Handbook on Workers' Statutory Monetary Benefits (2024)

Separation Pay: Definition

Separation pay is a compensation given to an employee who is terminated from employment due to authorized causes provided in Articles 298 and 299 of the Labor Code of the Philippines, as renumbered.

Separation Pay: Coverage

This benefit applies to an employee in instances of authorized termination of employment covered by Articles 298 and 299 of the Labor Code of the Philippines. An employee’s entitlement to separation pay depends on the reason or ground for the termination of his or her services. Where the termination is for authorized causes, separation pay is due.

Separation Pay: Amount

1. One-Half (1/2) Month Pay for Every Year of Service An employee is entitled to receive a separation pay equivalent to one-half (1/2) month pay for every year of service, a fraction of at least six months being considered as one whole year, if his/her separation from the service is due to any of the following authorized causes: a. Retrenchment to prevent losses (i.e., reduction of personnel effected by management to prevent losses); b. Closure or cessation of operation of an establishment not due to serious losses or financial reverses; c. When the employee is suffering from a disease not curable within a period of six months and his/her continued employment is prejudicial to his/her health or to the health of his/her co-employees; d. Lack of service assignment of security guard for a continuous period of six months; and e. Lack of service assignment of a worker in a contracting or subcontracting arrangement for a continuous period of three months. Formerly Articles 283-284. Renumbered pursuant to DOLE Department Advisory No. 1, Series of 2015 issued on 21 July 2015. See DOLE Department Order No. 150, Series of 2016 or the Revised Guidelines Governing the Employment and Working Conditions of Security Guards and Other Private Security Personnel in the Private Security Industry. Issued on 09 February 2016. See Sec. 13 of Department Order No. 174, Series of 2017 or the Rules Implementing Articles 106 to 109 of the Labor Code, as Amended. In no case will an employee get less than one month separation pay if the separation is due to the above stated causes. 2. One-Month Pay for Every Year of Service An employee is entitled to separation pay equivalent to his/her one-month pay for every year of service, a fraction of at least six months being considered as one whole year, if his/her 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; c. 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; and d. Lack of service assignment of security guard by reason of age.

Separation Pay: Computation

The computation of separation pay of an employee shall be based on his/her latest salary rate. Moreover, it would be an 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.

Separation Pay: Notice of Termination

The employer may terminate the employment of an 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 month before the intended date thereof. Gaco vs. NLRC, et al., G.R. No. 104690, 23 February 1994. Department Order No. 150 s. 2016 or the Revised Guidelines Governing the Employment and Working Conditions of Security Guards and Other Private Security Personnel in the Private Security Industry. Issued on 09 February 2016. Planters’ Products, Inc. vs. NLRC, G.R. No. 78524, 20 January 1989. See DOLE Department Order No. 147, Series of 2015 entitled Amending the Implementing Rules and Regulations of Book VI of the Labor Code of the Philippines, as amended. Issued on 07 September 2015. Notice of termination may be done (a) by accomplishing RKS Form 5 of 2020 and submitting the same to the DOLE Provincial/Field Office having jurisdiction over the workplace or (b) by accomplishing and submitting an online report at the DOLE Establishment Report Systems (https://reports.dole.gov.ph/)

Separation Pay: Coverage from Income Tax of Separation Pay

Pursuant to Section 32(B)(6)(b) of the Tax Code of 1997, as amended, 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 shall not be included in the gross income and shall be exempt from taxation under Title II of the same Code.