I. Introduction

In the Philippine employment setting, questions often arise when an employee is separated from employment and receives a final pay package: Should bonuses be included in the computation of severance pay? The answer depends on the nature of the bonus, the legal basis of the separation pay, the wording of the employment contract or company policy, and whether the bonus has become a regular, demandable benefit.

Philippine labor law does not use the term “severance pay” as uniformly as some foreign jurisdictions do. In local practice, the more precise terms are separation pay, retirement pay, final pay, redundancy pay, retrenchment pay, or termination package. “Severance pay” is commonly used as a business or HR term to refer broadly to money paid upon separation from employment.

The core rule is this:

Bonuses are generally not included in the statutory computation of separation pay unless they form part of the employee’s regular wage or salary, or unless a contract, company policy, collective bargaining agreement, established practice, or separation agreement provides otherwise.

That general rule has important exceptions.

II. Key Terms

A. Severance Pay

In Philippine usage, “severance pay” usually refers to compensation paid to an employee upon termination of employment. It may include one or more of the following:

Statutory separation pay under the Labor Code;
Retirement pay under law, contract, company policy, or retirement plan;
Contractual severance benefits under an employment agreement;
Collective bargaining agreement benefits;
Ex gratia payments voluntarily granted by the employer;
Accrued final pay, such as unpaid salary, unused leave conversion, 13th month pay, commissions, or earned bonuses.

Strictly speaking, however, severance pay is not a single fixed legal category under Philippine law. The legal treatment depends on what particular payment is being computed.

B. Bonus

A bonus is an amount granted by the employer in addition to the employee’s usual compensation. It may be:

Discretionary bonus — given at the employer’s option, usually depending on profits, performance, management approval, or business conditions;
Contractual bonus — expressly promised in an employment contract, offer letter, CBA, incentive plan, or company policy;
Performance bonus — tied to individual, team, or company performance;
Guaranteed bonus — payable as a matter of right once employment or service conditions are met;
Signing, retention, or completion bonus — tied to joining, staying, or completing a project or period;
Productivity or incentive bonus — linked to output, sales, targets, or measurable results;
Christmas or year-end bonus — separate from the statutory 13th month pay, unless the employer treats it as equivalent or supplement subject to legal limitations;
Profit-sharing bonus — tied to business profits;
Commission-like bonus — often paid in sales or revenue-generating roles.

The label “bonus” is not controlling. Philippine labor law looks at the substance, not merely the name.

III. Statutory Separation Pay Under Philippine Law

Statutory separation pay is generally required when termination is due to authorized causes under the Labor Code, such as:

Installation of labor-saving devices;
Redundancy;
Retrenchment to prevent losses;
Closure or cessation of business not due to serious losses;
Disease, when continued employment is prohibited by law or prejudicial to the employee’s or co-employees’ health.

Separation pay may also be awarded in certain illegal dismissal cases where reinstatement is no longer feasible, usually in lieu of reinstatement.

The statutory formula varies depending on the cause of termination.

A. One Month Pay or One Month Pay per Year of Service, Whichever Is Higher

This generally applies to termination due to:

Installation of labor-saving devices;
Redundancy.

B. One Month Pay or One-Half Month Pay per Year of Service, Whichever Is Higher

This generally applies to termination due to:

Retrenchment to prevent losses;
Closure or cessation of operations not due to serious business losses;
Disease.

A fraction of at least six months is usually treated as one whole year for purposes of separation pay computation.

IV. What Is the Base for Separation Pay?

The Labor Code provisions on authorized-cause separation pay generally refer to “one month pay” or “one-half month pay for every year of service.”

In practice, the base is usually the employee’s latest salary rate, commonly understood as the employee’s regular monthly salary or regular wage, unless a more generous contract, CBA, policy, or company practice applies.

The critical question is whether bonuses are part of that base.

As a rule, statutory separation pay is computed using regular salary or wage, not occasional, contingent, or discretionary bonuses.

