How to compute separation pay in the Philippines, with examples

Separation pay in the Philippines: half a month or one month per year of service by cause, the six-month rule, worked examples and when it's paid.

7 min read. Updated . By Catalyst Outsourcing.

If your job ends for an authorized cause, like redundancy, retrenchment or a closure, the Labor Code gives you separation pay. It's one month or half a month of pay for every year of service, depending on the cause, and never less than one month. Here's who gets it, how to compute it with worked examples and when it's paid, from the Labor Code, DOLE's handbook and DOLE's final pay advisory, read on 7 October 2026.

This guide explains the law for employees in the Philippines. It's general information and isn't legal advice. If you have a dispute with your employer, you can call DOLE Hotline 1349.

When you're entitled to separation pay

DOLE's handbook says separation pay is for an employee "terminated from employment due to authorized causes provided in Articles 298 and 299 of the Labor Code". It adds: "An employee's entitlement to separation pay depends on the reason or ground for the termination of his or her services."

Article 298 lets an employer end jobs because of the installation of labor-saving devices, redundancy, retrenchment to prevent losses, or the closing or cessation of operation. Article 299 covers an employee with a disease whose continued employment "is prohibited by law or is prejudicial to his health as well as to the health of his co-employees".

On our reading, separation pay under the Code is for employees. If you freelance or work as an independent contractor, check what your contract says about ending the work.

How much separation pay you get

One month of pay for every year of service, or one month, whichever is higher, when the job ends because of:

Half a month of pay for every year of service, or one month, whichever is higher, when the job ends because of:

Article 298 says "A fraction of at least six (6) months shall be considered one (1) whole year." So 5 years and 7 months counts as 6 years.

The amount is based on your latest salary rate. The handbook says it should include "not just the basic salary but also the regular allowances that an employee has been receiving".

How to compute separation pay, with examples

  1. Find your monthly pay, with your regular allowances.
  2. Count your years of service, and round a fraction of six months or more up to a full year.
  3. Multiply by one month or half a month of pay, as the lists above set for your cause.
  4. Compare the result with one month's pay. Articles 298 and 299 give you whichever is higher.

Example, redundancy: your monthly pay is PHP 20,000 and you've worked 5 years and 7 months, which counts as 6 years. PHP 20,000 x 6 = PHP 120,000.

Example, retrenchment: same pay and the same 6 years. PHP 20,000 / 2 x 6 = PHP 60,000.

Example, a short stay: you're retrenched after 1 year and 2 months, which counts as 1 year. PHP 20,000 / 2 x 1 = PHP 10,000, which is less than one month's pay, so the minimum applies and you get PHP 20,000.

Notice before the job ends

Article 298 requires the employer to serve a written notice "on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof". DOLE's handbook says that notice goes to DOLE's regional office for the workplace, on RKS Form 5 or through DOLE's online Establishment Report System.

Do you get separation pay if you resign?

Article 300 lets you resign without just cause by giving your employer written notice "at least one (1) month in advance". It says nothing about separation pay, and the handbook ties separation pay to authorized causes. On our reading, the Labor Code doesn't give separation pay when you resign, though your contract, company policy or a collective agreement can. DOLE's final pay advisory lists separation pay under "company policy, or individual or collective agreement, if applicable", as well as under the Code.

Writing your notice? Our resignation letter template has samples with the 30-day notice.

Separation pay vs final pay

DOLE's advisory defines final pay as everything owed to you when you leave, "regardless of the cause of the termination of employment". DOLE's Labor Advisory No. 06, Series of 2020 lists what goes in it, including:

The advisory says final pay "shall be released within thirty (30) days from the date of separation or termination of employment", unless your company policy or agreement is better. A dispute about it goes to "the nearest DOLE Regional/Provincial/Field Office which has jurisdiction over the workplace".

The same advisory gives your employer three days from your request to issue a certificate of employment, and our certificate of employment template has a request letter you can copy.

Is separation pay taxable?

DOLE's handbook quotes the Tax Code: an amount received "as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in the gross income and shall be exempt from taxation". On our reading, separation pay for an authorized cause you didn't choose falls under that. Check your own case with BIR, and for the tax on your regular pay, try our income tax calculator.

Next

Leaving a job means sorting out your papers. Read how unused service incentive leave is paid out, get your BIR Form 2316 from your employer, and use our checklist of job requirements for the next one. Then browse remote jobs. It's free to apply.

Questions

How is separation pay computed in the Philippines?

Monthly pay x years of service for redundancy or labor-saving devices. Half a month's pay x years of service for retrenchment, a closure not due to serious losses, or disease. Articles 298 and 299 count six months or more as a full year and set a minimum of one month.

Do I get separation pay if I resign?

On our reading of the Labor Code, no: it ties separation pay to authorized causes like redundancy and retrenchment. Your contract, company policy or a collective agreement can still give it.

When should separation pay be released?

DOLE's Labor Advisory No. 06-20 says final pay, which includes separation pay when it applies, is released within 30 days of separation, unless a company policy or agreement is better.

Does a fraction of a year count?

Yes, if it's at least six months. Articles 298 and 299 count it as one whole year.

Sources

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