Severance Pay
Doesn't it sound a bit like one of those breakup "compensations" that you have to give to your ex? But in the Philippines, it has a different meaning, so find out how you can navigate your way through a labor relationship.
What is severance pay?
These payments are provided for under Philippine labor laws and are intended to safeguard the rights and interests of the employee by granting certain financial compensation upon dismissal or termination of the employment contract.
There are several scenarios in which an employee can be laid off:
A. Severance not involving economic reasons, such as: departmental cutbacks, staff deletion, employees can not continue to work for medical reasons
B. Severance caused by economic reasons, such as company dissolution
c. Company bankruptcy (company bankruptcy requires submission of relevant financial reports to the Labour Affairs Bureau for review, submission of the list of employees to be made redundant and a report).
Calculation:
For severance not involving financial reasons, the break-up payment is calculated as follows:
1 month's work x seniority
For redundancy involving economic reasons, the severance payment is calculated as:
half a month's salary x seniority.
(but subject to negotiation and agreement with the laborer)
However, under Philippine law, severance pay cannot be less than one month's salary.
Therefore, if the amount of severance pay does not exceed 1 month's salary, the employee will still be compensated according to 1 month's salary.
It also needs to be done when demobilizing employees:
-Must notify employees in writing at least 30 days in advance and must also be submitted to the Department of Labor's Office (DOLE) to report layoff plans
-Unsettled wages
-Thirteen paychecks to be paid as well, (13 paychecks must be paid as long as 1 month of service is completed)
-Unused annual leave (5 days of statutory annual leave for as long as 1 year of service is completed)
In general, employers need to comply with the relevant laws and regulations when dismissing workers and ensure that the dismissal process is lawful and fair, and that the rights and dignity of workers are respected so as to minimize any adverse impact.
This can effectively reduce potential legal risks and maintain harmony and stability in labour relations.