What to Know About Separation Pay Philippines

There is always duty and rights from both employee and employers’ sides, and most of the time, if one side decides to stop working with the other one, there should be a notice period and/or compensation. 

In this article, we will discuss separation pay Philippines – the money your company needs to pay you if they let you go before the valid contract ends. However, in which cases is this compensation applied, and when is it not? We will explain it in detail.  

Separation Pay Philippines: What is It? 

Separation pay is the amount of money an employee is compensated after their employment decides to end a valid contract with an employee who has worked for the company for at least six (6) months. There are several causes for ending the agreements, like redundancy, the business closing, health issues, and more.

In this case, it is not the employee’s fault that the agreement ends; it is the company’s decision due to legitimate reasons. 

If the employee is the one who decides to end the agreements with their company first, they will not receive any separation pay, except when that policy is written in the contract or pre-agreed by the employment. 

However, not all employees can receive the separation pay; we will discuss it later. 

Separation Pay and Final Pay: The Misconception

Some people are confused between separation pay and final pay, while they are completely different. 

As stated above, separation pay is the compensated amount of money the company needs to pay you because they are the one who decides to stop hiring you while the contract between the two sides is still currently in force. 

Final pay, on the other hand, is the total amount of money from your salary or the money returned to you. Here are some examples of final pay:

• The salary of the final month (or days) you have worked at the company;
• Your 13th month pay;
• The deposits or cash bond you gave to the company (if any);
• Your withheld taxes;
• The compensation of your leave credits if they are unused; 
• Additional compensation written in the agreements. 

Important Note: When the company decides to end the agreement before it ends, they will need to pay you both final and separation pay (if you are entitled to it.)

Are You Entitled to Separation Pay Philippines?

Who Is Entitled to Separation Pay?

You are entitled to separation pay if you are in the situations below: 

• Closing business not because of financial issues;
• The employee has a serious health problem and will not fully recover in the next six months under proper treatments and medication; 
• Retrenchments due to serious financial problems (with legitimate evidence);
• Not enough service assignments; 
• Redundancy;
• Laid off because of labor-saving technology and devices;

Who Is Not Entitled to Separation Pay?

It is important to understand that not everyone will get a separation pay if they are separated from the company when the contract is in force. Employees will only receive the separation pay if they are not at fault. Here are some examples where separation pay is not applied:

• The word quality is seriously under-qualified; 
• The lack of responsibility at work;
• Does not follow the working rules (like working hours); 
• Behaves, acts, and works in such a way that negatively affects other coworkers and the company; 
• Has concerning personalities like being rides or violence;
• Has certain immoral actions that violate others;
• Sexually harassing a person or any action related to sexual violation (can be inside or outside of the company);
• Commits a crime; 
• Actions that cause their company and coworkers not to trust them, like scamming or being seriously dishonest about things that might affect other employees or the company’s credibility. 

Moreover, suppose the employees are at fault for one of the above-mentioned reasons. In that case, the company has the full duty to fire them without giving any notice period and without paying them any separation pay.

How to Calculate It? 

Separation pay is calculated based on the reason for the separation. Suppose the company decides to stop working with an employee because of redundancy. 

In that case, the employee’s serious health reasons or the installation of labor-saving devices, the compensation amount will equal one-month salary for each year working for the company. 

Remember that if someone has worked for a company for six (6) months, it is also calculated as one year. 

• Example 1: James has worked for a company for 3 years and got laid off, and his salary is P6000 each month. He will get P6000 x 3 (years) = P18000. 
• Example 2: Nancy has worked for a company for seven months with a salary of P8000 each month. She has severe health issues that will only be completely cured in at least eight months. Her total separation pay is P8000 x 1 (year) = P8000. 

In case the company has to reduce the number of coworkers because of serious final issues to prevent bankruptcy and business closure, the separation pay is the higher amount of (1) one-month salary in total, or (2) one and a half (½) month salary for each year of service. Here are two examples for you to take a look at:

• Example 3: Ben’s company decided to close due to serious financial loss, and Ben was cut off. He has worked for the company for three years with a monthly income of P9000, so his separation is the higher amount of money of the two scenarios:

(a) ½ month of salary for each year of service = (P9000/2) X 3 (years) = P135000

(b) One month’s salary in total, which is P9000.

Comparing the two, we can see that P13500 (a) is higher than P9000 (b), so P13500 is the separation pay the company must compensate for Ben. 

How to Claim Your Separation Pay If You Are Eligible?

First, you must ensure you are entitled to the separation pay. After that, you can contact your company’s HR (or the employer) to discuss the amount of separation money you should be paid depending on your total years of service and the reason why they let you go. 

Sometimes, you only need to talk to HR, but in some cases, you may be required to submit some documents and a written separation pay request to initiate the process. Those papers can be the evidence for HR to finalize the total separation money you will receive. 

If you cannot continue your work because of a health problem, your company has the right to ask for the health certificate of a public and qualified health authority.

The company also needs to provide legit evidence if letting their employee with valid contracts go because of financial losses and serious financial problems.

Conclusion

Now that you understand what separation pay Philippines is, how it works, and how to calculate it in different situations. We hope this article has given you valuable information to help you understand your rights, as well as your duty when it comes to this compensation money.