Separation Pay Computation in the Philippines: An Easy Guide

The worst of the pandemic may be over, but thousands are still losing their jobs in 2023—even in big companies such as Wyeth, ABS-CBN,^[1]Grab,^[2] Google, and Meta.^[3]

A classic “It’s not you, it’s me” moment, getting laid off can be very stressful and devastating. Upon learning the shocking news, you should ask for details regarding the compensation you may receive from your now ex-employer—particularly separation pay, which can help tide you over during unemployment.

Keep reading to know more about separation pay computation in the Philippines and whether you qualify for it.

What is Separation Pay and How Does It Work?

Separation pay, also known as severance pay, is the amount you may get if you're terminated from work due to authorized causes.

The Labor Code of the Philippines defines the following as authorized causes for a job termination:^[4]

Redundancy
Retrenchment to prevent losses
Closure or cessation of business
Installation of labor-saving devices
Disease prejudicial to their health, as well as the health of their co-employees

❓ How Should Employers Justify a Termination?

Your employer should submit documents and undergo due process when terminating employees because of authorized causes.

If your dismissal is due to retrenchment, your employer should submit proof of actual or imminent financial losses that are substantive in character to justify this authorized cause.

However, if the termination is due to redundancy, your company must show that there is good faith in eliminating the redundant position and the selection of employees for dismissal is fair and reasonable.

Your company can also terminate you on the grounds of disease but only upon getting a certificate from a competent public health authority. The certificate should state that the disease is at a stage where it cannot be cured within six months even with proper medical treatment.

❓ What is the Difference Between Final Pay and Separation Pay?

Final pay and separation pay are two different types of cash benefits. Final pay, also called back pay, is the total amount you may get from your company if you resign (or you were dismissed due to a just cause).

Your final pay may include the following:

Final salary
Pro-rated 13th month pay
Excess taxes withheld
Compensation for unused leave credits, if applicable
Cash bond/s or any kind of deposits due for return to the employee, if any
Other types of compensation stipulated in an individual or collective agreement

On the other hand, separation pay is another compensation given to you, in addition to your back pay, if you were terminated due to the listed authorized causes.

Who Qualifies for Separation Pay in the Philippines?

separation pay computation - who is qualified

You'll receive separation pay from your former employer if you're terminated due to any authorized cause as stated in the Philippine Labor Code.

However, the employer is not required to give severance pay to its laid-off employees if the company has closed down due to financial losses.^[5]

Your employer should give you a notice of dismissal specifying its grounds at least 30 days before the termination effectivity date. The company must also send a copy of the notice to the Regional Office of the Department of Labor and Employment (DOLE) where the employer is located.

❌ Who is Not Entitled to Separation Pay?

You might be wondering whether all terminated employees are entitled to separation pay. The short answer is no.

Don't expect to receive separation pay if you've resigned, unless this benefit is included in your employment contract or company policy. However, you'll still get your back pay after your resignation.

If you're dismissed from work due to any of these just causes (as stated in the Labor Code), you also don’t qualify for separation pay.^[6]

Serious misconduct or willful disobedience by the employee of the lawful orders of their employer or representative in connection with their work
Gross and habitual neglect by the employee of their duties
Fraud or willful breach by the employee of the trust reposed in them by their employer or a duly authorized representative
Commission of a crime or offense by the employee against the person of their employer or any immediate member of their family or their duly authorized representatives

In short, separation pay is not mandatory for a termination due to the employee's fault. Additionally, your employer is not required to give you a notice period if you're dismissed for a just cause.

How to Compute Your Separation Pay

The amount you can get for your separation pay depends on the number of years you've rendered service to the company and your monthly compensation. The reason for termination may also affect how much separation pay you can get.^[7]

✏️ Separation Pay Computation: Termination due to Redundancy or Installment of Labor-Saving Devices

You'll get a separation pay equal to your monthly basic pay or your monthly basic pay multiplied by the number of years you’ve served the company, whichever is higher.

