A practical legal article in Philippine labor-law context

General note: This article discusses Philippine labor standards rules in general. Outcomes can change depending on the exact termination ground, the employer’s retirement plan/CBA, employment contracts, and the facts on notice and documentation.

1) Core concepts: Separation Pay vs. Retirement Pay

Separation Pay (Labor Code: authorized causes and some special cases)

Separation pay is a monetary benefit required by law only in specific situations—mainly when employment ends due to authorized causes (business/economic reasons or disease) even though the employee is not at fault.

Typical legal bases include:

Redundancy
Retrenchment to prevent losses
Closure or cessation of business
Installation of labor-saving devices
Termination due to disease (where continued employment is prohibited or prejudicial)

Separation pay is not automatically due in every termination. For example, it is generally not required in:

Just cause terminations (serious misconduct, fraud, etc.)
Voluntary resignation (unless company policy/CBA provides it)
End of fixed-term project/contract if the contract truly ends (subject to rules on labor-only contracting, security of tenure issues, and project employment requirements)

Retirement Pay (Retirement law for private sector: RA 7641 / Labor Code retirement provisions)

Retirement pay is a benefit triggered by retirement, usually by:

Company retirement plan / CBA, or
In the absence of a plan, the statutory minimum under RA 7641.

In general private-sector practice:

Optional retirement age: commonly 60 (if the employee chooses, and meets service requirement under law/plan)
Mandatory retirement age: 65

A common statutory minimum rule (when no better plan exists) is that retirement pay is at least:

One-half (1/2) month salary for every year of service with a fraction of at least six (6) months counted as one (1) whole year.

Important: “One-half month salary” is a defined legal minimum concept commonly computed as:

15 days + 1/12 of the 13th month pay + cash equivalent of 5 days service incentive leave (SIL) This yields a minimum equivalent of 22.5 days of salary per year of service in many standard computations, subject to whether SIL is applicable and how “salary” is defined for the worker.

2) The main question: Can an employee receive both separation pay and retirement pay?

The short legal framework

An employee may be able to receive both if:

The separation pay is due because the employment ended via an authorized cause (or another rule that legally grants separation pay), and
The employee is also entitled to retirement benefits under a retirement plan/CBA or the statutory minimum, and
The governing retirement plan/CBA/contract does not clearly say that retirement benefits are “in lieu of,” “instead of,” or inclusive of separation pay for the same separation event, and
The employee’s receipt is not barred by a valid waiver/quitclaim (and even then, waivers can be challenged if unfair, unconscionable, or not fully understood).

Why both can be possible

Separation pay and retirement pay can arise from different legal triggers:

Separation pay addresses the economic or health-related reason for termination even without employee fault.
Retirement pay rewards service and is triggered by reaching retirement conditions (age/service), or by the plan’s terms.

If both triggers occur and are not made mutually exclusive by the plan or agreement, the employee can argue entitlement to both.

3) When “both” is most commonly allowed (typical scenarios)

Scenario A: Business closure/retrenchment/redundancy + employee already qualified for retirement

Example: A company shuts down operations (closure) or reduces workforce (retrenchment/redundancy). Affected employee is 60+ and meets service requirement for retirement benefits.

Separation pay may be due because the termination is for an authorized cause (closure, redundancy, retrenchment).
Retirement pay may also be due because the employee is retirement-qualified under law/plan.

Result: Often a strong basis to claim both, unless the retirement plan/CBA explicitly states retirement benefits are in lieu of separation pay for such events.

Scenario B: Redundancy selection includes retirement-eligible employees

Redundancy typically carries separation pay at a higher statutory level (see computations below). If the employee also qualifies for retirement, both benefits may be demanded where not prohibited by the plan.

Scenario C: CBA/retirement plan grants retirement pay even upon involuntary separation

Some CBAs/retirement plans provide retirement benefits upon separation after a certain service period, even if the employee is not yet 60, or even if separation is due to retrenchment/closure. If such plan benefits are in addition to legally mandated separation pay, both can be collectible.

