days to sort out any liabilities and pending deductions so you can apply it to the final pay which will be released at the end of that period.
So that's it for this edition, folks! Hope we were able to clear a few things for you. FYI, if you need help with AWOL Cases, we came up with a free video series on that. Download it here.