CHAPTER 9

SEPARATION PAY
(Articles 298-299)
What is Separation
Pay?
In the Philippines, separation pay refers to the
recompense paid to employees upon termination, based
on the reason for their separation, as defined by Labor
Code Articles 298 and 299 (formerly Articles 283 and 284).
SEPARATION PAY
form of financial assistance given to employees
who are involuntarily separated from
employment. It is not automatic in all
termination scenarios, and its availability
largely depends on the specific reason for the
termination.
Article 298 Article 299

Covers termination for Covers termination due

reasons other than to the closure of an
retrenchment, such as establishment or a
redundancy or the reduction in personnel,
installation of labor- as long as the closure
saving devices wasn't due to serious
fi nancial losses
Articles 298 and 299 of the Labor Code of the
Philippines govern separation pay for
employees who are terminated for authorized or
just causes:
Authorized Causes
• Retrenchment to Prevent Losses
• Closure or cessation of operations
• Illness of the employee
• Installation of labor-saving devices
• Redundancy
Articles 298 and 299 of the Labor Code of the
Philippines govern separation pay for
employees who are terminated for authorized or
just causes:
Just Causes
• Serious misconduct or willful disobedience of lawful
orders
• Gross and habitual neglect of duties
• Fraud or breach of trust
• Commission of a crime against the employer, their
family, or a representative
An employee lawfully
dismissed for a just cause
is not entitled to any
separation pay; while an
employee separated for an
authorized cause is
entitled to separation pay
in accordance with the
rates prescribed by law.
(Chan. The Labor Code of the
Philippines Annotated –
Volume II).
WHEN IS AN EMPLOYEE ENTITLED TO A SEPARATION PAY?

Generally, separation pay is given as a consequence of an

employee's involuntary removal from his/her from employment.
Separation pay is designed to provide financial support to the
terminated employee while he/she looks for another employment.
Examples are when the employee is removed due to redundancy or
retrenchment, or when the employee is terminated but there is
actually no legal basis for such termination.
Common Misconceptions and Clarifications

1. Separation Pay vs. Retirement Pay

Employees often confuse separation pay with retirement pay.

The Retirement Pay Law (RA 7641) mandates retirement
benefits, but this applies to employees who meet the
requirements for retirement age (60 to 65 years old) with at
least five (5) years of service. Retirement pay is distinct from
separation pay and applies to voluntary retirement, not
termination.
Common Misconceptions and Clarifications

2. Separation Pay for Probationary Employees

Probationary employees, under normal circumstances, are

not entitled to separation pay if terminated within their
probationary period unless the termination is due to
authorized causes like redundancy or retrenchment.
Common Misconceptions and Clarifications

3. Separation Pay in Case of Resignation

If an employee voluntarily resigns, they are not entitled to

separation pay unless there is an express provision in the
employment contract or a company policy granting such pay.
TWO CATEGORIES OF SEPARATION PAY:
1. One-Half (1/2) Month Pay per Year of Service
if employee's separation from the service is due to any of
the following authorized causes:
a. Retrenchment to prevent losses (i.e., reduction of
personnel eff ected by management to prevent losses);
b. Closure or cessation of operation of an establishment not
due to serious losses or fi nancial reverses; and
c. When the employee is suff ering from a disease not
curable within a period of six (6) months
To c a l c u l a t e h a l f a m o n t h ' s p a y f o r e a c h y e a r o f s e r v i c e , y o u c a n u s e t h e f o l l o w i n g
formula:

Separation pay = 0.5 × Monthly salary × Years of service

Example: if an employee's monthly salary is PHP 18,000 and they

have worked for a company for 4 years, their separation pay would be
PHP 100,000.

Separation pay = 0.5 × Monthly salary × Years of service

= 0.5 × PHP 18,000 × 4 years
= PHP 36,000
The half-month salary includes:
• 15 days of salary
• The cash equivalent of five days of service
incentive leave (SIL)
• One-twelfth of the 13th-month pay
TWO CATEGORIES OF SEPARATION PAY:
2. One-Month Pay per Year of Service
If employee's separation from service is due to any of the
following:
a. Installation by employer of labor-saving devices;
b. Redundancy, as when the position of the employee has
been found to be excessive or unnecessary in the
operation of the enterprise; and
c. Impossible reinstatement of the employee to his or her
former positionor to a substantially equivalent position for
reasons not attributable to the fault of the employer
Separation pay is calculated based on the
employee's length of service and the reason for
termination. For example, if an employee is
terminated due to redundancy or labor-saving
devices, they are entitled to one month's pay
or one month's pay for each year of service,
whichever is higher.
To calculate One-Month Pay per Year of Service

Separation pay = One (1) month's pay or one (1) month's pay for
every year of service, whichever is higher

Example: If an employee's monthly salary is PHP 18,000 and they

have worked for 4 years, the separation pay would be PHP 72,000.

Separation pay = Monthly salary × Years of Service

= PHP 18,000 × 4 years
= PHP 72,000
An employee who is wrongfully terminated and is not
rehired is entitled to either one month's compensation
or one month's salary for each year of service. The
severance payment in a similar circumstance would
be PHP 72,000.
 Separation pay calculation

The amount of separation pay is based on the employee's

length of service. In general, employees receive one month's
salary for each year of service.
Voluntary
Resignation
Employees who
voluntarily resign are
usually not entitled to
separation pay, unless
their company policy or a
collective bargaining
agreement states
Employer's Obligation to Provide
Separation Pay
Employers must comply with the Labor Code provisions
on separation pay to avoid legal disputes.
Failure to provide separation pay when due can lead to a
labor complaint fi led with the National Labor Relations
Commission (NLRC), which could result in the employer
being ordered to pay not only the separation pay but
also potential damages and attorney's fees.
Severance compensation is not required in the case of a
bankruptcy-related closure.

Documentation

If the employer claims that a business closure was due to

serious financial losses, they must provide sufficient
evidence to support this claim. This may include audited
financial statements.
Employers must also provide proper notice of
termination. For either authorized or justifiable
causes, the law requires a written notice of
termination at least 30 days before the
intended date of separation. This notice must
be given both to the employee and the
Department of Labor and Employment (DOLE).
THANKS