How the pay is estimated
- Redundancy / labor-saving device — one (1) month pay per year of service.
- Retrenchment / closure / disease — one-half (½) month pay per year of service.
- Retirement (RA 7641, no company plan) — 22.5 days (about three-quarters of a month) per year of service.
A fraction of at least six months counts as one whole year, and separation pay (for the causes above) is at least one month's pay. Amounts for causes beyond the employee's control, and qualified retirement pay, are generally tax-exempt.
A worked example
Suppose your monthly pay is ₱20,000 and you served 10 years. The estimate depends on the cause:
- Redundancy — 1 month × 10 years × ₱20,000 = ₱200,000.
- Retrenchment or closure — ½ month × 10 × ₱20,000 = ₱100,000.
- Retirement — 0.75 month × 10 × ₱20,000 = ₱150,000.
If you'd served 9 years and 7 months, the extra 7 months rounds up, so the calculation still uses 10 years. A stretch of, say, 9 years and 4 months would be counted as 9.
Frequently asked questions
What's the difference between redundancy and retrenchment?
Both are authorized causes, but redundancy (a position no longer needed) pays one month per year of service, while retrenchment to prevent losses, closure, or disease pays one-half month per year. The higher redundancy rate is why the cause you select changes the estimate.
What if my employer has its own retirement plan?
RA 7641 sets the legal minimum used here. If your company plan or collective bargaining agreement is more generous, its terms apply instead — check your own plan.
Is there a minimum separation pay?
Yes. For the authorized causes above, separation pay is at least one month's pay even if a per-year computation would come out lower — for example, a short tenure under retrenchment. Retirement pay follows the RA 7641 formula without that one-month floor.
Is separation or retirement pay taxable?
Separation pay for causes beyond the employee's control, and qualifying retirement pay, are generally tax-exempt. Confirm your specific case with the BIR.
How are partial years of service counted?
Six months or more is rounded up to a full year; less than six months is dropped. This follows the usual rule for computing the benefit.
Is my information uploaded?
No. The calculation runs entirely in your browser. Nothing you enter is stored or sent to a server.