V. General Rule: Bonuses Are Not Automatically Included

A bonus is generally not demandable as a matter of right if it is an act of generosity, management prerogative, or dependent on conditions such as profits, performance, or approval.

Because of this, a bonus is generally not included in the statutory separation pay base unless it has legally become part of compensation.

Thus, where an employee receives a discretionary annual bonus, such bonus will usually not be added to the monthly salary in computing statutory separation pay.

Example

An employee earns:

Monthly basic salary: PHP 80,000
Annual discretionary bonus: PHP 240,000
Length of service: 5 years
Termination due to redundancy

The statutory separation pay is generally computed on PHP 80,000 monthly salary, not on a monthlyized amount including the PHP 240,000 bonus, unless the bonus has become part of the employee’s regular wage or the employer’s policy provides otherwise.

For redundancy:

PHP 80,000 × 5 years = PHP 400,000 separation pay.

The annual discretionary bonus is not automatically folded into the base.

VI. When Bonuses May Be Included

Bonuses may be included in severance or separation pay computation in several situations.

A. When the Bonus Is Contractually Guaranteed

If the employment contract provides that the employee is entitled to a fixed annual bonus, guaranteed bonus, 14th month pay, or similar recurring amount, the employee may argue that the bonus is not discretionary but part of agreed compensation.

The treatment then depends on the wording.

For example:

“Employee shall receive an annual guaranteed bonus equivalent to two months’ salary, payable every December.”

This language supports the position that the bonus is a contractual benefit. However, whether it becomes part of the separation pay base still depends on whether the contract says it should be included in severance computation or whether the benefit is considered part of salary.

A guaranteed bonus may be recoverable as a separate final pay item even if it is not included in the statutory separation pay base.

B. When the Bonus Has Become Company Practice

A bonus may become demandable if it has been given:

Consistently;
Deliberately;
Over a significant period;
Without express reservation of discretion;
Under circumstances showing that employees were led to expect it as part of compensation.

Under Philippine labor principles, benefits that have ripened into company practice may not be unilaterally withdrawn if doing so would violate the rule against diminution of benefits.

If a bonus has become a regular benefit, an employee may claim it as part of final pay. Whether it is included in the separation pay base is a separate question, but the argument for inclusion becomes stronger if the bonus is fixed, regular, and wage-like.

C. When the Bonus Is Actually Part of Wage or Salary

Some employers label part of compensation as a “bonus” even though it functions like salary. If the amount is fixed, regularly paid, not dependent on profits or discretion, and intended as compensation for work, it may be treated as part of wages.

The Labor Code broadly defines wage as remuneration or earnings capable of being expressed in money, payable by an employer to an employee for work done or to be done.

A payment called a “bonus” may therefore be considered wage if, in substance, it compensates work and is regularly due.

D. When the CBA Includes Bonuses in the Formula

For unionized employees, the collective bargaining agreement may provide a more generous severance formula. It may define the base as:

Basic salary;
Gross monthly pay;
Monthly compensation;
Regular allowances;
Average earnings;
Salary plus guaranteed bonuses;
A fixed number of months per year of service.

If the CBA expressly includes bonuses, that agreement controls, provided it is not less than the statutory minimum.

E. When Company Policy or Plan Includes Bonuses

Companies sometimes maintain separation plans, redundancy policies, retirement plans, executive severance policies, or global termination programs. These may define severance pay using broader compensation concepts, such as:

Monthly base pay;
Annual base salary;
Total guaranteed cash;
Total target compensation;
Monthly salary plus fixed allowances;
Average monthly earnings;
Annual salary including guaranteed bonus.

If the policy includes bonus payouts in the computation, employees covered by the policy may invoke it.

F. When the Separation Agreement Includes It

A quitclaim, release, separation agreement, mutual separation agreement, or settlement may expressly include a bonus component. Once validly agreed, the amount becomes contractual.

For example:

“Employee shall receive separation pay equivalent to one month of gross compensation per year of service, inclusive of basic salary, fixed allowances, and guaranteed annual bonus.”

In that case, the bonus forms part of the agreed computation.

