Everything Filipinos Need to Know to Calculate Severance Pay

This article will show you how to compute separation pay in the Philippines. If you don’t get separation pay, you can always count on Digido loan for all purposes. You must be a Filipino citizen from 21 to 70 years old and provide 1 valid ID. And in 15 minutes the money will be in your pocket!

Separation Pay Computation

Last updated: March 7, 2023

Written by: Joshua Morales | Reviewed by: Mark Anthony

Key takeaways:

  • Are you entitled to separation pay?
  • Will you ever get any payment when your employer terminates you?
  • How much separation pay you are entitled?
  • And finally, where do you borrow money if you don’t get separation pay?

When a business is going through a rough patch, typically, the owner’s first solution is to cut expenses. Considering the business’ fixed and variable expenditures, sometimes, terminating some of the employees is another option that the owner investigates. Of course, it’s a difficult decision to lay off the employees. But it is way harder to keep them and not able to pay for their services.

Ever since the beginning of the pandemic, many Filipino workers have lost their jobs. Many businesses are greatly affected by the crisis, and their losses continue to grow. If you are one of those who experienced lay-off, you are probably wondering about the compensation you may get.

Are you entitled to separation pay?

Will you ever get any payment when your employer terminates you? And how to compute separation pay?

The answer depends on the causes of your termination. Read on, and let’s discuss your rights and entitlement, as well as the amount of separation pay you may receive.

Separation Pay Meaning in the Philippines

As a Filipino employee, you must be familiar with the separation pay.

The Department of Labor and Employment (DOLE) defines it as the amount given to an employee who was terminated due to:

– retrenchment;

– redundancy;

– installation of labor-saving devices;

– closing or cessation of the establishment;

– illness or disease that may be risky for the employee or his/her co-employees.

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However, you must take note that you are not entitled to receive any separation pay if:

– the company closes due to severe financial difficulty that leads to losses;

– you were terminated due to just causes stated by DOLE such as:

–  gross negligence of your responsibilities;
–  disobedience to your employer’s lawful orders regarding your work;
–  intentional breach of trust, fraud, or serious misconduct.

If the reason for termination is any of these just causes, the thirty-day notice is no longer required. That means your employer may dismiss you even without notice.


  • What is included in separation pay?
    Separation pay is an additional pay given to employees who are separated from their employment due to authorized causes (installation of labor-saving devices, redundancy, retrenchment, etc.)
  • Is 13th month pay included in separation pay?
    The 13th month pay of a resigned employee is in proportion to the length of time he or she has worked during the year.
  • Is allowance included in separation pay Philippines?
    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.

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How much Separation Pay You are Entitled

The amount of separation pay varies, depending on the reason for your dismissal and your basic salary. The two types of separation pay that may apply to your situation are the following:

  • one-half month salary for every year of service, and
  • one-month salary for every year of service.

If it is due to retrenchment, closing or cessation of the business, or illness risky for you or your co-employees:

Separation pay is equivalent to one-month pay, or one-half-month pay for every year of service, whichever is higher. The fraction of at least 6 months is considered to be as one whole year.

If it is due to redundancy or installation of labor-saving devices, the separation pay should be equivalent to:

Separation pay is equivalent to one-month pay for every year of service. The fraction of at least 6 months is considered to be as one whole year.

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The Difference between Final Pay and Separation Pay

Technically speaking, the final pay and the separation pay are different in many areas. With final pay, it refers to the total payment of the employee who was:

  • Resigned (separation pay for resigned employee);
  • Retired;
  • Dismissed due to authorized or just causes.

In other words, final pay is the compensation you will receive that is due to you. You already earned it with the service you had provided during your turnover period. The turnover period is the time you render from filing your resignation to its effectiveness day.
Essentially, your final pay includes your:

  • Final salary;
  • Prorated 13th month pay;
  • Excess of your tax withheld;
  • Commutable unused leave credits (if applicable);
  • Deposits such as cash bond that is due for return;
  • Other compensation in the agreement.

Meanwhile, separation pay is another compensation due to you as discussed earlier. If the separation pay applies in your case, you will receive it together with your final pay. There are special programs for this, similar to the 13th month calculator.

→ Also learn more  How to pay using Dragonpay app

How to Compute Separation Pay 2023 in the Philippines

As explained above, the amount of separation pay varies depending on the cause of your dismissal. Thus, the separation pay computation also depends on the causes.

For the separation pay due to retrenchment, closing or cessation of the business, or illness risky for you or your co-employees:

If your monthly basic pay is PHP 17,000 and you have worked with the company for 3 years (every year of service), your computation of separation pay would be:

  • Monthly Basic Pay = PHP 17,000
  • One-half Month Pay x Every Year of Service = PHP 8,500 x 3 = PHP 25,500
  • Separation Pay is PHP 25,500 since it is higher among the two.

