Claiming Separation Pay, Backwages, and Underpaid 13th-Month Pay in the Philippines

This practical guide is written for employees and HR practitioners in the Philippines. It summarizes the core rules, typical computations, documents you’ll need, and where/how to file claims. It is not a substitute for legal advice on your specific facts.

1) Separation Pay

A. When separation pay is due

Separation pay is not a universal benefit. It is generally due only in the following scenarios:

Authorized causes (management-initiated), with 30-day prior written notice to both the employee and DOLE:

Redundancy
Installation of labor-saving devices
Retrenchment to prevent losses
Closure/cessation of business (if not due to serious losses)
Disease: Employee is found by a competent public health authority to have a disease that cannot be cured within six months and continued employment is prohibited by law.

In lieu of reinstatement after a court/commission finds illegal dismissal and reinstatement is no longer feasible (e.g., strained relations, position already abolished). This is judicial separation pay and is different from the statutory separation pay for authorized causes.

No separation pay is due for resignation (unless contract/CBA grants it), termination for just cause (e.g., serious misconduct), or closure due to serious business losses (properly proven).

B. Statutory rates (authorized causes)

Redundancy / Installation of labor-saving devices: At least 1 month pay per year of service, or 1 month pay, whichever is higher.
Retrenchment and Closure not due to serious losses: At least ½ month pay per year of service, or 1 month pay, whichever is higher (practice tip: agencies and courts often apply the “whichever is higher” floor of one month).
Disease: At least 1 month pay, or ½ month pay per year of service, whichever is higher.

Rounding rule: A fraction of at least six (6) months is counted as one (1) whole year of service.

Component of “pay”: Use the employee’s latest basic salary (include wage orders/CBA-mandated increases). Allowances are included only if they are integrated into basic pay by law, CBA, or consistent company practice.

C. Judicial separation pay (in lieu of reinstatement)

When dismissal is declared illegal but reinstatement is no longer viable, tribunals may award separation pay (often 1 month pay per year of service as equitable relief). This does not replace backwages; it is on top of backwages.

D. Procedural due process (authorized causes)

Employer must serve two notices effectively: a written notice to the employee and a separate notice to the DOLE Regional Office, both at least 30 calendar days before effectivity. Failure may result in nominal damages (often ₱50,000 for authorized causes) even if the authorized cause itself is valid.

2) Backwages (Illegal Dismissal)

A. When backwages are awarded

If dismissal is ruled illegal, the standard reliefs are:

Reinstatement without loss of seniority rights, and
Full backwages from the date of dismissal up to actual reinstatement.

If reinstatement is no longer possible and separation pay in lieu of reinstatement is awarded, backwages run from dismissal up to the finality of the decision.

B. What backwages include

Basic salary for the period
Mandatory increases (e.g., wage orders, CBA-mandated step increases)
Regular allowances/benefits that are salary-determinable and not contingent (e.g., some COLA if integrated; fixed transportation/meal allowances if part of wage structure)
13th-month pay proportionate to the backwage period

No deduction for earnings elsewhere: Philippine jurisprudence generally does not deduct outside earnings or “mitigate” backwages.

C. Legal interest

Monetary awards ordinarily earn legal interest (commonly 6% per annum) from the finality of judgment until full satisfaction. Some rulings also impose interest from earlier dates depending on the nature of the award—watch the dispositive portion.

D. Due process (just causes)

For dismissal based on just causes, employers must observe the twin-notice rule (notice to explain + notice of decision) and allow a meaningful opportunity to be heard. Failure can lead to nominal damages (often ₱30,000) even if the just cause is proven.

3) 13th-Month Pay and Underpayment

A. Who is entitled

All rank-and-file employees in the private sector who have worked at least one month during the calendar year are entitled to 13th-month pay, regardless of how they are paid (monthly, daily, or piece-rate). Managerial employees are generally excluded (unless a CBA/company policy grants it).

