Separation Pay

Separation PayAuthorized Causes

29 October 2016

CoverageSeparation pay is given to employees when termination is for authorized causes, namely:1. Installation of labor-saving devices;2. Redundancy;3. Retrenchment;4. Closing of a business – not due to serious financial

losses;5. Disease; or6. Impossible reinstatement.

Citation: 2016 Handbook on Statutory Monetary Benefits by DOLE-BWC

Computation½ month pay per year of service:1. Retrenchment to prevent losses (i.e., reduction of

personnel effected by management to prevent losses); 2. Closure or cessation of operation of an establishment

not due to serious losses or financial reverses; and3. When the employee is suffering from a disease not

curable within a period of six (6) months and his/her continued employment is prejudicial to his/her health or to the health of his/her co-employees.


Computation1 month pay per year of service:1. Installation by employer of labor-saving devices; 2. Redundancy, as when the position of the employee has been found to

be excessive or unnecessary in the operation of the enterprise; and 3. Impossible reinstatement of the employee to his or her former

position or to a substantially equivalent position for reasons not attributable to the fault of the employer, as when the reinstatement ordered by a competent authority cannot be implemented due to closure or cessation of operations of the establishment/employer, or the position to which he or she is to be reinstated no longer exists and there is no substantially equivalent position in the establishment to which he or she can be assigned.


ComputationRegardless of the computation or ground:1. A fraction of at least six (6) months being considered

as one (1) whole year. 2. The minimum is 1 month pay.


Notice of Termination“The employer may terminate the employment of any employee due to the above-mentioned authorized causes by serving a written notice on the employee and the Department of Labor and Employment through its regional office having jurisdiction over the place of business at least one (1) month before the intended date thereof.”

Important: For disease, case law requires termination to be made following just cause procedure. (See next slide.)


Case LawDeoferio v. Intel Technology Philippines, Inc. (2014)"The Labor Code and its IRR are silent on the procedural due process required in terminations due to disease. Despite the seeming gap in the law, Section 2, Rule 1, Book VI of the IRR expressly states that the employee should be afforded procedural due process in all cases of dismissals."In Sy v. Court of Appeals and Manly Express, Inc. v. Payong, Jr., promulgated in 2003 and 2005, respectively, the Court finally pronounced the rule that the employer must furnish the employee two written notices in terminations due to disease, namely: (1) the notice to apprise the employee of the ground for which his dismissal is sought; and (2) the notice informing the employee of his dismissal, to be issued after the employee has been given reasonable opportunity to answer and to be heard on his defense. These rulings reinforce the State policy of protecting the workers from being terminated without cause and without affording them the opportunity to explain their side of the controversy."

Citation: Deoferio v. Intel Technology Philippines, Inc., G.R. No. 202996, 18 June 2014

Basis“The computation of separation pay of an employee shall be based on his/her latest salary rate.”

Regular Allowance: “In the computation of separation pay, it would be error not to integrate the allowance with the basic salary. The salary base properly used in computing the separation pay should include not just the basic salary but also the regular allowances that an employee has been receiving.”


Exempt from Income Tax“Exempted from taxation is the separation pay received by an employee as a result of his/her separation from the service of the employer due to death, sickness or other physical disability or for other cause beyond the control of said employee such as retrenchment, redundancy or cessation of business operations.”


For more information:

Labor Law ComplianceBest Practices for Human Resource

www.laborlaw.ph

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