Computation of Separation Pay in The Philippines

Computation of Separation Pay in The Philippines

About 4.2 million Filipinos1 have lost their employment in the year after the COVID-19 outbreak began. The incident has shown us that we cannot defend against the economic danger posed by uncontrollable circumstances.

Understanding our rights as employees, knowing how the labor code works, and computation of separation pay in the Philippines should you be terminated might help us prepare for that uncertain day. Find out who is eligible for this benefit, the requirements that must be met, and how to calculate it by reading on.

Why Is Separation Pay Required?

The additional remuneration provided to workers at the time of their termination from the firm is known as separation pay. The separation pay’s objective is to provide the employees with financial support throughout the transition from termination to job search.

However, in order for an employee to receive such compensation, certain prerequisites must be satisfied. These are referred to as approved causes, which indicates that the termination of employment must be due to legitimate business grounds as defined by the applicable labor laws, rather than an employee’s transgressions.

To Whom does Separation Pay Apply?

The Labor Code Claims That

The following approved causes are listed in the Labor Code to support the dismissal of an employee:

  • Installation of labor-saving tools: When a new piece of machinery, equipment, or automation is introduced for practical purposes like increasing productivity and reducing expenses for the company, the only other choice is to fire the employees who were using it.
  • Redundancy: Additional jobs or services are provided that are not required to run the company.
  • Retrenchment: Termination of employment is required in order to stop further or upcoming losses, whether they are anticipated or actual.
  • Closing or ceasing business activities: The management has made the choice to close or halt business operations.
  • Disease: The employee’s ongoing employment is harmful to both his or her health and the health of other employees since he or she has an incurable illness.

The Supreme Court Asserts

According to Supreme Court rulings, the following approved causes are allowed:

  • Reinstatement is no longer feasible: Due to the end of the company or because the position has vanished and there are no open positions, it is already impossible for a fired employee to return to his or her old position.
  • Strained relations: When the working environment is no longer agreeable, separation compensation is more advantageous for the employee than being reinstated or restored to his or her old job.

DOLE regulations state that

The DOLE Regulations also include the following permissible causes as extra ones:

  • Failure to assign a security guard to duty for a continuous six months;
  • Absence of age-related service assignment for a security guard; and
  • After three months, deployed employees were not reassigned.

Who Is Not Entitled to Separation Pay?

Who is Not Entitled to Separation Pay?

Contrary to permitted causes, just causes¬†are justifications for dismissal based on an employee’s conduct or activities. Unless it is specified in the employment contract, corporate policy, or collective bargaining agreement that separation pay will be provided, separation pay is not required if termination is due to one of these reasons.

The Labor Code Stipulates the Following Reasons Why an Employee May be Fired:

  1. Serious violations
  2. Willful defiance of a legal command
  3. Outrageous and persistent disregard for responsibility
  4. Fraud
  5. Intentional betrayal of trust
  6. Committing a crime against the employer, his family, or his appointed representatives
  7. Same reasons as those listed above

Employees who voluntarily leave their jobs are likewise not entitled to separation compensation unless it is expressly specified in their employment agreement or business policy that they may do so.

Additionally, if an employer can prove they have stopped their firm owing to significant financial losses, they are not required to pay their employees’ separation pay. This applies only to companies whose enterprises have ceased operations.

Two Methods for Calculating Separation Pay in the Philippines

The calculation of separation pay has two options. Keep in mind that a fraction of a year counts as one year:

If Redundancy and Labor-Saving Device Installation Lead to Dismissal

whichever is higher: one month’s income or one month’s compensation pay for every year of service.

Formula: (One Month Pay) x (Years of Service) = Separation Pay

For example, if you make PHP 20,000 per month and have 5 years of service, your separation compensation will be PHP 100,000.

20,000 x 5 = 100,000

Say you’ve worked for your current workplace for four and a half years. Since a fraction of a year is equal to one year, this will be viewed as five years.

If the Reason for Termination was a Layoff, Business Closure, or Illness

whichever is greater: one month’s pay or a half-pay month’s for each year of service.

Formula: (One Month Pay / 2) x (Years of Service) = Separation Pay

The separation pay will be PHP 50,000 with a monthly salary of PHP 20,000 and a tenure of 5 years.

(20,000 / 2) x 5 = 10,000 x 5 = 50,000

Please Note: this only applies to companies based in the Philippines. If you work for a company outside of the Philippines, they have no legal right to give you separation payment. However, most will give you a notice period if they are laying you off.

Computation of Separation Pay in The Philippines