B. Computation

13th-month pay = (Total basic salary earned within the calendar year) ÷ 12

Include: basic wage actually earned; commissions that are wage-integrated (i.e., part of basic pay by nature or practice).
Exclude: overtime pay, premium pay, night differential, holiday pay, monetized unused leaves, and other benefits not part of basic salary, unless converted into/integrated with basic pay by contract, CBA, or long practice.

Deadline of payment: On or before December 24 each year. Employers may pay in two installments (e.g., mid-year and December).

C. Signs of underpayment

You received less than 1/12 of your basic earnings for the year.
Certain periods you worked were omitted (e.g., months with no payroll but you rendered work).
The employer improperly treated fixed allowances or wage-integrated commissions as “excluded,” or excluded CBA-mandated increases.

4) How to File and Where to File

A. Quick triage

Illegal dismissal (seeking backwages and/or separation pay in lieu of reinstatement): File a complaint with the NLRC (Labor Arbiter).
Authorized-cause termination where you dispute the cause or the amount of separation pay: File with the NLRC; you may also start with SEnA (see below) for quick settlement.
13th-month underpayment / money claims without illegal dismissal: Start with DOLE’s Single-Entry Approach (SEnA) at the Regional/Field Office; unresolved cases can proceed to NLRC (adjudication) or DOLE (enforcement) depending on facts.

B. SEnA (Single-Entry Approach)

A mandatory conciliation-mediation step for most labor disputes. You file a Request for Assistance (RFA) at the DOLE Regional Office where the employer is located or where you worked. Many 13th-month issues settle here quickly.

C. NLRC complaint

If unresolved, file a verified complaint with the NLRC (Labor Arbiter) having jurisdiction over your workplace/employer. Reliefs you can claim together:

Illegal dismissal → reinstatement, backwages, separation pay in lieu (if appropriate), damages, attorney’s fees (often up to 10% of the monetary award).
Money claims → unpaid wages, underpaid 13th-month, holiday pay, service incentive leave pay, etc.

5) Prescriptive (Filing) Periods

Illegal dismissal: generally 4 years from dismissal (as an action upon an injury to rights).
Money claims (e.g., underpaid 13th-month, unpaid wages/allowances): 3 years from the time the cause of action accrued.
Unfair labor practice: 1 year from commission.

Tip: If you were illegally dismissed and also seek wage/benefit underpayments, bundle the claims in one NLRC case to avoid prescription fights.

6) Evidence & Documents to Prepare

Identification & employment proof: company ID, employment contract/appointment letter, job description, company handbook/CBA.
Pay records: payslips, payroll summaries, bank credits, vouchers, BIR Form 2316, COE.
Time/work proof: DTRs, biometric logs, emails, task trackers, client deliverables.
Termination papers: notices (to explain/decision), authorized-cause notice and DOLE notice (if any), closure announcements.
Financial justification (for redundancy/retrenchment/closure): organization chart changes, feasibility studies, board resolutions, audited financials (if employer relies on losses).
Medical separation: medical certificate and public health authority certification that the disease cannot be cured within six months and continued employment is prohibited.
Computation sheets: your own backwage and 13th-month computations.
Communications: emails, chats, memoranda showing assignments, approvals, promises of benefits, or admissions.

7) Computation Guides

A. Statutory separation pay (authorized causes)

Determine years of service (≥6 months rounds up to a full year).
Apply the correct rate:
- Redundancy/ILSD: 1 month per year (min. 1 month).
- Retrenchment/Closure (no serious losses): ½ month per year (min. 1 month).
- Disease: ½ month per year or 1 month, whichever is higher.
Multiply by latest basic monthly salary.

Example: Basic salary ₱25,000; 5 years, 7 months → 6 years. Redundancy → 6 × ₱25,000 = ₱150,000 (not less than 1 month).

B. Judicial separation pay (in lieu of reinstatement)

Often 1 month per year of service (equitable), but follow the decision—courts may fix another rate.

