Computation of Separation Pay

Employee Discipline and Termination 2011-09-03

Separation pay may be computed based on the terms provided in the employment contract, company policy, or
collective bargaining agreement. Company practice may likewise be used as basis for computation, if such practice
has been established for years and has already ripened into a demandable right.
In the absence of contract or agreement, or when the existing agreement or policy provides for a lower benefit,
separation pay shall be computed based on the provision of the Labor Code.
The amount of separation pay under the Labor Code depends on the following factors:
1. The employees last salary;
2. The employees length of service;
3. The reason for employees separation from service.
Employees last salary
The employees last salary refers to the salary rate of the employee at the time of his termination from service. It
determines the based to be used in the computation of separation pay.
When there is a reduction of the employees salary prior to his termination, e.g., the employee has been demoted
resulting to a reduction of salary, such reduced salary rate, which is his last salary shall be the basis of the
computation. But, if the reduction of salary was made to circumvent the provision of the Labor Code, that is, to avoid
payment of higher separation pay, the salary rate before the reduction shall be used in the computation of separation
pay.
For employees receiving salary below the minimum wage, the separation pay shall be computed based on the
minimum wage in effect at the time of separation from service. In addition, the employee affected is also entitled to
payment of salary differential equivalent to the difference between the employees actual salary and applicable
minimum wage.
Employees length of service
Employees length of service refers to the duration of time that the employee has been under the employ of the same
employer or company. It is computed beginning from the time of his engagement up to the date of his termination. A
fraction of at least 6 months shall be considered as one whole year.
However, only the employees last continuous years of service should be considered in the computation
(SeeCarandang vs. Dulay; Also Sta. Catalina College vs. NLRC; Phil. Tobacco Flue-Curing vs. NLRC.)
The reason for the employees separation from service
The reason for the employees separation from service is an important factor in the computation of separation pay.
The amount of separation pay may vary depending on the specific ground relied upon for the termination.
An employee terminated based on installation of labor-saving devices or redundancy is entitled to at least one-month
salary or to at least one-month salary for every year of service, whichever is higher. (See Article 283, Labor Code)
For termination based on retrenchment to prevent losses and closure of business, the employee affected is entitled to
at least one month salary or 1/2 month salary for every year of service, whichever is higher. (Ibid.)
An employee terminated for health reasons (disease) under Article 284 should be paid separation pay equivalent to at
least one-month salary or to at least one-month salary for every year of service, whichever is higher.
In case of illegal termination, separation pay in lieu of reinstatement has been consistently computed at one month
salary for every year of service.
At least one month or 1/2 month for every year of service?
The phrase at least one month salary or 1/2 month salary for every year of service, whichever is higher, can be quite
confusing. See these comments: Comment 1, Comment 2. The phrase though is not really complicated. It simply
means that the employee is entitled whichever is higher of the employees:
1. one month salary; or
2. 1/2 month salary for every year of service.
Example: If the retrenched employees salary is P8,000, and he has been working for 3 years, he is entitled to
separation pay equivalent to whichever is higher of his:
1. one month salary = P8,000; or
2. 1/2 month salary for every year of service = (1/2) x P8,000 x 3 years = P12,000.
In the above example, the employee is entitled to P12,000, the higher amount.
Following the same rule, if the length of service is only one year, his separation would be whichever is higher of the
following:
1. one month salary = P8,000; or
2. 1/2 month salary for every year of service = (1/2) x P8,000 x 1 year = P4,000.
Here, separation pay is P8,000 or one month salary, the higher amount. Actually, we will arrive at the same result even
if the length of service is only 10 months or 7 1/2 months, etc., as long as it is 6 months or more. This is because a
fraction of at least 6-months is considered as 1 whole year.
Now, what if the employee has served for less than 6 months, how much separation pay will he get? Lets see.
1. one month salary = P8,000; or
2. 1/2 month salary for every year of service = (1/2) x P8,000 x 0 year = 0.
So, its still P8,000 or one month salary.
Minimum Separation Pay
Take a quick look at the examples given above. You will notice that the minimum separation pay that may be given to
an employee is one month salary. This is actually consistent with the phrase at least one month salary, which simply
means that the separation must not be less than the employees one month salary.
Last Edited: Sunday, September 4, 2011