4) When “both” is usually denied (common barriers)

Barrier 1: Retirement is the mode of termination (not an authorized cause termination)

If the employer ends employment by retiring the employee under a valid retirement plan (e.g., mandatory retirement at 65 or optional retirement properly exercised), then:

Retirement pay is due.
Separation pay is generally not due because the termination is not based on an authorized cause requiring separation pay.

Key idea: If it’s genuinely a retirement termination, separation pay typically doesn’t attach unless the plan/CBA grants it.

Barrier 2: “In lieu of separation pay” clauses

Many retirement plans/CBA provisions say that retirement benefits are “in lieu of” separation pay or that the employee shall receive whichever is higher.

If the plan states:

Retirement benefits are inclusive of separation pay, or
Employee gets either retirement or separation pay, not both, then claiming both becomes difficult unless the clause is invalid or ambiguous, or unless a separate law mandates an additional benefit.

Barrier 3: Double recovery for the same cause under the same benefit design

Even without the magic words “in lieu,” some plans are structured so that the retirement benefit already covers the separation event. In disputes, the central question becomes: Were the benefits intended to be cumulative, or a substitute?

Barrier 4: Employee voluntarily resigns or voluntarily retires (without authorized cause)

Voluntary resignation: no separation pay by default.
Voluntary retirement: retirement benefits apply if qualified; separation pay usually does not.

Barrier 5: Valid quitclaims/releases

If the employee signs a quitclaim stating receipt is “full and final settlement,” the employer may use it to oppose additional claims. However, Philippine labor law often scrutinizes quitclaims, especially if the consideration is low, the employee was pressured, or terms were unclear.

5) Computation basics (how much is separation pay vs. retirement pay?)

A) Statutory separation pay (common minimum rules)

These are widely applied statutory minimum patterns:

Redundancy

At least 1 month pay per year of service, or 1 month pay, whichever is higher.

Installation of labor-saving devices

At least 1 month pay per year of service, or 1 month pay, whichever is higher.

Retrenchment to prevent losses

At least 1/2 month pay per year of service, or 1 month pay, whichever is higher.

Closure or cessation of business (not due to serious business losses)

At least 1/2 month pay per year of service, or 1 month pay, whichever is higher.

Disease (where termination is legally allowed due to health condition)

At least 1/2 month pay per year of service, or 1 month pay, whichever is higher.

Notes that matter in practice

“Per year of service” typically counts a fraction of at least 6 months as 1 year.
What counts as “one month pay” can depend on how wage and salary components are defined (basic pay vs. certain regular allowances).

B) Statutory minimum retirement pay (when no better plan exists)

If the employer has no retirement plan or the plan provides less than the statutory minimum, the statutory minimum generally applies:

At least 1/2 month salary per year of service (often equated to 22.5 days salary per year, based on the legal minimum components commonly used: 15 days + 2.5 days for 13th month equivalent + 5 days SIL equivalent, subject to applicability).

Service requirement is commonly treated as at least 5 years of service for statutory retirement.

C) If both are collectible: how computations interact

If an employee is entitled to both, the benefits are typically computed separately:

Compute authorized-cause separation pay using the applicable formula; and
Compute retirement pay using the plan formula (or statutory minimum, whichever the law requires as minimum).

Then assess whether the plan contains a set-off or “in lieu of” limitation.

6) Procedural and documentation requirements (often decisive in disputes)

A) Authorized cause terminations: notice requirements

For many authorized causes, employers are expected to comply with a notice requirement (commonly involving written notice to the employee and notice to the labor department within the prescribed period). Failure to observe procedural requirements can expose the employer to liability (even if the ground exists), and it can strengthen the employee’s bargaining position.

B) Retirement: plan compliance, clear option exercise

For retirement-based separation:

The retirement plan/CBA terms should be clear.
Retirement should be implemented consistently and not used to evade other obligations.

