Scope note: Philippine law governs employees, not “tenants,” when it comes to severance or separation pay. Below, “severance/separation pay” refers to statutory benefits and court-ordered monetary awards owed to employees whose employment ends under specific conditions. If an employee also rents employer-provided housing, see the section on Company Housing / “Tenant” Issues near the end.

1) Quick Primer: Severance vs. Other End-of-Service Pay

Severance/Separation pay (statutory): Owed when employment ends for specific authorized causes (e.g., redundancy, retrenchment, closure, installation of labor-saving devices) or disease. Not owed for voluntary resignation or dismissal for just cause.
Separation pay in lieu of reinstatement (court-ordered): Awarded by courts/tribunals in illegal dismissal cases when reinstatement is no longer feasible; this is distinct from statutory severance.
Retirement pay: Different benefit under the Retirement Pay Law (RA 7641) and/or company retirement plans.
Final pay/last pay: The total exit package (e.g., unpaid wages, prorated 13th month, unused leave convertible to cash, allowances, etc.), separate from severance.

2) Legal Bases (high-level)

Labor Code (as renumbered) provisions on:
- Authorized-cause terminations (business exigencies).
- Disease as a ground for termination.
- Due process and notice requirements.
Implementing rules and DOLE regulations on notice to employees and to the DOLE Regional Office.
Jurisprudence (Supreme Court decisions) refining: computation bases, fractions of a year, financial assistance in equity, and separation pay in lieu of reinstatement.
Tax regulations on the income-tax treatment of separation benefits.

(Citations omitted by request; practitioners typically confirm the current article numbers and specific DOLE circulars.)

3) When Statutory Severance/Separation Pay Is Due

A. Authorized Causes (Company-Initiated)

These are management prerogatives recognized by law, provided they are done in good faith, with proper notice and criteria:

Installation of labor-saving devices
Redundancy
Retrenchment to prevent losses (requires proof of serious or imminent losses)
Closure or cessation of business (if not due to serious losses)

Minimum severance amounts (whichever is higher for the category):

Installation of labor-saving devices or Redundancy: One (1) month pay or one (1) month pay per year of service.
Retrenchment to prevent losses or Closure not due to serious losses: One (1) month pay or one-half (1/2) month pay per year of service.

Counting years: A fraction of at least six (6) months counts as one whole year.

B. Disease as a Ground for Termination (Employee Health)

Termination is allowed if:

A competent public health authority certifies the disease is of such nature/stage that it cannot be cured within six (6) months even with proper medical treatment, and
Continued employment is prohibited by law or prejudicial to the employee’s health or to others.

Minimum severance: One (1) month pay or one-half (1/2) month pay per year of service, whichever is higher (fraction ≥ 6 months = 1 year).

C. When Severance Is Not Statutorily Due

Voluntary resignation, except when granted by contract, CBA, company policy, or established practice.
Just-cause dismissal (e.g., serious misconduct, gross neglect), except that courts sometimes grant equitable financial assistance in exceptional circumstances (this is discretionary, not automatic).

4) Due Process & Mandatory Notices

For Authorized Causes and Disease

30-day written notice to the employee and to the DOLE Regional Office, prior to effectivity.
Notice must state the ground (e.g., redundancy) and the effective date.
For retrenchment/closure, the employer must have good-faith, objective criteria (e.g., seniority, efficiency ratings) and financial evidence for retrenchment.

For Just Causes (no severance)

Twin-notice rule: (1) notice to explain; (2) notice of decision, plus a meaningful opportunity to be heard (hearing/submission).

Non-compliance with the required notices can result in nominal damages or findings of illegal dismissal, which may lead to backwages, reinstatement, or separation pay in lieu of reinstatement (see Section 7).

5) How to Compute Severance

A. Define the “Pay” Base

Use the employee’s latest salary rate.
Include wage components that are regular, fixed, and integrated (e.g., guaranteed fixed allowances). Purely discretionary or sporadic benefits are generally excluded.

B. Apply the Correct Formula

Labor-saving devices/Redundancy: Severance = max(1 month pay, 1 month pay × Years of Service)
Retrenchment/Closure (no serious losses)/Disease: Severance = max(1 month pay, 0.5 month pay × Years of Service)
Rounding: If ≥ 6 months into the current year of service, round up to 1 year.

C. Examples

Redundancy; ₱40,000 monthly; 4 years, 7 months service

Years counted = 5 (round up)
1 month pay = ₱40,000
1 month × 5 = ₱200,000
Pay ₱200,000 (higher than ₱40,000)

Retrenchment; ₱30,000 monthly; 2 years, 5 months service

Years counted = 2 (no round up)
0.5 × 2 = 1 month pay = ₱30,000 → compare to 1 month (₱30,000)
Pay ₱30,000

Disease; ₱25,000 monthly; 7 months service

Years counted = 1 (round up)
0.5 × 1 = ₱12,500 vs 1 month = ₱25,000 → Pay ₱25,000

Tip: Severance is separate from the last pay, which should also settle: unpaid wages, prorated 13th month, monetized leave (if convertible), withheld allowances, and any lawful deductions or offsets.

6) Documentation Employees Should Gather

Written notice of termination stating the ground.
DOLE notice proof (copy or acknowledgment reference).
Computation sheet for severance and final pay (ask HR).
Payroll records: latest payslips, wage agreements, allowance policies.
Service records: hiring date, promotions, salary history, leaves.
For disease cases: medical certificate from a public health authority specifying the six-month prognosis and risks.

