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How is the Separation Pay Computed

An employee who was forced to resign has the right to receive a separation pay. It is mandated to any company that separation pay must be included in the agreement or policy. But, many employees have been wondering why some of them receive less amount than the others.

This makes sense of knowing the proper computation of the separation pay as stipulated in the policy. The computation depends on the type of work and the tenure of service.


Computing the separation pay

The basic separation pays that a separated employee may receive the amount equal to one-half month salary for each year of service. However, there are factors that determine whether the separated employee can receive such benefit as mandated by the Labor Code.

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An employee may receive a separation pay if the separation from work is due to retrenchment of labor force, closure of business operation due to financial losses, or when an employee suffers from a serious health condition.

On the other hand, an employee may receive separation pay equivalent to one month salary per year of service if the employee is separated from work due to some reasons such as:

  • If the position of the employee is unnecessary in the operation of the business
  • If the employer has been using labor-saving devices
  • Impossible reinstatement to former position assigned or if the position is no longer existing

If an employee voluntarily resigns, he or she is not entitled to receive a separation pay unless otherwise it is stipulated in the contract or the CBA or Collective Bargaining Agreement under the following instances:

  • A financial assistance can be given to an employee who was legally dismissed pursuant to Article 282 of the Labor Code.
  • An employee who was illegally dismissed and was ordered reinstated, yet reinstatement is impossible due to inharmonious relationship between the employer and the employee

If you think you have the right to receive the separation pay, but your employer does not provide the required amount, the best thing to do is to seek legal assistance from a lawyer.

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