Philippines Separation Pay Calculator
Work out the separation pay owed when employment in the Philippines ends for an authorized cause. Enter the monthly salary, years of service and reason for termination to see the legally required amount, using the latest rules.
- Labor Code: Articles 298 and 299
- Final pay: DOLE Labor Advisory No. 06-20
- Tax: Philippine Tax Code
The employee
Basic monthly salary at the time of termination, without overtime, holiday premiums or night shift differentials.
Use decimals for partial years. For example, 4.5 means 4 years and 6 months. A fraction of 6 months or more counts as a full year; less than 6 months is dropped.
Labor Code rules: 1 month's pay per year of service for redundancy and labor-saving devices; ½ month's pay per year for retrenchment, closure not due to serious losses and disease. Either way, at least 1 month's pay. 6 months or more counts as a full year.
Results
Installation of Labor-saving Devices or Redundancy
| One month’s payThe legal minimum | PHP 25,000.00 |
|---|---|
| 1 month × 5 yearsPHP 25,000.00 × 5 | PHP 125,000.00 |
| Separation payThe higher of the two | PHP 125,000.00 |
Under each authorized cause
| Installation of Labor-saving Devices or Redundancy YoursFormula 1 | PHP 125,000.00 |
|---|---|
| Retrenchment to Prevent LossesFormula 2 | PHP 62,500.00 |
| Closure/Cessation Not Due to Serious LossesFormula 2 | PHP 62,500.00 |
| DiseaseFormula 2 | PHP 62,500.00 |
The Labor Code amounts are legal minimums; company policy, a CBA or the contract can give more. Final pay (unpaid wages, pro-rated 13th month pay and unused leave conversions) is paid on top, within 30 days. See how each figure is worked out.
How it is computed
How this amount was worked out
Each figure above, computed from a monthly salary of PHP 25,000.00 and 4.5 years of service.
Authorized cause
- Reason: Installation of Labor-saving Devices or Redundancy.
- A position that has become superfluous, or one replaced by new machinery, technology or processes.
- Probationary employees terminated for this cause are entitled too.
Source: Articles 298 and 299 (formerly Articles 283 and 284) of the Labor Code.
Years of service
- You entered 4.5 years: 4 years and 6 months.
- Six months or more counts as a full year, so 5 years are credited.
Source: Articles 298 and 299 of the Labor Code: a fraction of at least six months counts as one whole year.
Monthly salary
- Basic monthly salary at the time of termination: PHP 25,000.00.
- Overtime pay, holiday premiums and night shift differentials are left out, unless the employment contract or CBA says otherwise.
- 13th month pay is not part of it.
Source: Articles 298 and 299 of the Labor Code.
Separation pay
- 1 month’s pay or 1 month’s pay per year of service, whichever is higher.
- One month's pay: PHP 25,000.00. One month × 5 years: PHP 125,000.00.
- The higher one applies: PHP 125,000.00. Company policy, a CBA or the contract can give more.
Source: Formula 1 under Article 298 of the Labor Code.
Final pay
- The PHP 125,000.00 is paid with final pay: unpaid wages, pro-rated 13th month pay and unused leave conversions.
- All of it within 30 days from the date of separation.
- Work out the 13th month part with the Philippines 13th month pay calculator.
Source: DOLE Labor Advisory No. 06-20.
Income tax
- Paid because of redundancy, a cause beyond the employee's control, separation pay is generally exempt from income tax.
- Separation pay on resignation or voluntary separation is typically subject to withholding tax.
- Check the BIR guidelines for specific cases.
Source: Philippine Tax Code; Bureau of Internal Revenue (BIR) guidelines.
Legal Reference
What is Separation Pay in the Philippines?
Separation pay is a monetary benefit granted to employees in the Philippines whose employment is terminated due to authorized causes under the Labor Code. Unlike termination for just causes (such as misconduct), authorized causes are typically beyond the employee's control and arise from legitimate business decisions or health-related circumstances.
The requirement to pay separation pay is mandated under Articles 298 and 299 (formerly Articles 283 and 284) of the Labor Code of the Philippines. These provisions ensure that employees who lose their jobs through no fault of their own receive fair compensation proportional to their length of service. The Department of Labor and Employment (DOLE) oversees enforcement of these requirements.
Separation pay serves as a financial safety net, helping displaced workers transition to new employment. The amount varies depending on the reason for termination and is calculated based on the employee's monthly salary and years of service. Understanding how separation pay works is critical for both employers and employees operating in the Philippines.
Our guide to termination and separation pay in the Philippines covers the difference between just and authorized causes and the due process each requires. For an active employee's monthly net pay and employer cost, use the Philippines salary calculator instead.
Eligibility
Who Is Eligible for Separation Pay?
Separation pay is required when an employee is terminated for any of the following authorized causes under the Labor Code:
1. Redundancy
YoursWhen an employee's position becomes superfluous due to organizational restructuring, overstaffing, or a decrease in the volume of business. The employer must demonstrate that the position is genuinely redundant and that the selection of employees to be terminated was fair and in good faith.
2. Installation of Labor-Saving Devices
YoursWhen new machinery, technology, or processes replace the need for certain positions. Employers must prove that the installation is genuine and not merely a pretext for termination.
3. Retrenchment to Prevent Losses
When the company needs to cut costs to prevent imminent or actual financial losses. The employer must provide evidence of losses (or projected losses) and show that retrenchment is a reasonable and necessary measure.
4. Closure or Cessation of Business
When the business permanently shuts down operations, whether in whole or in part. If the closure is not due to serious financial losses, separation pay is still required.
5. Disease
When an employee suffers from a disease that cannot be cured within six months and continued employment poses a risk to the employee's health or to others, as certified by a competent public health authority.