G. When the Bonus Has Already Been Earned Before Separation

Even if a bonus is not part of the separation pay base, it may still be payable as a separate item if it has already been earned.

For example, if an employee met all performance conditions before termination and the bonus plan says payment is due upon achievement of targets, the employee may have a claim to the bonus even if payout occurs after the separation date.

The issue then is not inclusion in severance pay, but entitlement to an accrued benefit.

VII. Bonuses Versus 13th Month Pay

A bonus should be distinguished from statutory 13th month pay.

A. 13th Month Pay Is Mandatory

Rank-and-file employees are generally entitled to 13th month pay under Presidential Decree No. 851 and its implementing rules. It is usually computed as at least one-twelfth of the basic salary earned within the calendar year.

B. 13th Month Pay Is Not the Same as a Bonus

A Christmas bonus, year-end bonus, or performance bonus is not automatically the same as 13th month pay. The 13th month pay is a statutory minimum benefit. A bonus is generally additional, unless validly treated as compliance with the 13th month pay requirement under applicable rules.

C. 13th Month Pay in Final Pay

Upon separation, the employee is generally entitled to the proportionate 13th month pay earned up to the date of separation.

This is separate from separation pay.

D. Is 13th Month Pay Included in Separation Pay Base?

Generally, no. Statutory separation pay is computed on salary or wage, while 13th month pay is a separate statutory benefit. It is not normally added to monthly salary to enlarge the separation pay base unless a contract, CBA, or policy says so.

VIII. Bonuses Versus Commissions

Commissions require separate treatment.

A commission may be considered part of wage if it is compensation for services rendered, particularly for sales employees whose earnings depend significantly on commissions.

The treatment of commissions in separation pay computation can be more complex than bonuses because commissions may be directly tied to work performed and may constitute regular compensation.

Where commissions are regular, earned, and integral to the employee’s pay structure, there is a stronger basis to include them in wage-related computations or at least to pay earned commissions as part of final pay.

By contrast, a discretionary bonus that depends on management approval or company profits is less likely to be included.

IX. Bonuses Versus Allowances

Allowances may or may not be included in separation pay computation depending on their nature.

A. Reimbursable or Expense-Based Allowances

Allowances for transportation, representation, communication, fuel, meals, or travel may be excluded if they are reimbursements or necessary expenses related to the job.

B. Regular, Fixed, Non-Reimbursable Allowances

If an allowance is fixed, regularly received, not subject to liquidation, and forms part of compensation, it may be treated as wage.

The same reasoning can apply to bonuses: the more regular, fixed, and compensation-like the payment is, the stronger the argument for inclusion.

X. Discretionary Bonuses

A discretionary bonus is generally not included in severance pay computation.

Common indicators of discretion include:

The plan says payment is subject to management approval;
The employer reserves the right to amend, suspend, or cancel the plan;
Payment depends on company profitability;
Payment depends on individual performance rating;
The amount varies from year to year;
Employees separated before payout date are excluded;
The bonus is described as non-guaranteed;
There is no consistent formula;
The employer has not paid it uniformly or regularly.

A discretionary bonus may still be paid voluntarily, but employees cannot usually demand its inclusion in statutory separation pay.

XI. Guaranteed Bonuses

A guaranteed bonus is treated differently.

Examples include:

“Guaranteed 14th month pay”;
“Annual guaranteed bonus equivalent to one month salary”;
“Fixed annual incentive of PHP 100,000”;
“Contractual completion bonus upon finishing the project”;
“Retention bonus payable after twelve months of continuous service.”

A guaranteed bonus may be enforceable as a contractual obligation. However, it is still necessary to distinguish between:

Payment of the bonus itself; and
Inclusion of the bonus in separation pay computation.

An employee may be entitled to receive the guaranteed bonus as part of final pay, but that does not always mean it increases the statutory separation pay base.

The strongest case for inclusion exists where the contract or policy defines severance using total compensation, gross compensation, annual compensation, or similar language that includes the bonus.

