Dear Attorney,

I hope this message finds you well. I would like to seek your legal guidance regarding the computation of separation pay for an employee who has been retrenched due to the company's financial difficulties. Specifically, I need to understand how separation pay is computed for both monthly paid and daily paid employees in the Philippines.

Thank you for your assistance on this matter.

Sincerely,
A Concerned Employer

Insights

Under Philippine labor law, employees who are separated from their employer due to authorized causes, such as retrenchment, are entitled to separation pay. This is in accordance with Article 298 of the Labor Code of the Philippines. In the case of retrenchment due to financial losses, the law prescribes specific amounts of separation pay to employees, depending on their pay structure and tenure.

Separation Pay for Retrenched Employees

Monthly Paid Employees:
For employees paid on a monthly basis, the separation pay for retrenchment due to financial losses is typically equivalent to one month’s salary or half a month’s salary for every year of service, whichever is higher. If the employee has rendered incomplete years of service, the computation should include a proportional amount.
Daily Paid Employees:
For daily paid employees, the computation follows the same principle. Their separation pay is computed based on their average daily salary multiplied by the number of days they work in a month (usually 26 days for computation purposes). The separation pay would be either half of their monthly salary for every year of service or one month’s salary, depending on what is more favorable to the employee.

Other Key Considerations

It is essential to note that the employer must have substantial proof of financial losses to justify retrenchment as a legal cause for separation. Documentation proving these financial difficulties is often required to defend against claims of illegal dismissal. Failure to do so may result in legal consequences such as the requirement to reinstate the employee with back pay.

Employers should also ensure that the retrenchment process is carried out in good faith and with proper notice to the affected employees, as stipulated under Philippine law.