7) Illegal Dismissal: Separation Pay in Lieu of Reinstatement

When dismissal is found illegal, the default remedy is reinstatement plus full backwages. If reinstatement is no longer practical (e.g., strained relations, business closure), tribunals may award separation pay in lieu of reinstatement, commonly computed at one (1) month salary per year of service (≥ 6 months = 1 year). This judicial separation pay is different from statutory severance and is in addition to backwages and other monetary awards.

8) Tax Treatment (Overview)

Separation benefits due to causes beyond the employee’s control (authorized causes; disease; death/physical disability) are generally income-tax-exempt under Philippine tax rules.
Ex-gratia/voluntary payments not tied to authorized causes may be taxable.
Backwages and other awards may have different tax treatment.
Always request the employer’s withholding breakdown and consult a tax professional for edge cases.

9) Special Employment Categories

Probationary employees: Eligible for severance if terminated for authorized causes or disease; not if released for failure to qualify (a just cause/valid cause scenario) unless equity applies.
Project/seasonal employees: If employment ends because the project/season naturally ends, no severance; if ended earlier due to authorized causes, severance applies.
Fixed-term employees: If the term simply expires, no severance; if ended early for authorized causes, severance rules apply.
Kasambahay (domestic workers): Covered by the Kasambahay Law; severance follows general authorized-cause/disease rules, but check specific household policies and the written employment contract.
Unionized employees: CBAs can enhance severance beyond statutory floors; the higher or more beneficial benefit controls.
OFWs/Seafarers: Governed also by POEA/DOLE contracts and standard employment terms; check the standard employment contract for termination and compensation language.

10) Company Housing / “Tenant” Issues Upon Employment Exit

Some employees live in employer-provided housing (e.g., staff houses, dorms, plantation quarters). When employment ends:

Right to occupy typically derives from employment (a usufruct-like/company-housing privilege, not a standard civil lease).
Employers may require vacation of the premises upon separation, subject to reasonable notice and humane relocation timelines (especially for families or remote sites).
If there is a separate lease contract (you are truly a tenant under civil law), your lease rights (e.g., period, grounds for ejectment, security deposits) are governed by civil/lease/Housing rules, independently of labor severance.
Deductions (rent, utilities, damages): Must be lawful and documented; they cannot unilaterally negate statutory severance.
Security deposits for housing are not part of severance; settle them under the lease or housing policy.

Action items for housed employees:

Ask HR/Admin for the housing policy and whether your occupancy is a perk tied to employment or a separate lease.
If eviction is immediate and unsafe, request a short transition period or assistance (transport, relocation support), particularly in closures or retrenchment.

11) Employer Compliance Checklist

Identify the lawful ground (authorized cause or disease) and prepare objective criteria.
Serve 30-day written notices to employee and DOLE.
Prepare severance computation (apply correct formula; include fractions ≥ 6 months).
Settle final pay within a reasonable period (best practice: within 30 days from separation, or per DOLE guidance/policy).
Provide all certificates (COE, service record) and statutory documents (SSS, PhilHealth, Pag-IBIG updates).
Keep proof of compliance (notices, receipts, payroll records).

12) Common Pitfalls & How to Handle Them

Labeling without substance (e.g., “redundancy” but role still exists): Ask for the redundancy criteria and the organization chart showing abolished positions.
No DOLE notice: This may support claims for damages or illegality.
Under-computation (ignoring the 6-month rounding): Re-compute and raise the discrepancy in writing.
Reclassification to avoid severance (e.g., pushing “resignation”): Don’t sign a resignation if you disagree; document facts; seek counsel.
Offsets/deductions that wipe out severance: Challenge unlawful deductions; only lawful, documented liabilities may be offset.
Disease terminations without public health certification: Demand the required medical basis; otherwise, termination may be invalid.

13) Practical Steps for Employees

Stay calm and document everything (notices, chats, emails, memos).
Request the computation sheet and payment timeline in writing.
Check the ground invoked and match it to the correct formula.
Verify rounding of service years and the salary base used.
Clarify tax treatment and get a payslip-style breakdown of the final pay.
If housed by the employer, ask for the housing policy and transition plan.
Seek advice from a labor practitioner or DOLE if something doesn’t add up.

14) FAQs

Q1: I resigned. Do I get severance? Generally no, unless your contract/CBA/company policy grants an ex-gratia separation benefit.

Q2: I was dismissed for cause. Any chance of payment? Statutorily no, but courts may grant equitable financial assistance in rare, compassionate cases. Don’t rely on it.

Q3: Is severance taxable? Separation due to authorized causes/disease is generally tax-exempt; others may be taxable. Request a withholding breakdown and consult a tax adviser.

Q4: How fast must I be paid? Best practice is within 30 days from separation (or earlier if company policy says so). Delays can be challenged with DOLE.

Q5: What if the company shuts down without paying? File a claim with the NLRC/DOLE. In closures not due to serious losses, severance remains due; in closures due to serious losses, no statutory severance is required (but verify proof of losses).

15) Takeaways

Know the ground. It determines the rate (1 month vs 1/2 month per year).
Watch the notices. 30-day notice to both you and DOLE is mandatory for authorized causes and disease.
Do the math. ≥ 6 months = 1 year; use the latest salary and include integrated regular allowances.
Separate the concepts. Statutory severance, judicial separation pay, retirement pay, and final pay are different buckets.
Housing is separate. Your right to stay in employer housing depends on whether it’s an employment-linked privilege or a true lease.

This article provides a comprehensive, practice-oriented overview. For a specific case, consult a Philippine labor law professional who can review your documents and timelines in detail.