C. Backwages (simplified)

Backwage period:
- If reinstated: dismissal date → actual reinstatement date.
- If separation pay in lieu: dismissal date → finality of judgment.
Sum monthly basic pay for each month in the period + mandated increases.
Add pro-rated 13th-month for the covered earnings.
Add regular allowances/benefits that are wage-integrated.
Apply legal interest as ordered (commonly 6% p.a. from finality).

D. 13th-month pay

13th-month = (Total basic salary earned in the calendar year) ÷ 12.

Example: Basic salary earned Jan–Dec totals ₱360,000 → 13th-month = ₱30,000. If employed only Apr–Dec with total basic salary ₱270,000 → 13th-month = ₱22,500.

8) Tax Treatment (quick overview)

Separation pay due to causes beyond the employee’s control (e.g., redundancy, retrenchment, disease, certain closures) is typically tax-exempt under the tax code.
Backwages are generally treated as taxable compensation income.
13th-month and other benefits are tax-exempt up to ₱90,000 annually (any excess is taxable).
Withholding taxes and BIR Form 2316 adjustments may be necessary upon payment or finality.

Always verify current BIR rules; employers should issue corrected tax certificates when paying retroactive awards.

9) Strategy & Practical Tips

Act early. Track the 3-year (money claims) and 4-year (illegal dismissal) clocks.
Preserve proof. Quietly secure copies of payslips, emails, and notices before access is cut.
Mind the labels. If you were terminated for “redundancy” but the company hired a replacement soon after, document it—this can undermine the authorized cause.
Challenge paper losses. Retrenchment or closure must be backed by substantial, credible business records; bare allegations aren’t enough.
Due process matters. Even a valid cause can result in nominal damages if procedures weren’t followed.
Bundle claims wisely. If you’re alleging illegal dismissal, include your underpaid 13th-month and other wage claims in the same NLRC case.
Compute both ways. Run your own numbers for (a) employer’s chosen cause; and (b) illegal dismissal scenario (backwages + judicial separation pay). Present both during settlement talks.
Consider settlement. Many disputes resolve at SEnA. Bring computations and be ready to negotiate payment terms.

10) Quick Checklists

A. If you were terminated for an authorized cause

Did you receive 30-day written notice?
Did DOLE also receive notice (ask HR for proof)?
Is the cause supported (redundancy study, financials, medical certification)?
Was separation pay computed at the correct rate?
Were fractions ≥6 months rounded up?

B. If you believe you were illegally dismissed

File NLRC complaint within 4 years.
Claim reinstatement and backwages; seek separation pay in lieu if reinstatement is impracticable.
Include all money claims (13th-month underpayment, etc.).
Ask for legal interest, nominal damages (if due process was violated), and attorney’s fees.

C. If your 13th-month was underpaid

Gather payslips/payroll for the year.
Compute total basic earnings ÷ 12.
Compare with amount actually paid (deadline: Dec 24).
File SEnA RFA; escalate to NLRC if unresolved.

11) Sample Pleading Language (for guidance only)

Reliefs: “Complainant prays for (1) reinstatement without loss of seniority rights and full backwages from dismissal until actual reinstatement; or separation pay in lieu at one month per year of service if reinstatement is no longer feasible; (2) payment of underpaid 13th-month pay and other monetary benefits; (3) legal interest; (4) nominal damages for violation of statutory due process; and (5) attorney’s fees at 10% of the monetary award.”

12) Final Notes

Keep communications professional; avoid social-media posts that could affect your case.
If you sign a quitclaim, ensure the consideration is reasonable and that you understand what you’re waiving; unconscionable quitclaims can be invalidated, but prevention is better than cure.
Always cross-check the latest DOLE advisories, NLRC rules, and BIR issuances before filing; regulatory thresholds and interest rules can change.

If you want, share your facts (dates, pay, tenure, ground for termination), and I’ll draft a tailored computation sheet and a filing plan you can use at SEnA or the NLRC.