Computation of Termination Pay

A requirement for valid dismissal of employment is the payment of the correct value of termination pay. The Labor Code prescribes minimum standards for the computation of termination pay.

The minimum amount of a terminated or dismissed employee’s termination pay depends on the reason or ground for his dismissal, either a half month’s pay or one month’s pay for every year of service, but in no case will an employee get the equivalent of less than one month’s pay.

Cases where employee is entitled to a half month’s pay for every year of service:

  1. Retrenchment to prevent losses, i.e. reduction of personnel affected by management to prevent losses
  2. Closure or cessation of operation of an establishment not due to serious losses or financial reverses; and
  3. When the employee is suffering from a disease not curable within a period of six (6) months and his continued employment is prejudicial to his health or to the health of his co-employees.

Situations when an employee is entitled to one month’s pay for every year of service:

  1. Installation of labor-saving device, such as replacement of employees by machineries or computerization;
  2. Redundancy, as when the position of the employee has been found to be surplusage or unnecessary in the operation of the enterprise;
  3. Impossible reinstatement of the employee to his former position or to a substantially equivalent position for reasons not attributable to the fault of the employer, as when the reinstatement ordered by a competent authority cannot be implemented due to closure or cessation of operations of the establishment or employer, or when the position to which he is to be reinstated no longer exists and there is not substantially equivalent position in the establishment to which he can be assigned.

Read more about the proper computation of termination pay and other legal requirements for dismissing employees from Guide to Valid Dismissal of Employees by Atty. Elvin Villanueva.

6 thoughts on “Computation of Termination Pay

  1. rets

    Hello,

    I just want to ask, last march 2011 my colleague start as a regular employee,
    and now my boss is planning to terminate my colleague now May 2011, its because of her grounds here. Do we pay here for the termination and how much?
    Thank you for helping.

    1. Atty. Post author

      Rets: It depends on the grounds for termination. Not all terminated employees are entitled to termination pay.

  2. einjehl_08

    gud day atty..i hope you could help us with this prob.. in our contract, it was stated that are our working hrs. will be from 2pm until 11pm..are we still entitled with night differential pay..tnx and God bless..

    1. Atty. Post author

      Einjehl_08: You will be entitled to one hour of night shift pay for work performed between 10 p.m. and 11 p.m.

  3. charise

    good day..I’ve worked w/ this company for a year & a half but unfortunately got terminated..I did not receive any termination pay ..I asked my employer about it and they’ve reasoned out that the company does not provide any termination pay/separation pay ever since they started and no further reasons .

    1. Atty. Post author

      Charise: If your termination was due to a cause brought about by your performance or some misconduct or fault on your end, then you may not be entitled to termination/separation pay. But if your termination was due to authorized causes such as redundancy or retrenchment to prevent serious losses, then you may be entitled to separation pay.

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