C) Payroll documents and computation transparency

Whether claiming separation pay, retirement pay, or both, the following typically matter:

Employment contract and position history
Payslips and payroll register
Company retirement plan text / CBA provisions
Written notices of redundancy/retrenchment/closure or retirement
Service record (start date, breaks, rehires)
13th month records, leave credits, and allowance regularity

7) Tax and statutory benefit considerations (important but often overlooked)

A) Potential tax treatment

In the Philippines, certain forms of separation and retirement benefits may qualify for favorable tax treatment under specific conditions (often depending on reason for separation, age/service, and whether it is availed only once, and/or whether the retirement plan is compliant with tax rules). Actual taxability can vary widely based on:

The reason for separation (e.g., authorized cause vs. voluntary)
The structure of the retirement plan
BIR requirements and the employee’s personal situation

Because tax rules are detail-sensitive, employees commonly request:

A breakdown of gross benefit
Tax withheld (if any)
Basis for exemption or withholding

B) SSS/PhilHealth/Pag-IBIG

These are separate from separation/retirement pay:

Separation pay/retirement pay are employer-paid benefits (as applicable).
SSS retirement/pension eligibility is governed by SSS rules and contributions and is independent of employer retirement pay.

8) Practical decision tree: “Do I have a strong claim to both?”

Use this checklist:

Step 1: Why did employment end?

Authorized cause (redundancy/retrenchment/closure/labor-saving devices/disease)? → separation pay likely.
Retirement (optional/mandatory under plan)? → retirement pay likely.
Just cause? → separation pay usually not due.
Resignation? → separation pay usually not due.

Step 2: Are you retirement-qualified?

Age around 60 (optional) or 65 (mandatory)?
At least 5 years service (for statutory minimum retirement)?
Or do you qualify under a company plan/CBA?

Step 3: Does the retirement plan/CBA restrict accumulation?

Look for phrases like:

“in lieu of”
“whichever is higher”
“inclusive of separation pay”
“no longer entitled to separation pay”

Step 4: Did you sign a quitclaim?

If yes, review whether it clearly covers both benefits, and whether the consideration was fair and voluntary.

9) Common negotiation and litigation issues

Issue 1: Employer frames the exit as “retirement” to avoid separation pay

In some disputes, the employer characterizes a workforce reduction as “retirement” (especially for older employees). The legal question becomes whether the real cause was an authorized cause (thus separation pay applies) or a valid retirement implementation.

Issue 2: Employer offers “one package” without explaining components

Employees should request a written breakdown:

Separation pay computation basis
Retirement pay computation basis
Any offsets and plan clause supporting offsets

Issue 3: Disputes on “salary” base

What counts in “salary” can be contested:

Basic pay
Regular allowances (depending on whether treated as part of wage)
Commissions (if regular and integrated)
COLA and other mandated items (case-specific)

Issue 4: Fractional years and service crediting

Rules on counting years of service (including whether a “fraction of at least 6 months counts as 1 year”) can materially change totals.

10) Best practices for employees (and HR) to avoid mistakes

For employees

Ask for the legal basis of termination in writing.
Request the retirement plan/CBA section on benefits.
Ask whether the retirement benefit is cumulative with separation pay or in lieu.
Get a computation sheet with years of service and salary base.
Avoid signing quitclaims on the spot; read whether it waives future claims.

For employers/HR

Clearly document the termination ground (authorized cause vs. retirement).
Follow notice requirements for authorized causes.
Ensure retirement plan text is clear on whether it is cumulative or substitutive.
Provide computation transparency and consistent application.

11) Bottom line

Separation pay and retirement pay can be received simultaneously in the Philippines when:

The employee is terminated for a ground that legally grants separation pay, and
The employee is also entitled to retirement benefits, and
The retirement plan/CBA does not prohibit receiving both (e.g., not “in lieu of separation pay”), and
There is no enforceable waiver that bars additional claims.

But if the separation is genuinely by retirement (and not by an authorized cause), separation pay is typically not owed unless a policy/CBA grants it.

If you want, a tailored analysis can be written using your facts (age, years of service, reason for separation, and whether there is a retirement plan/CBA), and a sample computation template can be provided for both separation pay and retirement pay.