SERVICE, whichever is higher”

It simply means that the employee is entitled whichever is higher of the
1. one month salary; or
2. 1/2 month salary for every year of service.

 If the retrenched employee’s salary is P8,000, and he has been
working for 3 years, he is entitled to separation pay equivalent to
whichever is higher of his:
1. one month salary = P8,000; or
2. 1/2 month salary for every year of service = (1/2) x P8,000 x 3 years =

In the above example, the employee is entitled to P12,000, the higher

 Following the same rule, if the length of service is only one year, his
separation would be whichever is higher of the following:
1. one month salary = P8,000; or
2. 1/2 month salary for every year of service = (1/2) x P8,000 x 1 year =

Here, separation pay is P8,000 or one month salary, the higher
amount. Actually, we will arrive at the same result even if the length of
service is only 10 months or 7 1/2 months, etc., as long as it is 6
months or more. This is because a fraction of at least 6-months is
considered as 1 whole year.

 Now, what if the employee has served for less than 6 months, how
much separation pay will he get? Let’s see.
1. one month salary = P8,000; or
2. 1/2 month salary for every year of service = (1/2) x P8,000 x 0 year =

So, it’s still P8,000 or one month salary.

Procedural Due Process
 For termination of employment based on just causes, procedural due
process requires that the employee be given the benefit of the so-
called twin-notice and hearing, as follows:

the employer must serve the same by registered mail at his last known address. present his evidence or rebut the evidence presented against him. A hearing or conference during which the employee concerned. Ideally. if this is not possible. The mere posting of the notice on the bulletin board is not sufficient compliance. registered mail is preferred). with the assistance of counsel if the employee so desires. If the employee refused to receive notice. However.First notice: Notice to Explain (NTE) or order to show cause. IRR)  Service of Notices: 1. Ample opportunity means every kind of assistance that management must accord the employee to enable him to prepare adequately for his defense including legal representation. 1996) 2. 2005)  Opportunity to Respond: The very purpose of requiring the employer to observe proper termination process is to give the employee ample opportunity to respond to the charges against him or to defend himself. A written notice served on the employee specifying the ground or grounds for termination. 277[b] and Sec 2. Rule I. this should be done by personally handing a copy of the notice to the employee concerned. and giving to said employee reasonable opportunity within which to explain his side. It should neither be pro-forma nor vague. . Hearing or formal investigation. A written notice of termination served on the employee indicating that upon due consideration of all the circumstances. Second notice: Notice of decision. (See Art. the notices may be served on the employee’s last known address either by ordinary or registered mail (from legal viewpoint. This is consistent with the requirement that the employee should be afforded ample opportunity to be heard and not mere opportunity. Book VI. the employee must be personally served with notices (notice to show cause and notice of termination). In case of termination.  Requirements for First Notice (NTE) The first notice informing the employee of the charges against him should set out clearly what he is being held liable for. is given opportunity to respond to the charge. (See Nueva Ecija Electric Coop case. grounds have been established to justify his termination. What the law require is ample opportunity. (Shoppers Gain Supermart.

the employer must serve written notice (Notice of Termination) to the individual employee concerned and to the appropriate Regional Office of DOLE at least 30 days before the effectivity of the termination – this requirement is very important. NEW-DFA. 3. the dismissal is valid but the employer may be required to pay nominal damages to the dismissed employee. 2000) 2. he is deemed to have waived his right to defend himself. the implementation of the company program resulting to termination of employees must be . the dismissal. If the dismissal is for just cause but without prior notice and hearing. Cabansag. and closure or cessation of operation. Take note of this one. retrenchment to prevent losses.. NLRC. The employment contract contains stipulation that the employment may be terminated by either party after “one month notice” or “one month salary in lieu of notice. 1. 2. (Leonardo vs. 2005)  Effect of Refusal of Employee to Participate in Investigation. (PNB vs. If dismissal is for just cause and with prior notice and hearing.” The stipulation was held to be illegal. Good faith in the termination of employee.  Cases 1. redundancy. The Court ruled that by refusing to participate. NLRC. he is deemed to have been deprived of due process. (Leonardo vs.e. If there is no just cause for dismissal. whether or not there is prior notice and hearing. The requirement of prior notice and opportunity to be heard cannot be substituted by mere payment of salary. By the refusal of employee to participate in the investigation. the dismissal is valid. (Glaxo Wellcome vs. 2005) NOTICE OF TERMINATION (Authorized Causes) Requirements of Procedural Due Process  For valid termination based on authorized causes such as installation of labor-saving devices. The employee refused to participate in the investigation being conducted by the personnel management.  The employer must observe the following requirements as part of the process of termination: 1. must be based on the same grounds cited in the NTE. If the dismissal is based on grounds other than those specified in the notice.Moreover. i. he cannot claim that he was denied due process. backwages and damages. The employee is entitled to reinstatement. the dismissal is illegal. if necessary. 2000)  Effects or Consequences of Termination.

