How to compute separation pay: step-by-step guide

How to compute separation pay: step-by-step guide

The parting between an employer and an employee occurs almost daily. Whereas workers, on the one hand, would want to attempt new steps, employers, on the other hand, might prefer diverse expertise. Nonetheless, the parting ways of any well-established relationship can be unpleasant to one or either party. However, in the case of such an eventuality, all the parties ought to comprehend how to compute separation pay?

How to compute separation pay

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Source: UGC

Do you know how to compute separation pay? To receive a full package at the termination of service, an employee has to be conscious of the exact amount he or she deserves from the employer. Many workers complain when they receive a lower amount than they expected. Some have even opted to go to court and ended up using more money there. Therefore, to put a stop to all these, employees, not forgetting employers, must have a profound knowledge of the calculation methods involved.

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What is separation pay?

This is the amount that an employee is given for termination from duty for reasons out of his control. When an employee retires, dies or his employment contract gets terminated, he or she ought to receive a package from the employer as compensation.

It is based on the latest salary rate of the employee and is exempted from tax. In the calculation of the income, a period of six and above months is counted as a year.

Who are entitled to separation pay Philippines?

According to Article 283 of the Labor Code in the Philippines, an employee is eligible to receive separation salary if the following reasons caused their termination.

  • Redundancy
  • Installation of labor-saving devices
  • Closing or cessation of operation of the establishment
  • Retrenchment to prevent losses

Do you get separation pay when you resign?

There exist circumstances when an employee could be denied the money, for example, in the event of any misconduct, incompetence or voluntary resignation. However, depending on the company policies, collective bargaining agreement or employment contract, some employees may be entitled to the package after voluntary departure.

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How to compute separation pay Philippines

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Source: UGC

How to compute separation pay

Calculation of separation pay may be based on the company policy, terms and conditions provided in the employment contract or collective bargaining agreement. Company practices can as well be used in the computation if they have been followed for years and have ripened into acceptable rights.

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In case the above measures are absent, or when the policy which exists provides a lower package, then the computation is done based on the provision by Labor Code.

According to the Labor Code, the sum total of the money is determined by the following.

  • The employee’s period of service
  • The reason for employee’s termination from service
  • The employee’s last salary

How to compute separation pay in the Philippines

In the Philippines, the pay is connected to the Labor Code. When a worker satisfies the terms as mentioned above, conditions and stipulations, they qualify for the package. As an employer in the Philippines, you are required to be familiar with the computation to avoid any illegality. An employee, on the other hand, should as well understand the calculation to avoid being conned.

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The following steps are crucial.

  1. Ascertain the reason for termination
  2. Find out the latest pay and amount of years in service
  3. Compute the income

That said, let us find out how to compute separation pay 2019 Philippines. Depending on the nature of separation, article 283 of the Labor Code requires that the calculation is done as follows.

Redundancy or due to health reasons or installation of labor-saving devices

The cash should be equal to one-month pay, or one-month pay for every year of service. Whichever amount that is higher should be paid to the affected employee.

Separation pay computation

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Source: UGC

Check out the examples below.

Example 1;

If an employee earning P5000.00 p.m and who has been working in the company for 10 years gets laid off because of the above reasons, the package is computed as follows.

One-month salary = P5000.00, or

One-month pay for every year of service = P5000.00 x 10 = P50000.00

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He will be paid P50000.00

Example 2;

If an employee on the above salary scale has only been working for the company for only five months, the separation pay computation is as below.

One-month salary = P5000.00, or

One-month income for every year of service = P5000.00 x 0 = 0.00

He will be paid P5000.00

Retrenchment to prevent losses and closure of business

The affected worker is entitled to a separation pay of at least one-month salary or 1/2-month salary for every year of service, whichever amount that is higher.

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Below is an example to explain the concept further.

Example 1

If an employee earning P 7500.00 every month has been working for three years in a given company, and he gets retrenched, his separation income will be calculated as follows.

One month salary = P7500.00, or

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Half month salary for every year of service = (1/2) x P7500.00 x 3 years = P11250.00

Based on the above calculations, the highest amount is P11250.00. Therefore, the affected worker will be paid this amount.

Example 2

If a worker earning P7500.00 every month has been working for five months, and he gets retrenched, the computation of separation income is as follows.

One month salary = P7500.00, or

Half month salary for every year of service = (1/2) x P7500.00 x 0 years = 0.00

The highest amount in this case is P7500.00, and it is therefore the value the worker will receive.

Illegal termination

In case of illegal termination, separation pay instead of reinstatement is calculated at one month salary for every year of service.

The Philippine law requires that affected workers should receive at least one month salary as the separation pay.

Knowing how to compute separation pay is one crucial thing every worker or employer should strive to understand. The examples above will be helpful in the quest to determine the separation pay you are entitled to in case of termination.

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