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Separation Pay

Employees who leave their companies are entitled by law to cop these benefits from their former employer
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An employee who has been terminated or resigned from work can expect several financial entitlements depending on the reason for termination or separation from the service.

These are:

1. Back wages.

An employee who has been unjustly dismissed is entitled to this benefit. If the dismissal was without cause but due was process observed, or if the dismissal was both without cause and without due process, the law mandates the employee’s reinstatement without loss of seniority rights and other privileges, including the payment of full back wages, allowances, and the monetary equivalent of benefits, computed from the time the salary payment to the illegally dismissed employee was stopped until the actual reinstatement.

However, if the dismissal was warranted even without the conduct of notice and hearing, the employer shall only be made to pay nominal damages to the dismissed employee. The adjudicating body will set the amount of such damages depending on each case, taking into consideration the gravity of the employer’s violation of due process.

2. Separation Pay.


This is the amount an employee receives at the time his service to a company ends due to any of the authorized causes under Articles 283 and 284 of the Labor Code. The separation pay is meant to give him a source of livelihood while he is looking for another job. Terminations arising from the installation of labor-saving devices or redundancy entitle the affected worker to separation pay equivalent to at least one month pay if the employment lasted for a year or less, or to at least one month pay for every year of service.

When an employee is retrenched to prevent losses, when a business closes down for reasons other than serious losses or financial reverses, or when an employee is suffering from a communicable disease that could endanger his co-workers or would make his continued employment illegal, the separation pay shall be equivalent to one month pay for those who served for a year or less, or at least a half month’s pay for every year of service.


But where the closure or cessation of operations is due to serious business losses or financial reverses and there is valid proof of these, the law does not oblige the employer to pay separation benefits, but instead becomes discretionary on his part. An employee is also entitled to separation pay as a result of the employer’s unlawful act, particularly when reinstatement is no longer possible. The affected employee receives both back wages and separation pay equivalent to a month’s pay for every year of service.

3. Resignation Pay is also known as ex-gratia payment.

Generally, an employee who resigns is not entitled to separation pay unless it is stipulated in his employment contract or collective bargaining agreement, or its payment is the employer’s established practice or policy. Resignation is presumed to be an employee’s voluntary act.

4. Retirement Pay

This is given to employees who opt to sever their employment upon reaching a certain age. The agreement between the employer and his employees will determine the extent of the rights conferred on retirement benefits, as long as these do not fall below the floor limits provided by law.


If a company lacks a retirement plan for its employees, an employee who reaches the age of 60 but not beyond 65 – the compulsory retirement age – and who has worked at the company for at least five years, shall be entitled to retirement pay equivalent to at least a half month’s salary for every year of service plus one-twelfth of the 13th month pay, and the cash equivalent of not more than five days of service incentive leaves.


Back wages and separation pay are computed by adding an employee’s basic salary and all regular stipends, including transportation, representation, and emergency living allowances.

When computing the retirement and separation pay, service of less than a year but more than six months shall be counted as one whole year.

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