One of the most stressful situations that you can be is when you are laid off from your job. It could be because the company is downsizing, you have committed a grievous offence or it could be that the business is closing down.

If you are in this situation, you may receive benefits from your employer and one of them is separation pay.

Before we further discuss on how to compute your separation pay, it would be best to list down the possible reasons as to when you are qualified to receive it.

What is Separation Pay?

Separation pay is a compensation amount that you will earn when you are dismissed for sanctioned reasons under the Labor Code of the Philippines where by the causes are the following

  • Closure of establishment’s operations
  • Retrenchment
  • Redundancy
  • Installation of profession-saving devices

How would an employer explain my cancellation for these causes?

When firing workers for authorized reasons, the employer should share paperworks and take due process.

If your dismissal is because of retrenchment which is one of the qualifications, your employer should supply evidence of any real or forthcoming loss of nature.

However if the cessation of your contract is related to redundancy, the employer must prove that there is good faith in removing the obsolete role and that the allocation of workers for dismissal is rational and appropriate.

Your employer can also fire you on the grounds of sickness, but only upon receipt of a certificate from the qualified public health authority. The certificate should indicate that the condition is at a point at which it cannot be treated within six months, except with adequate medical attention.

Final compensation against Separation pay

There is a dissimilarity between the final compensation and the pay for separation. Final compensation is the cumulative amount that you will get from the employer if you have voluntarily resigned (or have been fired for just cause). Your final payment can include the following:

Final compensation against Separation pay

There is a dissimilarity between the final compensation and the pay for separation. Final compensation is the cumulative amount that you will get from the employer if you have voluntarily resigned (or have been fired for just cause). Your final payment can include the following:

  • Final Wage
  • Pro-rated allowance for the 13th month
  • Excessive taxes withheld
  • Conversions of cash for unused sick days and holiday leaves
  • Cash bond/s or some kind of reserves due for the employee’s return, if any
  • Other forms of compensation under an individual or joint arrangement, such as commissions

Separation pay, on the other hand, is another payment given in addition to your final pay, whether you have been dismissed due to the authorized grounds specified in the Labor Code.

Who is allowed to compensate for separation?

You can obtain a separation payout from your employer if you have been dismissed due to the official reasons already described above. However, once you have been laid off, you will not get compensated for separation unless the closing of the business is attributed to financial losses.

The company should send you a notice of dismissal detailing the reasons for the dismissal at least 30 days before the date of termination. The organization may also submit a copy of the notification to the Regional Office of the Department of Labor and Employment (DOLE) where the employer is based.

Who are not eligible?

You are not entitled to separate pay once you have willingly withdrawn unless it is listed with the contract or business policies. Although, you are always going to have the final payout.

You still can not deserve to obtain separation pay if you were discharged for only reasons. According to the Labour Code of the Philippines, these factors are the following:

  • Severe misconduct or willful violation by an employee to the lawful commands of his supervisor or delegate in accordance with his work;
  • Gross and habitual negligence of duty by the employee
  • Fraud or deliberate violation by the confidence employee of his employer or a properly designated delegate
  • The committing of a felony or an offense by an employee against the person of his employer or any immediate family member or his or her properly approved representatives

In addition, the boss is not forced to send you a length of notice if you have been fired for just cause.

How much pay for separation?

The sum you will receive for your separation pay depends on the business years of operation and monthly compensation. Often the justification for termination can influence how much separation compensation you will receive.

  • Termination owing to redundancy or labor-saving equipment.

    If you’ve been fired for either of these, you’ll get a separation pay equivalent to your monthly basic pay or monthly basic pay compounded by the amount of years you’ve represented the business, whichever is greater.

    ┬áSeparation pay = (one month’s salary) x (years served)
  • Termination due to decline or closing of company

    If you were discharged for each of these approved reasons, you may obtain a separation pay equal to your basic one-month salary or at least half of your basic wages for each year you represented the organization, whichever is greater.

    Separation Pay = (one month’s salary) / 2 x (years served)
  • Health-related termination

    If you’ve been discharged due to health threats, you can get a termination pay equivalent to your regular monthly salary or at least half your basic payments for each year of service, whichever is greater.

    Formula: as above

When calculating the separation pay, notice that as a whole, companies consider a service lasting more than six months but less than a year.

How to compute separation compensation

Information you require to calculate separation pay

  • Years you have been working with the business
  • Justification for termination
  • Your basic monthly salary
  • Separation pay estimation basic formula: Basic monthly wage x years OR Basic monthly wage / 2 x years of service

Here are example scenarios for separation, minimum monthly compensation, and years of service.

Example 1

Jean’s basic monthly salary is P25,000.00. He has been with the business for five years and has been laid off lately because of redundancy.   Jean’s payroll separation is:

P25,000 x 5 (years of service) = P125,000

Because of redundancy, Jean will earn a separation pay of P125,000.

Example 2

April had been with her organization for seven months before she was terminated by labor saving machines. Her minimum monthly salary was P50,000. 

April’s payroll separation is: P50,000 x 1 =50,000

Since April was with the organization for seven months before being laid off, her period of work is equivalent to one year of work, since it is more than six months but shorter than a year.

Example 3

Promise has spent 10 years with her organization collecting PHP 60,000 monthly minimum salary. She was fired when her business ceases activities. She would earn half of her basic monthly pay compounded by the years she represented the organization.

Payroll separation is: ( P60,000 / 2) X 10 (years of service) = P300,000.

Example 4

Jose’s been with his organization for four years, receiving 15,000 standard monthly salary PHP. He was fired for fitness. A public health body certified him that his illness cannot be healed within six months. His employer gives him a termination pay equal to half of his basic monthly salary, compounded by years he represented them.

(P15,000 / 2) X 4= P30,000

He’ll get P30,000 separate salary. This is because the calculated sum exceeds Jose’s one-month minimum wage.

In these cases, separation compensation is measured ONLY. You’ll also get the last payout in addition to the termination pay if you’ve been discharged owing to an approved reason.

How long do you wait for your separation to be paid? 

The same moment you earn your final compensation you can expect the separation pay. Within thirty (30) days after your termination, you can expect all compensation whether you choose a more desirable corporate policy, or have a contract with your boss.