Consequently the employee shall be entitled to reinstatement and backwages. NLRC. the employer must adopt of a fair and reasonable criteria which must be applied in good faith. the dismissal is illegal. The employee must be paid separation pay not less than the amount fixed by law.) 5. 2. The employer must adopt a fair and reasonable criteria in the selection of employee to be dismissed. Less preferred status of employee. 2. the amount of nominal damages is P50.00. and 3. the dismissal is valid.)  Effects of Termination: 1. The closure contemplated under Article 283 of the Labor Code is a unilateral and voluntary act on the part of the employer to close the business establishment. the dismissal is valid but the employer may be ordered to pay nominal damages to dismissed employee. No separation pay is required when the closure of business is due to serious business losses or financial reverses. (North Davao Mining. whichever is higher.  Payment of Separation Pay: In termination of employment due to authorized causes. If the termination is for authorized cause but the employee was not given 30-day prior notice.  Criteria in Selection of Employee to be Dismissed: In the selection of the employee to be dismissed. such as: 1. the employer is required to give separation pay to the employee concerned. In Jaka Food Processing vs. and damages if warranted. . 3. whether or not there is 30-day prior notice. Efficiency rating. 3. (National Federation of Labor vs. When closure of the business establishment is forced upon the employer and ultimately for the benefit of the employees. 2. 2. 2000. 4. If the termination is for authorized cause and the employee is given 30-day prior notice. If the dismissal is not for a valid authorized cause. Pacot. In case of termination due to the installation of labor-saving devices or redundancy – at least one month pay or to at least one month pay for every year of service. 1996.000. 3. 2005. The amount of separation pay depends on the specified cause of termination. and. for a valid cause and not merely a tool to circumvent the law on employee’s security of tenure. whichever is higher. Seniority. In case of (a) retrenchment to prevent losses and (b) closures not due to serious financial reverses – one month pay or at least one-half month pay for every year of service. 1. No separation pay for closure due to serious business losses.

any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death. January 20. vs. but not more than 65. the employment is terminated when the employee has reached a certain age. 78524. an employee may be retired upon reaching the retirement age established in the collective bargaining agreement (CBA) or other applicable employment contract.R. the employee may retire upon reaching the age of 60 or more. The age 60 or more. The salary base properly used in computing the separation pay should include not just the basic salary but also the regular allowances that an employee has been receiving (Planters’ Products. 1989) COVERAGE FROM INCOME TAX OF SEPARATION PAY  Pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. INCLUSION OF REGULAR ALLOWANCES IN THE COMPUTATION – YES ITS INCLUDED. provided he has served at least 5 years or more in the same establishment. By retirement. In the absence of such agreement. the separation pay to be received by the retrenched employees as a result of their separation from the service is exempt from income tax and consequently from the withholding tax RETIREMENT PAY  Retirement is one of the modes of termination of employment. G. or after he has completed a certain number of years of service. Inc. but . it would be error not to integrate the allowance with the basic salary. BASIS OF SEPARATION PAY  The computation of separation pay of an employee shall be based on his/her latest salary rate. No.  Under the Labor Code (Art. as amended. sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in the gross income and shall be exempt from taxation under Title II of the same Code. Notice of Termination: The employer may terminate the employment of any employee due to the above-mentioned authorized causes by serving a written notice on the employee and the Department of Labor and Employment through its regional office having jurisdiction over the place of business at least one (1) month before the intended date thereof. NLRC.  Accordingly. 287).  In the computation of separation pay.

service and agricultural establishments/operations regularly employing not more than ten (10) employees. The compulsory retirement age is set 60. For example. For example. by the law. However.  Employees shall be retired upon reaching the age of sixty (60) years or more but not beyond sixty-five (65) years old [and have served the establishment for at least five (5) years]. a fraction of at least six . the retirement age fixed by law won’t apply. Under the Labor Code. or in the absence of both. such benefits must not be less than that provided under the Labor Code.  The CBA or employment contract may also establish a retirement age based on years of service of the employee.  Retirement Pay: 1.  A company may have CBA or employment contract setting a retirement age different (higher or lower) from that fixed by law. the CBA may fix the retirement age at 50.  The retirement age may also be established based on the combination of the age and tenure of the employee. the employee shall be entitled to receive the benefits as provided in the said CBA or contract. the retirement pay is equivalent to at least one- half month salary for every year of service. the contract may provide that “the employee may retire upon reaching the age of 50. If there is such agreement or contract. it may provide that the employee may be retired after 20 years of service. or after 20 years of service.  It is important to note that the company cannot unilaterally fix the retirement age of employee. the retirement age fixed by law applies only when no CBA or employment contract setting the retirement age exist. Retirement age may be established only by a valid CBA or employment contract. but not beyond 60. 2. below 65.  This benefit applies to all employees except: 1) government employees. 2) employees of retail. For example. Sixty-five is considered as the compulsory retirement age.  For underground mining employees. is considered as the voluntary retirement age. the voluntary retirement age under the Labor Code is 50 years or more. whichever comes earlier”. If the establishment has a CBA or employment contract providing for a retirement plan or benefits to employees.  Another thing.

(1/12 x 365/12 = . 117174. R.5) Thus. "one-half month salary" shall include all of the following: 1.  Illustration: Minimum Retirement Pay = Daily Rate x 22.5 days x number of years in service. One-twelfth (1/12) of the thirteenth-month pay. Example:  The minimum retirement pay shall be equivalent to one-half (1/2) month salary for every year of service.083 x 30. Confesor.  For the purpose of computing retirement pay.41 = 2.5 days (Capitol Wireless. No. months being considered as one whole year. 1996). a fraction of at least six (6) months being considered as one (1) whole year. The term one-half month salary shall mean 15 days plus 1/12 of the 13th month pay and the cash equivalent of not more than 5 days of service incentive leaves. Nieves R. November 13. vs. “one-half month salary” is equivalent to 22. Cash equivalent of five (5) days of service incentive leave. Honorable Secretary Ma. The COLA shall not be included in the computation of retirement pay. G. 2. . 3. Other benefits may be included in the computation of the retirement pay upon agreement of the employer and the employee or if provided in the Collective Bargaining Agreement (CBA). Fifteen (15) days salary based on the latest salary rate. Inc.