In the Philippines, severance pay, or separation pay, isn’t optional when certain terminations occur. It’s not about being generous; it’s about following the law. If you’re running a team locally, you need to know when this applies, who qualifies, and what it will cost you.
This guide will define the types of terminations that qualify for severance and outline the severance process.
What is severance pay?
Severance pay (or separation pay) is a financial benefit provided to employees who get let go for reasons beyond their control. Governments worldwide require it to bridge the gap while terminated employees search for new employment and adjust to the transition.
This type of pay is distinct from final pay. Final pay includes an employee’s last salary, unused leave, bonuses, and other accrued earnings. Severance pay is a separate legal entitlement, not owed to every departing employee, but only to those who leave under certain circumstances.
In the Philippines, severance pay is typically granted when a company terminates an employee due to business decisions or operational changes, not for cause. The purpose of severance is practical: offering financial cushioning while reinforcing the fairness of the employer’s decision.
Who’s eligible for severance pay in the Philippines?
To qualify for severance pay in the Philippines, employees must be let go for one of the following legal reasons:
- Redundancy: Known as redundancy pay in the Philippines and elsewhere, it occurs when a position is no longer needed, usually due to employee turnover, overstaffing, or duplicate roles.
- Retrenchment to prevent losses: If a Philippine business is losing money or expects significant losses, it may reduce its workforce, but it must provide severance pay to those affected.
- Closure or cessation of business not due to serious losses: If the company shuts down for reasons other than severe economic hardship, affected employees must receive severance pay.
- Installation of labor-saving devices: When technology or automation replaces a position, a company owes the displaced employee separation pay.
Employees who quit or are let go for just cause, such as misconduct or serious performance issues, aren’t eligible for severance.
Types of employment termination in the Philippines
Under the nation's labor code, there are four main grounds for termination of employment in the Philippines.
Just cause termination
Just cause is considered as dismissal for serious misconduct or fault. Examples include fraud, criminal behavior, repeated neglect of duties, or gross insubordination. Before termination, the employer must follow due process, meaning formal notice, a chance to respond, and a documented hearing.
Authorized cause termination
A cause is authorized if it covers business-related reasons outside the employee's control, such as redundancy, retrenchment, installation of labor-saving devices, or closing of operations. The company must provide advance notice and severance pay.
Termination due to health reasons
If an employee suffers from a serious and incurable illness—confirmed with a public health certificate—that makes it impossible to continue working, termination is allowed under authorized cause. Separation pay also applies.
Voluntary resignation
When an employee resigns on their own, they typically provide at least 30 days' written notice. Employers are not obligated to pay severance in this case unless it's covered by a contract, collective bargaining agreement, or longstanding policy.
Notice period in the Philippines
Here's how notice requirements vary based on the reason for termination:
- 30-day notice for authorized cause termination: Employers must give at least 30 days' written notice when ending employment due to redundancy, retrenchment, or business closure.
- Twin-notice rule for just cause termination: This process includes two written notices: one to inform the employee of the charges and another to confirm termination after the employee has responded. No specific number of days is required, but companies must follow the due process procedure.
- Standard 30-day notice for resignation: Employees are expected to give 30 days' written notice before leaving a role, unless a shorter period is agreed upon.
How severance pay is calculated in the Philippines
Severance pay depends on the reason for termination. Under the Labor Code of the Philippines, separation pay is typically computed using the following formulas:
- One month’s pay per year of service: This formula applies when a role is made redundant or a business closes down for reasons other than serious financial trouble. It's one of the higher severance payouts allowed by law.
- Half month’s pay per year of service: This is commonly used for terminations due to retrenchment, installation of labor-saving devices, or health-related cases.
- Rounding up service years if six months or more worked in a year: If an employee has worked at least six months in a year, that year is counted as a full year when calculating total service.
5-step process for terminating an employee in the Philippines
Terminating an employee in the Philippines involves more than just issuing a notice. To stay compliant with labor laws and avoid disputes, employers need to follow a clear, step-by-step process when the reason for termination qualifies the employee for severance pay.
1. Establish a valid cause
Employers must have a clear, legally supported reason for terminating an employee, whether it’s due to business needs or serious employee misconduct.
2. Prepare and deliver written notice(s)
This depends on the cause:
- For authorized causes, such as redundancy, employers must provide at least 30 days’ written notice.
- For just causes like misconduct, businesses must follow the twin-notice rule: delivering a first notice explaining the allegations and a second confirming the dismissal after the employee’s response.
3. Calculate separation and final pay
Once termination is confirmed, organizations must calculate separation pay due under the Labor Code (e.g., one month per year for redundancy, half a month for retrenchment), plus all final pay components—last salary, unused leave, and other owed benefits.
4. File required notifications with DOLE
When a company terminates an employee for authorized reasons, they must inform the Department of Labor and Employment by submitting a written notice, filing the separation pay computation, and providing a copy of the receipt.
5. Provide documentation to the employee
Before the employee leaves, the company must supply all written documentation, such as notice copies, final pay breakdown, certificates of employment, and any official DOLE acknowledgment.
Simplify compliance in the Philippines with Oyster
Whether due to redundancy, health concerns, or voluntary resignation, managing terminations requires complete alignment with local labor laws. Handling employee transitions can become complex, from clearly documenting the reason for termination to calculating severance pay.
Oyster EOR service makes it easier to hire and manage talent in the Philippines. Our platform helps global companies create compliant employment contracts, run local payroll, and confidently navigate offboarding. Whether scaling a team or handling sensitive HR matters, Oyster gives you the tools to do it right.
Explore Oyster’s employer of record (EOR) solution to simplify compliance and support every step of the employee journey.
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