A lump sum payment an employer must give an employee whose employment ends through authorised causes (retrenchment, redundancy, closure, or disease) in the Philippines. Amount depends on the cause.
Separation pay is a mandatory statutory benefit in the Philippines payable when employment ends for an authorised cause under the Labor Code (as opposed to just cause, where no separation pay is due). **Authorised causes and corresponding separation pay:** - **Installation of labour-saving devices / Redundancy**: 1 month's basic pay per year of service, or 1 month's pay, whichever is higher. - **Retrenchment to prevent losses**: ½ month's basic pay per year of service, or 1 month's pay, whichever is higher. - **Closure not due to serious losses**: ½ month's basic pay per year of service, or 1 month's pay, whichever is higher. - **Disease (employee cannot continue working due to illness)**: ½ month's basic pay per year of service, or 1 month's pay, whichever is higher. **Note:** "Basic pay" means the regular salary excluding overtime, allowances, and other benefits. Fractions of a year of at least 6 months count as a full year. **No separation pay on just cause termination**: If dismissed for misconduct, habitual neglect, fraud, or other just causes under Article 297 of the Labor Code, the employee receives no separation pay (unless a CBA or company policy provides otherwise). Separation pay must be paid at the time of separation — not in instalments spread over months.
An employee with 7 years of service at a basic monthly salary of ₱25,000 is retrenched. Separation pay = ½ × ₱25,000 × 7 years = ₱87,500. If this is lower than 1 month's pay (₱25,000), the higher amount (₱87,500) applies.
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