Separation Pay Computation (Calculator for Redundancy, Retrenchment, Closure and Disease)

How the separation pay is computed

Separation pay in the Philippines is not a single formula. The Labor Code sets two rates depending on the reason for the separation, each with a floor of one month's pay. The calculator does four things in order: it checks whether your ground carries separation pay at all, rounds your service to whole years, multiplies by the rate for your ground, and compares the result with one month's pay.

1. 1

   Identify the ground

   Your notice of termination should state it: installation of labor-saving devices, redundancy, retrenchment to prevent losses, closure or cessation of business, or disease. If the notice is vague, ask HR in writing which ground under Art. 298 or Art. 299 they are relying on.

2. 2

   Round your years of service

   Count from your hiring date to your separation date. If the leftover months are six or more, add one year; if fewer than six, drop them. Five years and seven months becomes six years; three years and four months stays three years.

3. 3

   Apply the rate for your ground

   Full rate: monthly salary × years of service (redundancy, labor-saving devices). Half rate: monthly salary ÷ 2 × years of service (retrenchment, closure not due to serious losses, disease).

4. 4

   Compare with the one-month minimum

   Whatever the result, you get at least one month's salary. The calculator shows both numbers and uses the higher. This floor matters most for employees with one or two years of service on the half-month rate.

What “one month's pay” means in separation pay

The calculator asks for your latest monthly salary because separation pay is computed on your most recent salary rate, not an average over your career. If you were promoted two years ago, the new rate applies to all your years of service, including the years at the old rate. If you are daily-paid, convert to a monthly figure using your company's usual factor or simply multiply your daily rate by the number of paid days in a month on your payroll.

What goes into that monthly salary? At minimum, your basic salary. Supreme Court decisions have also included regular allowances that you received consistently as part of your pay, such as a fixed monthly transportation or rice allowance verify. Overtime, night differential and one-off bonuses are generally not included. If your separation package uses basic salary only and you received large fixed allowances, it is worth asking HR or a lawyer whether those should be in the base.

Worked examples

Three cases, one per formula, each computed by hand. The third shows the one-month minimum doing its job for a short-tenure employee.

Separation pay for redundancy vs retrenchment

People use the two words interchangeably, but the law treats them differently and the rate is not the same. Redundancy means your position is more than the business needs: duplicated work, a dropped product line, a reorganisation. The company may be profitable. Retrenchment is a cost-cutting measure to prevent business losses. Because retrenchment is about survival, the rate is lower: half a month per year instead of a full month.

Courts look at how employees were chosen in a redundancy: fair, reasonable criteria such as status (temporary before regular), efficiency or seniority, applied consistently verify. A redundancy that targets one outspoken employee while hiring someone new for the same role is a red flag. For retrenchment, the company should be able to show the losses it is trying to prevent; a profitable company that calls a layoff “retrenchment” to pay the lower rate is open to challenge.

Closure of business and separation pay

When a business closes or stops operating, separation pay depends on why. If the closure is not due to serious business losses (the owner retires, sells the land, relocates abroad, or simply decides to stop), employees get half a month's pay per year of service or one month's pay, whichever is higher. If the closure is due to serious business losses or financial reverses, the law requires no separation pay. The employer bears the burden of proving those losses, normally with financial statements verify.

Even in a loss closure, you are still owed your final pay: unpaid salary, pro-rated 13th month pay, cash conversion of unused service incentive leave and anything else in your contract. Use the final pay calculator and the 13th month pay calculator for those amounts. A partial closure (one branch or department) is treated under the same rules for the affected employees.

Separation pay due to disease (Art. 299)

An employer may terminate an employee found to have a disease where continued employment is prohibited by law or would harm the employee's health or that of co-workers. The employee is entitled to at least one month's salary or half a month's salary per year of service, whichever is greater, with six months or more counting as a year.

This ground is strictly applied. Under the implementing rules, the employer needs a certification from a competent public health authority that the disease cannot be cured within six months even with proper treatment verify. Without that certification, a termination on health grounds is vulnerable to an illegal dismissal claim. If the disease can be treated within six months, the employee is normally placed on leave rather than dismissed verify. Ask for a copy of the medical certification before signing anything.