Special Leave Benefits for Women
Employee Wages and Benefits, News & Current Events 2011-08-19
Under the Republic Act 9710, otherwise known as The Magna Carta of Women, a woman employee shall be entitled
to a special leave benefit of two (2) months with full pay based on her gross monthly compensation following surgery
caused by gynecological disorders. As guidelines for the implementation of special leave benefits for women in the
private sectors, the Department of Labor and Employment issued Department Order No. 112-11, Series of 2011. For
female employees in the government service, you may refer to Civil Service Commission Guidelines on the Availment
of the Special Leave Benefits for Women under RA 9710, CSC Resolution No. 1000432.
What is special leave benefit for women
Special leave benefits for women refers to a female employees leave entitlement of two months with full pay based
on her gross monthly compensation following surgery caused by gynecological disorders.
This benefit is in addition to leave privileges under existing law.
Who are qualified to avail of this benefit; Conditions
All women employees in the private sector, regardless of age and civil status, are entitled to special leave benefits,
provided she has complied with the following conditions:
1. She has rendered continuous aggregate employment service of at least 6 months for the last 12 months;
2. She has filed an application for special leave;
3. She has undergone surgery due to gynecological disorders as certified by competent physician.
Female employees who have taken a leave of absence following surgery for gynecological disorder or or after 15
September 2009 are entitled to avail of the benefit.
What is gynecological disorders
Gynecologial disorders refer to disorders that would require surgical procedures such as dilatation and curettage and
those involving female reproductive organs such as vagina, cervix, uterus, fallopian tubes, ovaries, breast, adnexa and
pelvic floor. Gynecological surgeries shall also include hysterectomy, ovariectomy, and mastectomy.
How to apply for special leave
The employee shall file her application for leave with her employer within a reasonable period of time from the
expected date of surgery, or within such period as may be provided by company rules and regulations or by collective
bargaining agreement (CBA).
When application for special leave is not necessary
Prior application is not necessary in cases requiring emergency surgical procedure. However, the employee must
notify the employer verbally or in writing within reasonable period of time, and after the surgery or recuperating
period, she must immediately file her application using the prescribed form.
When special leave benefits shall be granted
Special leave benefits shall be granted after the employee has undergone surgery. The employer, however, has the
option to pay the employee before or during the surgery.
Benefit
The employee is entitled to full pay for two months based on her gross monthly compensation. Gross monthly
compensation refers to the monthly basic pay plus mandatory allowances.
Benefit is non-convertible to cash
Special leave benefit is non-cumulative and non-convertible to cash unless otherwise provided by a CBA.
Retirement Age
Retirement is one of the modes of termination of employment. By retirement, the employment is terminated when
the employee has reached a certain age, or after he has completed a certain number of years of service.
Under the Labor Code (Art. 287), an employee may be retired upon reaching the retirement age established in the
collective bargaining agreement (CBA) or other applicable employment contract. In the absence of such agreement,
the employee may retire upon reaching the age of 60 or more, but not more than 65, provided he has served at least
5 years or more in the same establishment. The age 60 or more, but below 65, is considered as the voluntary
retirement age. Sixty-five is considered as the compulsory retirement age.
A company may have CBA or employment contract setting a retirement age different (higher or lower) from that fixed
by law. For example, the CBA may fix the retirement age at 50.
The CBA or employment contract may also establish a retirement age based on years of service of the employee. For
example, it may provide that the employee may be retired after 20 years of service.
The retirement age may also be established based on the combination of the age and tenure of the employee. For
example, the contract may provide that the employee may retire upon reaching the age of 50, or after 20 years of
service, whichever comes earlier.
For underground mining employees, the voluntary retirement age under the Labor Code is 50 years or more, but not
beyond 60. The compulsory retirement age is set 60.
It is important to note that the company cannot unilaterally fix the retirement age of employee. Retirement age may
be established only by a valid CBA or employment contract, or in the absence of both, by the law.
Another thing, the retirement age fixed by law applies only when no CBA or employment contract setting the
retirement age exist. If there is such agreement or contract, the retirement age fixed by law wont apply.
Retirement Pay
If the establishment has a CBA or employment contract providing for a retirement plan or benefits to employees, the
employee shall be entitled to receive the benefits as provided in the said CBA or contract. However, such benefits
must not be less than that provided under the Labor Code.
Under the Labor Code, the retirement pay is equivalent to at least one-half month salary for every year of service, a
fraction of at least six months being considered as one whole year. The term one-half month salary shall mean 15
days plus 1/12 of the 13th month pay and the cash equivalent of not more than 5 days of service incentive leaves.

Computation of Wages for Oct 26, Nov 1, 2, 30 Holidays/Special Days
News & Current Events 2012-11-02
DOLE Secretary Rosalinda Dimapilis-Baldoz issued a labor advisory to guide private companies and establishments in
the computation of employees wages for the coming holidays/special holidays this October and November:
Regular Holidays
October 26 (Eidl Adha or the Muslims Feast of Sacrifice)
November 30, 2012 (Bonifacio Day)
Special (Non-working) Days
November 1, 2012 (All Saints Day)
November 2, 2012 (Extra day for All Saints Day).