A Guide to Separation Pay in the Philippines

Published: June 19, 2020 | Posted by: Moneymax | Government Services


Separation Pay in the Philippines | Moneymax

One of the most stressful experiences you may face in your professional life is being laid off due to unforeseen circumstances. A classic “it’s not you, it’s me” moment, losing your job can be confusing, especially now when the unemployment rate in the country has already soared to 17.7%[1].

Upon receiving the bad news, you should know the details about the benefits you may receive from your employer. One of these benefits is separation pay. Keep on reading to know more about separation pay, whether you are qualified to receive it, and how to compute the amount you may get.

What is separation pay?

Separation pay is the amount of compensation you may get if your termination is due to authorized causes. According to the Labor Code of the Philippines, these causes are:

  • Redundancy
  • Retrenchment
  • Closing or cessation of operation of the establishment
  • Installation of labor-saving devices
  • Employee is suffering from a disease and  continued employment is prohibited by law, prejudicial to his health, as well as the health of his co-employees

With these causes, how can an employer justify my termination?

Separation Pay in the Philippines - 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.

Final Pay vs Separation Pay

There is a difference between final pay and separation pay. Final pay is the total amount you may get from your company if you voluntarily 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 final pay, if you were terminated due to the listed authorized causes.

Apply for a personal loan at Moneymax!

Who is entitled to receive separation pay?

You can receive separation pay from your company if you were terminated due to the authorized causes just mentioned. However, you may not get separation pay if you were laid off because the closure of your company is due to financial losses[3].

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

And who are not entitled?

You are not entitled to get separation pay if you voluntarily resigned and unless it is included in your contract or company policy. However, you will still get your final compensation.

If you were terminated due to just causes, you also don’t qualify to receive separation pay[4]. According to the Labor Code of the Philippines, these just causes are:

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

Additionally, your employer is not required to give you a notice period if you were dismissed for a just cause.

Read more: How to Financially Recover from Unemployment in the Philippines

How much is separation pay?

Separation Pay in the Philippines - How Much Is Separation Pay

The amount you can get for your separation pay depends on the years you rendered service to the company and your monthly compensation. The reason for termination may also affect how much separation pay you can get.

1. Termination due to redundancy or the installment of labor-saving devices.

If you were dismissed because of any of these, you will 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.

Formula: (One month salary) x (Years served) = Separation Pay

2. Termination due to retrenchment or closure of business operations

If you were terminated due to one of these authorized causes, you can receive a 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.

Formula: (One half-month salary) ÷ 2  x (Years served) = Separation Pay

3. Termination due to health risks

If you were terminated due to health risks, you may get a separation pay equal to your monthly basic pay or at least half of your basic compensation for every year of service, whichever is higher.

Formula: same as the above

When computing your separation pay, take note that employers consider a service of more than six months but less than a year as a whole year.

How to compute separation pay

Separation Pay in the Philippines - How to Compute Separation Pay

Details you need to compute 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:

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 is:

  • 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:

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 is:

  • 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:

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 is:

  • 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:

Neri has been with his company for four years and earning PHP 15,000 of basic monthly pay. He was dismissed due to his health. 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 is:

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

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

In these examples, ONLY the separation pay is computed. You will still get your final compensation, on top of separation pay, if you were terminated due to an authorized cause.

How long should you wait before getting your separation pay?

You should receive your separation pay the same time you receive your final compensation. You should receive both pays within thirty (30) days from the date of your termination, unless there is a more favorable company policy, or you have an agreement with your employer.

Read more: How to Make Your Very Own Financial Recovery Plan

Final Thoughts

Losing your job because of reasons out of your control can still hurt. However, you should know that you are 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.

Get an RFC Loan!

Sources: