Service Length Computation for Fixed-Term Employees
(Philippine Labor-Law Perspective)
Key takeaway: In the Philippines, a fixed-term employee’s “length of service” is generally the total of all days actually rendered under every valid fixed-period contract with the same employer, plus any inter-contract intervals that the law or jurisprudence treats as part of continuous employment (e.g., successive renewals intended to fill a permanent function). That aggregate figure is then rounded up when statutory benefits or separation pay are computed (≥ 6 months = 1 year).
1. Statutory & Jurisprudential Framework
| Source | Relevance |
|---|---|
| Labor Code, Arts. 294-306 (security of tenure, separation pay, retirement) | Governs regularization, authorized-cause terminations & benefit formulas (“one-month or one-half-month pay per year of service; 6-month fraction = 1 year”). |
| Art. 83 (normal hours) & Art. 95 (service incentive leave) | “One year of service” threshold for SIL; counted from first actual day worked. |
| P.D. 851 (13th-Month Pay Law) | Computed on actual basic pay earned within a calendar year—so contract dates, not calendar months, matter. |
| R.A. 7641 (Retirement Pay Law) | Requires at least 5 years of continuous service with the same employer. Continuity may exist despite successive fixed-term contracts if the work itself has been continuous. |
| Brent School, Inc. v. Zamora, G.R. L-48494 (5 Feb 1990) | Leading case validating fixed-period employment but warning against its use to defeat regularization. |
| Phil. Global Communications v. De Leon (1993); Sebastian v. Sevilla (2021); GMA Network v. Benzon (2019) | Clarify that repeated fixed-term renewals for a regular job will be treated as continuous employment. |
| DOLE Handbook on Workers’ Statutory Monetary Benefits; Omnibus Rules implementing the Labor Code | Administrative interpretation on counting “year of service” and rounding rules. |
Hierarchy reminder: The Labor Code and Supreme Court decisions prevail over company policies or contract stipulations.
2. What Is “Fixed-Term” Employment?
Essence: Parties set a date certain for contract expiration known to both at hiring.
Conditions for validity (Brent doctrine):
- Employee freely agrees without moral pressure or circumvention.
- Term is based on the nature of work or a legitimate business reason.
Common examples: faculty on semester contracts, athletes for one season, project-based IT hires for a defined build phase.
3. Why Length of Service Matters
| Statutory or economic item | Effect of service length |
|---|---|
| Regularization (Art. 294) | A fixed term does not bar regular status if employee continues working beyond the term or is repeatedly rehired to perform tasks necessary and desirable to the business. Service across contracts is tacked together. |
| Service Incentive Leave (SIL) | After 12 months of service, even if spread over several contracts within one year. |
| 13th-Month Pay | Pro-rated to actual days worked during the calendar year; length of service determines the divisor. |
| Separation Pay (redundancy, retrenchment, closure, disease) | “1-month or ½-month salary per year of service”; fractions ≥ 6 months round up. |
| Retirement Pay (R.A. 7641) | Requires ≥ 5 years continuous service; courts examine the substance of employment, not the breaks artificially created by contract endings. |
| Backwages / Moral Damages in illegal-dismissal cases | Calculated from date of illegal dismissal up to actual reinstatement, plus full years of prior service for separation pay in lieu of reinstatement. |
| Monetary conversion of unused leave, bonuses, CBA benefits | Typically prorated using actual length of service. |
4. Counting the Length of Service
Rule of Thumb: Add every day the employee was “suffered or permitted” to work under any fixed-term contract plus any legal continuous intervals. Then apply statutory rounding.
4.1 Single Contract
- Count calendar days inclusive of start and end date, whether or not falling on rest days or holidays.
- Exclude pure suspension periods (e.g., approved long unpaid leave).
4.2 Successive or Renewed Contracts
- Back-to-back renewals with no gap – treated as continuous; sum the entire span.
- Short artificial gaps (e.g., weekend, two-week break) – if evidence shows the intent to bypass regularization or benefits, the gap is bridged; service is deemed unbroken.
- Seasonal or project intervals – where work is naturally cyclical and employee is free to seek other jobs meanwhile, courts may treat each season/project separately unless rehiring has been regular and deliberate over years.
