How to compute separation pay in the Philippines according to the Labor Code? Separation, especially when employer-employee relationships are already well-established within the workplace, is one happening that can be heartbreaking. But as the old saying says, “the only permanent thing in this world is change”. People change; people reach the point that they need to take new steps and directions. For this kind of situation, what we can only do is to hope for the best and do the things that are necessary. Thus, employers should take responsibilities and obligations, and give what is lawfully due to their terminated employees. On the other hand, employees, who are terminated or have decided to resign, should know their rights and understand how to exercise them. The following are guidelines on the computation of separation pay.
Who are entitled to separation pay?
Separation pay is given to employees whose services are terminated by their employers for the following reasons as stated by Articles 283 and 284 of the Labor Code as follows:
Art. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.
Art. 284. Disease as ground for termination. An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees: Provided, That he is paid separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary for every year of service, whichever is greater, a fraction of at least six (6) months being considered as one (1) whole year.
Who are not entitled to separation pay?
An employee may also be terminated for just causes as enumerated below under Article 282 of the Labor Code. Generally, employees falling under this article are not entitled to separation pay.
Art. 282. Termination by employer. An employer may terminate an employment for any of the following causes:
a. Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;
b. Gross and habitual neglect by the employee of his duties;
c. Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;
d. 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; and
e. Other causes analogous to the foregoing.
Are employees who voluntarily resign entitled to separation pay?
Generally, an employee who resigns is not entitled to separation pay except when it is stipulated in his employment contract or collective bargaining agreement, or such is an established practice or policy of the company. An employee resignation is presumed to be voluntary.
Is separation pay taxable?
Under Section 32(B)(6)(b) of the 1997 Tax Code, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The phrase “for any cause beyond the control of the said official or employee” in effect connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be of his own making. (Sec 4(f). Revenue Regulations No 1-68; Sec 2(b)(2), Rev. Regs. No 6-82, as amended). Therefore, separation pay under the foregoing ruling shall not be subject to income tax and consequently to withholding tax.
Other notes in computing Separation Pay
The amount of the separation pay shall be multiplied with the number of years of actual service. In computing the length of service, a fraction of at least six (6) months is considered as one (1) whole year. The computation of separation pay shall be based on the latest salary rate, unless the same was reduced by the employer to defeat the intention of the Labor Code, in which case, the separation pay shall be based on the rate before the deduction.
Disclaimer: New and subsequent issuances, rulings, or laws may cause the whole or part of the article inaccurate or obsolete. It is advised to make inquiries with the Department of Labor and Employment for more information.
Victorino Q. Abrugar is a marketing strategist and business consultant from Tacloban City, Philippines. Vic has been in the online marketing industry for more than 7 years, practicing problogging, web development, content marketing, SEO, social media marketing, and consulting.
Good day! I will be resigning sa company ive worked for 16 yrs.. and ang binibigay po nila sa nag r resign is 10000 for every 5 yrs of service, tama lang po ba yun ang makuha?
Hi Monique. Can you confirm with your employer what is the 10,000 for? Is it separation pay or some other pay? Actually, separation pay is only given to employees who are terminated by their employers for the reasons stated in the Articles 283 and 284 of the Labor Code (see the Article above). Employees who are voluntarily resigning are not usually eligible for a separation pay.
Hi po! Ask ko lang magkano mkukuha ko backpay? Voluntary resignation po date hired feb 2014 and my resignation effective march 19, 2018. Minimun wage po kmi ngayon 512. Naging provi po ako ng 10mons bago naging regular. Magkano po makuha ko at pasama lo ng formula ng computation. Thanks
Ask ko lang po, meron kasing “or”.
confused lang ako.
4years ako sa company and my basic is 16k
is this right? 32K separation pay?
pano ko malalaman kung 16K “or” 32K ang makukuha ko?
company ba pipili kung once month salary lang ibibigay na separation pay or yung 32K?
Sir/ma’am, good day.juz wanna ask if makakatanggap b ko ng back pay,i resigned voluntarily.i started at the compny on Oct. 2, 2012 and a regular employee on Jan.2, 2013.My gross pay is 17,402.I resigned on Feb 16, 2018..if ever,how to compute my backpay?.tnx
Hi Sir/Mam,
Good day,
I started working in a BPO company Nov. 28 2017 and my termination date is on Mar. 2 2018 due to redundancy and my monthly salary is 14,500. How much will i get on my separation pay?
If my computation is right ( 14,500 x 1yr. 4mons = 14,500) Im sorry im so confused about the 6mons = 1yr of service. I thought 1yr of service is equivalent to x2. Can you help me?
Thanks.
I think 1month pay marereceive mo
Kasi 4mos is equivalent to zero years, so
14500×0= 0
Pag naka 6mos ka, 1 year of service na equivalent nun.
Ex 1 yr and 7months = considered 2years of service na, x2 of your basic monthly rate na
correct
Under the Labor Code of thd Philippines, Book 6, Art 287
“1/2 month salary” shall mean 15 days plus 1/12 of the 13th month pay & the cash equivalent of not more than 5 days of service incentive leave.
