VIII. SEPARATION PAY
(Art. 283-284)
Separation pay is given to employees in instances covered by Article 283 and 284 of the Labor Code. An employee’s
entitlement to separation pay depends on the reason or ground for the termination of his services. An employee may be
terminated for just cause, i.e., gross and habitual neglect of duty, fraud or commission of a crime, and other similar causes
as enumerated under Art. 282 of the Labor Code and generally, may not be entitled to separation pay.* On the other
hand, where the termination is for authorized causes, separation pay is due.
A. One Month Pay or One-Half Month Pay Per Year of Service
An employee is entitled to receive as separation pay the equivalent to one (1) month pay, or one-half (1/2) month pay
whichever is higher for every year of service, a fraction of at least six months being considered as one (1) whole year, if
his separation from the service is due to any of the following causes:
a. Retrenchment to prevent losses, i.e. reduction of personnel effected by management to prevent losses;
b. Closure or cessation of operation of an establishment not due to serious losses or financial reverses; and
c. When the employee is suffering from a disease not curable within a period of six (6) months and his continued
employment is prejudicial to his health or to the health of his co-employees.
In no case will an employee get less than one (1) month separation pay if the separation is due to the above stated
causes, and he has served for at least six months.
Thus, if an employee had been in the service for at least six (6) months but less than a year, he is entitled to one (1)
full month’s pay as his separation pay if his separation is due to any of the causes enumerated above. Service of one year
and above entitles the employee ½ month pay for every year of service, a factor of at least 6 months considered one year.
B. One (1) Month Pay Per Year of Service
An employee is entitled to separation pay equivalent to his one (1) month pay for every year of service, a fraction of at
least six (6) months being considered as one whole year, if his separation from service is due to any of the following:
a. Installation by employer of labor-saving devices.
b. Redundancy, as when the position of the employee has been found to be surplusage or unnecessary in the
operation of the enterprise;
c. Impossible reinstatement of the employee to his former or to a substantially equivalent position for reasons not
attributable to the fault of the employer, as when the reinstatement ordered by a competent authority cannot be
implemented due to closure or cessation of operations of the establishment/employer, or the position to which he is to
be reinstated no longer exists and there is no substantially equivalent position in the establishment to which he can be
assigned. (per supreme Court Decision)
C. Notice of Termination
The employer may terminate the employment of any employee due to installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing
is for the purpose of circumventing the law, by serving a written notice on the workers and the Department of Labor and
Employment through the regional office having jurisdiction over the place of business at least one (1) month before the
intended date thereof.
D. Basis of Separation Pay
The computation of separation pay of an employee shall be based on his latest salary rate.