EXPLAINER: Retrenchment and Separation Pay Under Philippine Law

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PHOTO BY Shutterstock

(SPOT.ph) One of the biggest nightmares of an employee is to be retrenched from work for reasons beyond their control, including company closure, redundancy issues, or even being replaced by gadgets or machines. It's happening in big tech as Twitter and Meta let go of thousands of workers. 

When confronted with this situation, it pays to know that employees are entitled to separation pay, designed to provide soon-to-be-terminated workers the aid they need to look for other job opportunities, the Department of Labor and Employment said.

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Employees can compute how much separation pay they'll receive based on the nature of separation from service and their current salary rate and regular allowances they, said DOLE.

To give employees time to prepare for termination, written notice must be served at least one month before the intended date of termination.


Retrenchment and separation pay

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Who will be given separation pay?

Separation pay is given to employees who are terminated due to the following authorized causes:

  • Installation of labor-saving devices
  • Redundancy
  • Closure of establishment
  • Reduction of personnel
  • When an employee is suffering from any disease not curable within a period of six (6) months and his/her continued employment is prejudicial to his/her health and the health of his co-employees.
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I was retrenched due to company closure. How much will I get?

Employees will get either one month pay or to at least one-half month pay for every year of service, whichever is higher, if they were separated from service due to:

  • Retrenchment to prevent losses
  • Establishment closure or cessation of operation not due to serious losses or financial reverses
  • Contracting a disease untreatable within six months and the employee’s continuous employment is detrimental to his/her own or his/her
    co-employees’ health

Also entitled to receive this pay are security guards who were not given service assignment for a continuous period of six months, based on a DOLE order.

What if I was retrenched due to redundancy?

Those who were let go because of redundancy, or when an employee's position is deemed excessive or unnecessary in the business operation, will receive one month pay for every year of service.

Those who were retrenched due to installation of labor-saving devices and impossible reinstatement to an employee's former position or equivalent position will also be paid using this computation.


Also entitled to this are security guards who were not given service assignment because of age restrictions, accoring to the DOLE order.

Is my separation pay tax-free?

The separation pay is only tax-free if the cause is due to:

  • Death
  • Sickness
  • Other physical disability or for other reason beyond the control of said employee, such as retrenchment, redundancy, or cessation of business operations
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