When there is no separation pay

If your employer calls a dismissal “resignation” or pressures you to sign a resignation letter to avoid paying separation pay, do not sign until you understand what you are giving up. A forced resignation can be treated as constructive dismissal. Keep copies of every notice and message, and talk to a lawyer, the Public Attorney's Office or a DOLE desk officer.

The 30-day notice to the employee and DOLE

For authorised causes under Art. 298 (labor-saving devices, redundancy, retrenchment, closure), the employer must serve a written notice on each affected employee and on the DOLE at least 30 days before the intended date of termination. Both notices are required. The notice should state the ground and the effective date.

A defect in the notice does not automatically make an authorised-cause termination illegal, but the Supreme Court has awarded nominal damages to employees where the cause was valid and the procedure was not followed verify. For disease terminations under Art. 299 and for just-cause dismissals, a different procedure applies; for just causes, it is the two-notice rule with a chance to explain (see the notice to explain overview).

Is separation pay taxable?

Separation pay received because of death, sickness or other physical disability, or for any cause beyond the employee's control, is excluded from gross income and is not taxed (NIRC Sec. 32(B)(6)(b)). Redundancy, retrenchment, closure and disease are causes beyond your control, so separation pay on these grounds is generally tax-free. A separation package you negotiate when you resign voluntarily is not “beyond your control” and may be taxable verify.

Other parts of your final pay are taxed under their own rules. Your pro-rated 13th month pay and other benefits are exempt up to ₱90,000 for the year (NIRC Sec. 32(B)(7)(e), as amended by RA 10963), and your last salary is taxed as ordinary compensation. Your employer will give you a BIR Form 2316 for the year, which you hand to your next employer.

Separation pay, final pay and quitclaims

Separation pay is one item in your final pay, not a substitute for it. Labor Advisory No. 06, s. 2020 says final pay, which includes separation pay if due, must be released within 30 days from the date of separation unless a more favourable company policy or agreement applies. The certificate of employment is separate and must be issued within three days of your request.

Most employers ask you to sign a quitclaim and release when you receive the money. A quitclaim is valid only if you signed it voluntarily, you understood it, and the amount is reasonable, meaning not unconscionably low compared with what the law gives you. A quitclaim for ₱10,000 when the legal separation pay is ₱180,000 is unlikely to stand. Before signing, check the figures with this calculator. If the amount is short, write “received under protest” only after getting advice, or ask HR to correct it first.

What to do if your separation pay is unpaid or short

1. 1

   Get the numbers in writing

   Ask HR for the computation sheet showing the ground, your service dates and the salary used. Compare it with this calculator.

2. 2

   Send a written demand

   A polite letter citing the 30-day final pay rule and the correct amount often settles it. Use the demand letter for final pay.

3. 3

   File a SEnA Request for Assistance

   File for free at the DOLE office nearest you or call DOLE hotline 1349. Our SEnA request for assistance helps you prepare. Conciliation runs for 30 days from the first conference.

4. 4

   Formal complaint if unsettled

   If there is no settlement, you are referred to the NLRC or the DOLE Regional Office. Illegal dismissal claims (for example, a fake redundancy) go to the NLRC. Get a lawyer or PAO to review your case. Read how to file a DOLE complaint.

Money claims generally prescribe three years from when they fell due (Labor Code Art. 306, formerly Art. 291); illegal dismissal has a separate, longer period verify. Kasambahay are under RA 10361 instead: if the employer ends the arrangement without a just cause, the kasambahay gets earned wages plus 15 days' pay, and disputes go to the DOLE Regional Office. OFWs file money claims arising from overseas employment with the NLRC.

Separation pay vs retirement pay vs financial assistance

Retirement pay uses “half a month” differently: 15 days of salary plus one-twelfth of the 13th month pay (2.5 days) plus five days of service incentive leave, for 22.5 days per year of service. Separation pay's half month is simply monthly salary ÷ 2. Do not mix the two when checking a package.

Other names people search for

For the rest of your exit paperwork, see the employment hub, including the resignation law at a glance and the SEnA statistics tracker.