XII. Performance Bonuses

Performance bonuses are often conditional. The conditions may include:

Employment on the payout date;
Achievement of individual targets;
Achievement of company targets;
Satisfactory performance rating;
No pending disciplinary action;
Approval by management or the board;
Completion of a fiscal year;
Continued employment through a bonus payment date.

If the employee is separated before the payout date, entitlement depends on the bonus plan language.

A. “Must Be Employed on Payout Date” Clauses

Many bonus plans require the employee to be actively employed on the payout date. Philippine tribunals may examine whether such clauses are reasonable and clearly communicated.

If the clause is valid and the employee was separated before payout, the employer may argue that no bonus vested.

However, if the separation was employer-initiated, especially for authorized causes or later found illegal, the employee may argue that the employer should not be allowed to defeat earned compensation by terminating employment before payout.

B. Pro-Rated Performance Bonus

Some plans allow pro-rated bonuses for employees who worked part of the performance year. If so, the employee may claim the pro-rated amount as part of final pay.

C. Illegal Dismissal Context

If an employee was illegally dismissed, the treatment of bonuses may arise in the computation of backwages or monetary awards. Benefits that the employee would have received had employment continued may be considered, depending on proof and the nature of the benefit.

XIII. Profit-Sharing and Company Performance Bonuses

Profit-sharing bonuses are usually dependent on the employer’s profits. If profits are absent, no bonus may be due, unless there is a guaranteed minimum.

These are generally not included in statutory separation pay because they are not fixed salary. But again, they may become enforceable if:

The company has a written profit-sharing plan;
The conditions have been met;
The employee is within the covered class;
The bonus has vested;
The employer has consistently paid it as a matter of practice.

XIV. Executive Bonuses and Severance Packages

Executives often have more complex compensation arrangements, including:

Annual incentive plans;
Long-term incentive plans;
Stock options;
Restricted stock units;
Deferred bonuses;
Retention bonuses;
Change-in-control payments;
Separation agreements.

For executives, the treatment of bonuses is usually governed heavily by contract.

Important clauses include:

Definition of “base salary”;
Definition of “annual compensation”;
Definition of “target bonus”;
Treatment upon resignation;
Treatment upon termination without cause;
Treatment upon redundancy or restructuring;
Vesting provisions;
Forfeiture provisions;
Clawback provisions;
Governing law and dispute resolution clauses.

If the severance clause says the employee is entitled to “six months’ base salary,” bonuses are usually excluded. If it says “six months’ total compensation” or “six months’ average monthly gross pay,” bonuses may be included depending on the plan definition.

XV. Backwages and Bonuses in Illegal Dismissal Cases

In illegal dismissal cases, the employee may be entitled to reinstatement without loss of seniority rights and payment of full backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from the time compensation was withheld up to actual reinstatement.

If reinstatement is not feasible, separation pay may be awarded in lieu of reinstatement, in addition to backwages.

Bonuses may become relevant in two different ways:

As part of backwages, if they are regular benefits the employee would have received;
As part of separation pay in lieu of reinstatement, depending on the applicable computation.

Regular, fixed, and demandable bonuses have a stronger chance of being included in monetary awards than discretionary or contingent bonuses.

XVI. Retirement Pay and Bonuses

Retirement pay is different from separation pay.

Under Philippine law, retirement benefits may arise from:

A company retirement plan;
A collective bargaining agreement;
An employment contract;
The statutory minimum retirement pay under the Labor Code;
A more beneficial company practice.

For statutory minimum retirement pay, the law generally refers to a formula based on salary and certain benefits included by law. The standard statutory minimum has often been described as at least one-half month salary for every year of service, with “one-half month salary” including fifteen days salary plus one-twelfth of the 13th month pay and the cash equivalent of not more than five days of service incentive leave, unless a more favorable arrangement exists.

Bonuses are generally not automatically included in statutory retirement pay unless the retirement plan, CBA, contract, or policy includes them.