Here's the formula:

Separation pay = One-month salary x Number of years served

✏️ Separation Pay Computation: Termination due to Retrenchment, Business Closure, or Health Risk

You can receive separation pay equivalent to your one-month basic pay or at least half of your basic compensation for every year you served the company, whichever is higher.

Here's the formula:

Separation pay = (One-month salary) ÷ 2 x (Number of years served)

Note: When computing separation pay in the Philippines, employers round off a service of at least six months but less than a year to a whole year.

Sample Separation Pay Computation in the Philippines

Here's a detailed guide (with several computation samples) you may refer to when computing how much you'll get after your dismissal from work.

👉 Details to Gather for Calculating Your Separation Pay

Number of years you served the company
Reason for termination
Your basic monthly compensation

👉 General Formula for Separation Pay Computation

Basic monthly salary x years of service OR
Basic monthly salary ÷ 2 x years of service

Below are sample scenarios with different reasons for termination, basic monthly pay, and years of service.

Example 1: Redundancy

Karlo’s basic monthly compensation is ₱25,000. He has been with the company for five years and was recently laid off due to redundancy.

Karlo’s separation pay computation:

₱25,000 (basic monthly pay) x 5 (years of service) = ₱125,000

Because he was terminated due to redundancy, Karlo will receive a separation pay of ₱125,000.

Example 2: Installment of Labor-Saving Devices

Nathalie had been with her company for seven months when she was terminated due to the installment of labor-saving devices. Her monthly basic compensation was ₱50,000.

Nathalie's separation pay computation:

₱50,000 x 1 (year of service) = ₱50,000

Since Nathalie was with the company for seven months before being laid off, her employment duration is rounded up to one year of service.

Example 3: Business Closure

Janna has been with her company for 10 years, earning ₱60,000 monthly basic pay. She was dismissed because her company decided to stop its operations. According to her notice, she'll get half of her basic monthly salary multiplied by the years she served the company.

Janna's separation pay computation:

₱60,000 (monthly basic compensation) ÷ 2 X 10 (years of service) = ₱300,000

Janna will receive a separation pay of ₱300,000 instead of just ₱60,000 because the former is higher.

Example 4: Health Risk

Neri has been with his company for four years, earning ₱15,000 worth of basic monthly pay. He was dismissed due to a serious health condition. He was given a certificate by a public health authority, asserting that his disease could not be cured within six months.

His company is offering him a separation pay equivalent to half of his monthly basic compensation, multiplied by the years he served them.

Neri’s separation pay computation:

₱15,000 ÷ 2 X 4 (years of service) = ₱30,000

Neri will receive a separation pay of ₱30,000. This is because the computed amount is higher than Neri’s one-month basic salary.

In all these computation samples, only the separation pay is calculated. You'll still get your final pay, on top of separation pay, if you're terminated due to an authorized cause.

How Long Does It Take Before You Get Separation Pay?

You should receive your separation pay at the same time you receive your final pay. You should receive both within 30 days from your termination effectivity date, unless there is a more favorable company policy, or you have a different agreement with your employer.

Final Thoughts

Losing your job for reasons beyond your control hurts. However, know that you're entitled to separation pay if your termination is due to an authorized cause.

You should understand how this benefit works and the basics of separation pay computation to spare yourself from further stress. After all, this money can help you make ends meet while you look for another source of income.

Sources:

^[1]A quick look at retrenchment, redundancy and the rights of laid-off workers (Philstar, 2023)
^[2] Grab confirms layoffs in PH business (Inquirer, 2023)
^[3] Tech firms laid off 200K workers from Jan-May: report (PNA, 2023)
^[4]Termination of Employment (DOLE)
^[5]When is an Employee Entitled to Separation Pay? (Nicolas & De Vega Law Offices)
^[6]Notice of Severance (Mywage.org, 2023)
^[7]Separation Pay (Labor Law PH, 2022)

Laid Off? Here’s How to Compute Separation Pay in the Philippines

Moneymax Editorial Team

What is Separation Pay and How Does It Work?

❓ How Should Employers Justify a Termination?

❓ What is the Difference Between Final Pay and Separation Pay?