The Difference between Final Pay, Separation Pay, and Back Pay: Everything You Need to Know

2 minutes read

When an employee is terminated, they are entitled to certain types of payment depending on the situation. These include final pay, separation pay, and back pay. In this blog post, we will explain the difference between these types of payments and everything you need to know about them.

1. What is final pay?

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When you resign, you will be eligible for a final paycheck, also known as Final pay. This will include all of the wages you have earned but have not yet been paid, as well as a pro-rated 13th-month pay. If your company policy allows for it, you may also be able to convert some of your leave credits into cash.

2. What is separation pay?

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There are several reasons why you may be eligible for separation pay, such as if the company is closing down or if you have an illness or disability that prevents you from working. The amount of separation pay you receive will depend on the reason for your separation and your years of service with the company. If you are fired due to the company closing down or because the company has installed new technology, you will receive one month’s salary for every year you have worked with the company. However, if you are fired due to downsizing or illness/disability, you will only receive half a month’s salary for every year you have worked with the company. 

3. What is back pay?

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When you win a case against your company, you may be eligible for back pay. This is the pay for the days since you were fired from the company that you should have paid. For example, if you were fired and filed a case with the DOLE (Department of Labor and Employment), and won your case, you could receive back pay.

To wrap things up

The terms “back pay,” “final pay,” and “separation pay” are often used interchangeably, but they actually have different meanings. When you resign from your job, you should ask for final pay. If you’re laid off*, you may be entitled to separation pay. And if you win a lawsuit against your employer**, you may be owed back pay.


Lorence Laudenio

Lorence is an IT grad who loves to travel. He shares tech updates, trends, and his travel journey, aiming to inspire others by blending his passions.

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