Separation Pay Computation Guide in the Philippines

Have you lost your job recently due to the COVID-19 crisis?

A classic “It’s not you, it’s me” moment, getting laid off can be very stressful and devastating during the pandemic. Employment termination is common nowadays, with the unemployment rate in the Philippines soaring to 8.9% in September, the highest for 2021.^[1]

Upon learning the shocking news, you should know the details about the compensation you may receive from your now ex-employer. One of these benefits is the separation pay, which can support you financially until you've found a new job.

Keep on 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:^[2]

Redundancy
Retrenchment to prevent losses
Closure or cessation of business
Installation of labor-saving devices
Employee is suffering from a disease and continued employment is prohibited by law, prejudicial to their health, as well as the health of their co-employees

How Must an Employer Justify a Termination?

Separation Pay Computation - Reasons for 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 ground of disease, but only upon getting a certificate by a competent public health authority. The certificate should state that the disease is at a stage that it cannot be cured within six months even with proper medical treatment.

What is the Difference Between Final Pay vs 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 resigned (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 can 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.^[3]

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?

Are all terminated employees entitled to separation pay, you might wonder. 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 will still get your back pay after 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.^[4]

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, giving 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

separation pay computation formula philippines

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.

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 rounds off a service of more than six months but less than a year to a whole year.

Sample Separation Pay Computation in the Philippines

sample separation pay computation 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

The 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 PHP 25,000. He has been with the company for five years and was recently laid off due to redundancy.

Karlo’s separation pay computation:

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

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

Example 2: Installment of Labor-Saving Devices

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

Nathalie's separation pay computation:

PHP 50,000 x 1 = PHP 50,000

Since Nathalie was with the company for seven months before being laid off, her employment duration is equal to one year of service because it is more than six months but less than a year.

Example 3: Business Closure

Janna has been with her company for 10 years, earning PHP 60,000 monthly basic pay. She was dismissed because her company is stopping its operations. According to her notice, she will get half of her basic monthly salary multiplied by the years she served the company.

Janna's separation pay computation:

PHP 60,000 (monthly basic compensation) divided by 2 X 10 (years of service)= PHP 300,000

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

Example 4: Health Risk

Neri has been with his company for four years and earning PHP 15,000 of basic monthly pay. He was dismissed due to his serious health condition. He was given a certificate by a public health authority that his disease cannot 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:

PHP 15,000 divided by 2 X 4= PHP 30,000

He'll receive a separation pay of PHP 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.

Read more:

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 an agreement with your employer.

Final Thoughts

Losing your job for reasons out of your control can still hurt. 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 how much you can get to save yourself from further stress. The money you may get can also help you make ends meet while you look for another source of income.