If this formula will be used in computing the separation pay. Do I need to give my employees their pro-rated 13th month pay & unused service incentive leave?
Thanks
Hi po,
Included po ba sa separation pay yung remaining leave credits? 13th month? And taxable po if separation pay is due to redundancy? TIA
yung remaiining leave credits mo should be included sa backpay mo hindi sa separation pay. and nontaxable po ang separation pay.
magsasara companya declared as bunkrupcy
magkano kaya makukuha? lets say mininum ngaun 2018 metro manila area
Hi Sir/Mam.
Just want to ask if legal po ba na hold and 2 payroll period payouts as part ng back pay? Legal din po ba na holding period is 40 days until ma-complete and Exit Clearance pero nakapagcomply naman po sa exit documents required? Legal din po ba na ang COE ay lagyan ng note na “with pending accountability” after full compliance to resignation policy and wala naman po basehan yung “pending accountability” sa part ko?
Thank you po Sir.
hello. i have been working at a government hospital for 5 years.i had 3months sick leave during my second year of service.how will it affect my length of service for computation of the separation fee?i understand that we are entitled 1month’s salary X years of service as the total fee.how will the months of sick leave be deducted from the total fee?thank you
Hi,
Good morning po hope this trail still works. Im currently in the process of redundancy to which just have received my Final 30 daya notice, which stated that the package is Basic x Yrs of service. I have been working sa Company for 11years tama po ba na Basic or dapat 1 Month salary? Or clarify is allowances included in the computation? And should be tax free or exempt? Coz pinakita sakin na draft computation po is package is taxable.
Hello Gerard. The law states that it should be based on an employee’s latest month pay. When we say month pay, it could not only include basic pay but may also include regular allowances. Take note, that it may only include regular allowances, not temporary allowances.
Also, separation pay caused by the employee’s involuntary separation from the employer is not taxable.
The general rule is that separation pay received by an employee because of death, sickness, or other physical disability, or for any “cause beyond the control of the employee”, is exempt from income tax, and consequently from withholding tax.
On the other hand, if your separation is caused by your voluntary resignation and yet your employer still gives you separation pay, your separation pay should be taxable.
Mag tatanong lang po kung gaano po ba katagal maibibigay ang separation pay..mahigit 3months na po kasi mula nung effective resignation ko sa company..hanggang ngayon wala pa po nattanggap..
Hello po! Im just curious to ask. I am 8 yrs employed and the company change their tradename. Is that fair for us employee to get separated from the old company without pay? I mean, the owner before is the parents and was change by their childrens. More power and hope to recieve feedback from it soon.
Thank yoy
Hello Mary. If you were separated or terminated by your employer for the reasons as stated by Articles 283 and 284 of the Labor Code shown in the article, then they have to pay you a separation pay. You may go to the National Labor Relations Commission to seek necessary action if you believe that your employer has violated your rights as an employee.
Good day Sir/Maam
Ask ko lang if required ba talaga i-deduct ang total amount of your loan payments sa mari-receive na last pay? May kasamahan po kasi ako na wala siyang natanggap kahit na piso sa last pay niya kasi dineduct ng company lahat, including his SSS and PAG-IBIG loan payments. Thank you and more power!
Hello. Generally, the Labor Code prohibits withholding of wages and kickbacks without proper consent of the employee. However, there are instances that employers may deduct debts that are demandable and due to them. In case of SSS and Pag-ibig loans, employers can only deduct if those loans are already due and the employer is mandated by the government to remit them to the BIR. If the SSS and Pag-Ibig contributions or loans are not due or the employer is not mandated to remit those to the government, then they should not deduct.
Check the computation of the deductions. Maybe the employer has no authority to deduct the total amount of the loans. You may also consult with a labor adviser to confirm the issue.
sir ask lng po,I working private construction company po. I started employed January 5, 2012 then finished contract na po namin September 2, 2018 tapos now clearing nlng po kami at maliit nlng po kami ang naka duty. Ang sabi po ng Employer namin eh wala daw po kami matatanggap ng separation fee kasi construction company daw po ito at project base lng daw po kami..Tama po bha sir na wala kami matanggal sa haba ng year of service naman sa company?
Hello Geneirose. If your contract is not actually an employer-employee contract, but a contract of service then you may not be considered an employee but a contractor. Hence, you may not be entitled to a separation pay which is only given to employees who separated or whose employment is terminated by the employer due to the causes enumerated in the article above. Please check your contract to clarify the status of your employment. You may also consult with the Department of Labor to clarify things.
Thank you.
good day!
i wanna ask about separation pay.our company where going to reduct workers,almost all of us.or sabihin nalng natin na hindi kami terminate.i’ve worked for 1 year and 9 months(13,000.00 monthly salary).
hoping for your lawful advice.
Thank you and Godbless!
Hello Lin. If your employer terminated your employment due to a reduction of workers, you may be entitled to separation fee. The separation pay, in case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. In this case, your estimated separation pay might result to P13,000 based on the above formula (whichever is higher between P13,000 (one month pay) or P13,000 (6,500 x 2 years).