For the separation pay Dole due to redundancy or installation of labor-saving devices, the separation pay should be equivalent to:

If your monthly basic pay is PHP 17,000 and you have worked with the company for 3 years, your separation pay would be:

  • Monthly Basic Pay x Every Year of Service = PHP 17,000 x 3 = PHP 51,000
  • Note: A fraction of at least 6 months in the every year of service is considered to be one year in the computation under the labor code.

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Separation Pay Сomputation for Contractual Employees

Contractual employees, in legal structure, are employees hired only for a certain period. That means they are only part of the company in a fixed term. Their contracts are subject to expiration.
Now, applying the separation pay labor code, contractual employees are not entitled to separation pay. This is because the termination is due to the expiration of the contract. For an employee to receive separation pay, the reason for the termination must be under the stipulation stated by law.

And these reasons are the ones we have discussed above, which composed the nature of separation pay. If there is no dismissal happened legally by the employer, the contractual employee cannot claim separation pay.
But what if the employer terminated the contractual employee before the expiration of the contract under the labor code? Does the employee have the right to claim the separation pay?

The answer is yes because there was an actual dismissal that occurred before the end of the employee’s contract. Essentially, during the term of the contractual employee, he or she is still a regular employee. Thus, he or she has the right to enjoy the security of his or her tenure within the duration of the contract. The employer cannot remove or dismiss the contractual employee without any authorized or just cause stipulated by DOLE.
If the employer terminated the contractual employee without just cause, there will be a breach of contract, and at the same time illegal dismissal.

How about the domestic workers (or the kasambahay)? Are they also entitled to separation pay? What is the  Kasambahay Law Separation Pay under the labor code?

Under Republic Act (RA) 10361 or the Domestic Workers Act (“Batas Kasambahay”), the rights of the domestic workers include:

· Grant of minimum wage;
· Daily and weekly rest periods;
· Service incentive leaves;
· 13th month pay;
· Freedom from employer’s interference in the disposal of wages;
· Government contribution benefits (SSS, PhilHealth, Pag-IBIG);
· Standard treatment, board, lodging, medication;
· Right to privacy and exercise own religious belief and cultural practices;
· Right to have a copy of employment contract, certificate of employment, and to lawfully terminate employment;
· Right to assist, form, or join a labor organization;
· Access to outside communication, education, and training.

→ Learn about Loyalty Cards in the Philippines

As stated above, there is no separation pay specifically mentioned. What has been stated by the law when it comes to the termination of service of the domestic worker is that:

1. The contract should be terminated before the expiration neither by the employer nor by the worker.
2. If there was unjust dismissal of the contractual worker, then the employer should:

– Pay the earned compensation;
–  Plus the equivalent of 15 days of work as indemnity.

3. However, if the worker left without justifiable reason, the employer can:

– Forfeit the unpaid wages not exceeding the equivalent of 15 days of work;
– Recover any deployment expenses if there are any.

Therefore, if the domestic worker voluntarily filed a resignation, the employer has no obligation to give separation pay, unless it is explicitly mentioned in the contract that the worker can claim separation pay.

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Is Separation Pay Taxable?

Under Section 32 of the Tax Code of the Philippines, there is tax exemption with employees’ separation pay. This is simply because the circumstance of getting a separation pay is an unfortunate event for the employee.

The requirements to claim the tax exemption of separation pay are the following:

– the separation from service due to death, sickness, other physical disability, or causes beyond the control of the employee;

– the employee or his or her heirs receive the amount of separation from the company.

The following documents are also related to availing the tax exemption:

– Certificate of Tax Exemption issued by the Regional Director of employer’s BIR Registration – if the cause of separation is due to death, sickness, or disability.

– BIR Ruling from the Law Division – if the cause of separation is beyond the employee’s control, such as retrenchment, redundancy, and cessation of business.

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What if I don’t Get Separation Pay?

It is beyond frustrating if you are one of those employees laid off due to an unpredictable event. Of course, no one wants to lose their job, especially during this time of the pandemic. Even if you are eligible to get the separation pay, you must be patient and wait for the completion of the process. But what if you need financial assistance right away?

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Nowadays, there are several options to get financial relief. One of the best ways is to apply for an online cash loan without a bank account. Digido offers financial assistance to Filipinos struggling with their finances. You can borrow up to PHP 25,000. The application process is very easy and convenient. When it comes to financial difficulties, Digido is always available to provide help to all Filipinos.

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Written by: Joshua Morales

Author pages:
Joshua Morales is the head of Customer Care Dept. and Online Sales Dept. of Digido Finance Corp. creating articles, blogs, and other learning mediums that helps Filipinos struggling on their financial literacy. Joshua also loves Cycling, Photography, Cinematography, Online gaming, Fine Arts, and dreams of becoming a Doctor of Veterinary Medicine.

Reviewed by: Mark Anthony

Author pages:
Mark Anthony is, the Finance and Accounting Manager. of Digido Finance Corp., monitoring and controlling the flow of cash that comes in and out of the company to meet the company’s business needs, preparing the financial reports and analysis of income and expenses, and monitoring tax compliance.