When separation pay does NOT apply
Employees terminated for just causes — such as serious misconduct, willful disobedience, gross negligence, fraud, commission of a crime, or analogous offenses — are not entitled to separation pay. Similarly, employees who voluntarily resign are generally not entitled to separation pay unless their employment contract or company policy provides otherwise.
Due process still applies to just causes; see how to ensure lawful employee termination in the Philippines.
Formulas
How Separation Pay Is Calculated
The Labor Code prescribes two formulas for calculating separation pay, depending on the authorized cause for termination:
Formula 1: One Month Per Year of Service
YoursApplies to: Redundancy and installation of labor-saving devices (Article 298).
Separation Pay = MAX(Monthly Salary, Monthly Salary × Years of Service)
Formula 2: One-Half Month Per Year of Service
Applies to: Retrenchment to prevent losses and closure/cessation not due to serious business losses (Article 298), and disease (Article 299).
Separation Pay = MAX(Monthly Salary, Monthly Salary × 0.5 × Years of Service)
Rounding Rules
When calculating years of service, any period of at least six months is rounded up to one full year. For example, an employee who has worked for 4 years and 7 months would be credited with 5 years of service. An employee who worked 4 years and 4 months would be credited with 4 years.
Both formulas have a floor of one month's pay. An employee with less than six months of service has no full year to credit, but still receives one month's pay.
What Counts as Monthly Salary
The monthly salary used for separation pay calculations refers to the employee's basic monthly salary at the time of termination. This typically includes the regular wage but excludes overtime pay, holiday premiums, night shift differentials, and other supplementary compensation unless otherwise agreed upon in the employment contract or CBA.
Pro-rated 13th month pay is a separate entitlement, paid in final pay on top of separation pay. Work it out with the Philippines 13th month pay calculator.
Summary
Separation Pay by Reason for Termination
The table below summarizes the separation pay entitlement for each type of termination:
| Reason for Termination | Separation Pay |
|---|---|
| RedundancyYours | 1 month OR 1 month per year of service, whichever is higher |
| Installation of labor-saving devices | 1 month OR 1 month per year of service, whichever is higher |
| Closure not due to serious losses | 1 month OR ½ month per year of service, whichever is higher |
| Retrenchment to prevent losses | 1 month OR ½ month per year of service, whichever is higher |
| Disease (cannot be cured within 6 months) | 1 month OR ½ month per year of service, whichever is higher |
| Closure due to serious business losses | None |
| Serious misconduct / willful disobedience | None (just cause) |
| Voluntary resignation | None (employee-initiated) |
Highlighted: the reason selected in the calculator above.
RecruitGo
RecruitGo Handles Separation Pay Compliance
Managing employee separations in the Philippines requires careful adherence to labor law. RecruitGo's Employer of Record service ensures every step is handled correctly.
Correct Calculation
We compute separation pay in full compliance with Articles 298 and 299 of the Labor Code, accounting for the correct formula, rounding rules, and salary basis.
DOLE Compliance
RecruitGo handles all required DOLE notifications, filings, and procedural requirements including the 30-day advance notice for authorized-cause terminations.
Final Settlement
We prepare and release complete final pay packages within the mandated 30-day window, including separation pay, pro-rated 13th month, unused leave, and outstanding wages.
Documentation
Every separation is backed by proper documentation — termination letters, DOLE notices, clearance forms, and quitclaims — ensuring legal protection for both parties.
No Philippine entity needed. We employ them for you. RecruitGo EOR fee: 15% of total monthly payroll or USD 99, whichever is higher. To see the full monthly cost of a hire, use the Philippines EOR cost calculator.
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Frequently Asked Questions
Separation pay received by an employee due to causes beyond their control (such as redundancy, retrenchment, or closure) is generally exempt from income tax under the Philippine Tax Code. However, separation pay received due to resignation or voluntary separation is typically subject to withholding tax. Employers should consult the Bureau of Internal Revenue (BIR) guidelines for specific cases.
Separation pay is compensation given when employment is terminated for authorized causes under the Labor Code. Retirement pay, on the other hand, is given when an employee reaches retirement age (60-65 years old) and has served at least 5 years with the employer. Retirement pay is calculated at one-half month salary for every year of service, where one-half month salary includes 15 days plus 1/12 of the 13th month pay and the cash equivalent of 5 days of service incentive leave.
No. The separation pay amounts specified in the Labor Code are the legal minimums. An employer cannot offer less than what is required by law. However, employers can offer more generous separation packages through company policy, collective bargaining agreements, or individual employment contracts. Any agreement that provides less than the statutory minimum is void.
If a business closes due to serious financial losses, the employer may be exempt from paying separation pay. However, the employer must be able to prove those losses, usually with audited financial statements, if the closure is challenged. Either way, the employees and the Department of Labor and Employment (DOLE) must receive written notice at least one month before the closure. If closure is not due to serious losses, separation pay of one month or one-half month per year of service (whichever is higher) is still required.
Yes. Probationary employees who are terminated due to authorized causes (redundancy, retrenchment, closure, or disease) are entitled to separation pay, calculated based on their length of service. However, if a probationary employee is terminated for failing to meet the reasonable standards made known at the time of engagement, separation pay is not required.
Under Philippine labor law, separation pay and all final pay (including unpaid wages, pro-rated 13th month pay, and unused leave conversions) must be released within 30 days from the date of separation or termination, as mandated by DOLE Labor Advisory No. 06-20.
The basic monthly salary used to compute separation pay typically refers to the employee’s regular monthly compensation, not including 13th month pay. However, pro-rated 13th month pay for the current year is a separate entitlement that must be included in the employee’s final pay, on top of the separation pay amount.