In case of termination due to the installation of labor-saving devices or redundancy, the separation pay is equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. It will be P26,000 which is (13,000 x 2 years).
Please clarify with your employer first the cause of termination to determine the correct computation. Please consult also with DOLE for more confirmation. Thank you.
I was asked to resign due to redundancy issue from the office. Ask ko lang yung computation ba for severance pay kasama ba ang language premium (language alliance) or naka base lang sa basic salay?
Hi good morning i am planning to resigned on my current job by end of February 2019 and that would be 5 years and 11 months to be exact. My current basic salary is 19900 including my meal allowance but my basic pay is 17800. How much would be my possible separation pay to be receive? Thank you.
Good Day,
Ako po si Raniel under po ako ng agency for the past 10 months ngayon po aabsorb ako ng company as direct hire for probationary. May matatanggap po ba ako na separation pay galing doon sa dating agency na may hawak sakin?
Hello Raniel,
If the reason for your separation from your previous agency is your voluntary resignation and option to leave them to get the job offered by the other agency, then basically, you are not entitled to a separation pay. It is now up to your previous agency’s decision if they will give you any separation pay.
Separation pay is only given to employees who were terminated due to the following as mentioned in the article:
Art. 283. Termination due to closure of establishment and reduction of personnel.
Art. 284. Termination due to disease.
Guys. Magkaiba ang backpay at separation pay. Backpay ay binibigay sa mga employee na voluntary na nag resign sa company. Separation pay is binibigay ng company sa isang employee na kailangan na i-let go for some reason like redundancy or retrenchment.
http://www.laborlaw.usc-law.org/2011/09/03/computation-of-separation-pay/
binenta yung mga sasakyan ng company ( taxi at franchise lang ). pero andun pa rin yung office at lupa. 5 yrs ako sa kumpanya. pero 1/2 lang ng salary ko yung binayad sa akin times 5 yrs. tama ba yung binayad ?
Hello Imelda, Yes, your employer may be right on its computation. It seems it falls under Art. 283 of the labor code ( Closure of establishment and reduction of personnel – please read the article above). In that case, the separation pay is equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher.
Pano po pag 6 months lang magkano po ba makukuha???ang monthly salary ko po ay 12.000 magkano po makukuha ko??? Salamat in advance
Hello Jerset. It will depend on your actual case.
If you are separating from your company by way of voluntary resignation, then you are basically not entitled to separation pay, except for the scenarios mentioned in the article.
In case of retrenchment to prevent losses and in cases of closures or cessation of business operation or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.
In case of a disease as ground for termination, the separation pay is equivalent to at least one (1) month salary or to one-half (1/2) month salary for every year of service, whichever is greater, a fraction of at least six (6) months being considered as one (1) whole year.
Dear Sir,
Our company will offer a redundancy package 8 months from now due to they will transfer to other country which has cheaper labor.
I officially started Jan 26, 2015 and our last day will be july 19, 2019.
I’m 7 days short to be 4 years and 6 months. is it lawful to consider that as plus one more year in regards to the computation as it is just 7 days short to be 4 years and 6 months so that i could get x5 of my salary that could help me start a new chapter of my life. Thanks for the response..
Kung Hindi po makakakuha ng separation pay Ang mga voluntary resign mas ok po ba Kung magpaterminate na lang para makakuha ako separation pay like excessive absence reason.
good day sir, may kasama ako sa trabahu na terminate sya kasi sa mga incidents na nagawa nya, but ung pagtanggal nya is trough phone call lang ng hr by the time kinabukasan ay hindi na sya pinapapasok sa trabahu, is it a considered a illegal termination kahit wala pa na issue na legal papers. at according to the law illegal dismisal is also entitled a separation pay. please answer my question , pls pls pls
Hi! Redundant po ako. I started August 5,2013
Binigay sakin ng employer ko yung redundancy letter last January 4, 2019 then + 1month notice will be February 3, 2019. Sa labor code, fraction of atleast 6months are equal to 1 year. Sa akin po pede po ba maconsider yung Aug. 5, 2018 – February 3, 2019 as 6months for 1 day difference only na sana ay February 4 ang effective date.? meron po ba sa labor code yun para maconsider? Para maging 6years po ako instead of 5years only. Thanks.
Hi Geh ,
Please find the answer in our forum
https://businesstips.ph/forum/whats-your-problem/philippines-labor-code/
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Good day po,can i ask a question how to inform or what document use para mag pa resign ng employee na incompetent na to fit for work at dahil may edad(58 yrs old) na rin e outside work pa nakamotor working for 6 years and 5 months .pati how to compute separation pay ,lalo na nakaka experience ang company ng financial losses dahil ang mga work na cater by the company ay under contract din,which affect the company’s financial standing, Please reply and need your advice.
Hi Thess ,
Please find the answer in our forum
https://businesstips.ph/forum/whats-your-problem/terminating-employee-because-they-are-incompetent/
We will disable comments on the posts and don’t answer the questions here. If you have a question, please post it to our forum. Thank you.