4.3 Effect of Probationary Period
- Probation counts toward service. A fixed-term probationary contract that exceeds 6 months or is re-issued becomes suspect; employee may ripen into a regular fixed-term or even regular permanent employee.
4.4 Company-initiated Suspensions
Lay-off or “floating” allowed for up to 6 months (Art. 301). That period counts if employee is later recalled; if not recalled, employment is deemed terminated and separation pay applies.
5. Rounding & Formulae in Common Scenarios
| Benefit | Formula | Rounding Rule |
|---|---|---|
| Separation Pay (Art. 298) | Monthly Salary × (Years of Service) (or ½ month, depending on cause) |
≥ 6 months = 1 year |
| Retirement Pay (R.A. 7641 default) | Daily Rate × 22.5 × Years of Service |
Service must be ≥ 5 full years |
| 13th-Month Pay | (Total Basic Salary Earned ÷ 12) |
No rounding; purely pro-rated |
| Service Incentive Leave conversion | Daily Rate × Unused SIL days |
SIL accrues after 12 months |
6. Illustrative Computations
Scenario A: Teacher hired on five successive 10-month contracts, each June 1 to March 31 (summer off), 2019-2024; basic pay = ₱30,000/mo.
| Contract Year | Months Worked | Days (approx.) |
|---|---|---|
| 2019-2020 | 10 | 304 |
| 2020-2021 | 10 | 303 |
| 2021-2022 | 10 | 304 |
| 2022-2023 | 10 | 304 |
| 2023-2024 | 10 | 305 |
| Total | 50 mos. | 1,520 days ≈ 4 yrs 2 mos |
Separation Pay (redundancy)
- Years = 4 years (2 months < 6 months → no rounding up)
₱30,000 × 1 mo × 4 = ₱120,000
Retirement? Not yet—continuous service < 5 years.
Scenario B: IT specialist on six consecutive 1-year contracts (Jan 1 2018-Dec 31 2023), no gaps; salary ₱50,000/mo.
Years of Service: 6
Retirement Pay (company policy mirrors R.A. 7641):
Daily rate ≈ ₱50,000 ÷ 22.5 = ₱2,222.22- Retirement =
2,222.22 × 22.5 × 6 = ₱300,000
Since contract renewals were seamless and tasks were core to operations, employee is also regular (despite fixed-term label) and enjoys security of tenure.
7. Common Compliance Pitfalls
- Mislabeling: Using fixed-term to avoid regularization after 6 months. Courts pierce this tactic and aggregate service.
- Failing to round up fractions ≥ 6 months when paying separation pay.
- Ignoring floating-status clock: Not terminating (and paying) after 6 months of no assignment.
- No written contract: Without a clear expiry date, employment is presumed regular & indefinite.
- Not tracking prior stints: Payroll often “resets” tenure upon each re-hire; illegal if work was continuous or deliberately cyclical.
8. Best-Practice Checklist for Employers
- Draft clear, specific fixed-term clauses tied to legitimate business reason.
- File contracts with DOLE when required (e.g., aliens, special permits).
- Maintain a service ledger per employee showing start-end dates, breaks, leaves.
- Aggregate all stints when calculating benefits; automate rounding logic.
- Issue written notices for authorized-cause terminations and pay separation within 30 days.
- Conduct legal audit every year; review if successive terms are still defensible.
9. Practical Tips for Employees
- Keep personal copies of every contract, payslip & certificate of employment.
- Watch for “gaps” inserted between contracts; query HR on their effect.
- For retirement plans, ask whether company policy credits all prior fixed-term years.
- If dismissed mid-contract, check if reason qualifies as authorized cause; otherwise, you may claim full pay for unexpired portion plus damages.
10. Conclusion
Calculating length of service for fixed-term employees in the Philippines is fact-intensive: the law looks at actual work performed and the true nature of the arrangement, not merely the words “fixed term” on paper. Employers must treat successive engagements with care, while employees should track their aggregated tenure to ensure they receive every peso of statutory entitlement.
This article provides general information only and is not a substitute for tailored legal advice. For specific cases, consult a Philippine labor-law practitioner or the appropriate DOLE Regional Office.