Retirement plans often define the salary base carefully. Some use “basic monthly salary,” excluding bonuses. Others use “monthly salary,” “gross pay,” or “covered compensation.” The wording controls, subject to labor standards minimums.

XVII. Final Pay and Bonus Entitlement

A separated employee’s final pay is broader than separation pay. It may include:

Unpaid salary;
Pro-rated 13th month pay;
Cash conversion of unused leave, if convertible by law, contract, policy, or practice;
Separation pay, if legally or contractually due;
Retirement pay, if applicable;
Earned commissions;
Earned incentives;
Reimbursements;
Tax refunds, if any;
Earned bonuses, if vested or contractually due.

Thus, even where a bonus is excluded from the separation pay computation, it may still be payable as a separate final pay item.

XVIII. Diminution of Benefits

The rule against diminution of benefits is central to bonus disputes.

An employer may not unilaterally withdraw or reduce a benefit that has ripened into a company practice. To establish this, employees usually need to show that the benefit was:

Given over a long period;
Consistent and deliberate;
Not due to error;
Not expressly conditional or discretionary;
Known and relied upon by employees.

If a yearly bonus was paid for many years but the employer always stated that it was discretionary and dependent on profits, the employer may argue that no vested right arose.

If, however, the bonus was paid regularly, uniformly, and without reservation, employees may argue that it became part of their compensation package.

XIX. The Importance of Plan Language

Bonus and severance disputes often turn on wording. The following distinctions matter.

A. “Basic Salary”

Usually excludes bonuses, allowances, commissions, and incentives.

B. “Monthly Salary”

May mean basic monthly salary unless defined otherwise.

C. “Gross Monthly Salary”

May include fixed regular allowances, and possibly other regular compensation, depending on company practice and payroll treatment.

D. “Total Compensation”

More likely to include bonuses, allowances, commissions, and other compensation items, especially if defined broadly.

E. “Annual Compensation”

May include annual salary plus guaranteed bonuses, depending on context.

F. “Target Compensation”

May include target bonus or incentive opportunity, but not necessarily actual bonus unless the plan says so.

G. “Regular Pay”

May include recurring and non-discretionary amounts, but usually excludes contingent bonuses.

H. “Wages”

Under labor standards analysis, may include remuneration for work, even if labeled differently.

XX. Tax Treatment

Separation benefits and bonuses also raise tax issues.

Certain separation benefits may be exempt from income tax if paid due to death, sickness, physical disability, or causes beyond the employee’s control, subject to tax rules and documentation.

Bonuses, 13th month pay, and other benefits are generally subject to the statutory tax treatment applicable to compensation income, including the annual exclusion threshold for 13th month pay and other benefits under Philippine tax law.

The tax treatment of a bonus may differ from its labor law treatment. A payment may be taxable as compensation but still excluded from statutory separation pay computation.

Employers should not assume that tax classification determines labor entitlement.

XXI. Practical Computation Scenarios

Scenario 1: Pure Discretionary Bonus

Employee earns PHP 60,000 monthly salary and sometimes receives a discretionary annual bonus. The employee is retrenched after 8 years.

Separation pay base: PHP 60,000.

If retrenchment applies:

PHP 60,000 × 0.5 × 8 = PHP 240,000.

The discretionary bonus is generally excluded.

Scenario 2: Guaranteed 14th Month Pay

Employee earns PHP 60,000 monthly salary and has a contractually guaranteed 14th month pay. The employee is made redundant after 8 years.

Statutory separation pay is generally:

PHP 60,000 × 8 = PHP 480,000.

The guaranteed 14th month pay may also be payable if already accrued or provided by contract, but it is not automatically added to the separation pay base unless the contract or policy says so.

Scenario 3: Severance Based on “Gross Monthly Compensation”

Employee earns:

Basic salary: PHP 60,000
Fixed monthly allowance: PHP 10,000
Guaranteed monthly productivity bonus: PHP 5,000

Policy grants redundancy pay based on “gross monthly compensation.”

The separation pay base may arguably be PHP 75,000, because the policy uses a broader compensation base.

Scenario 4: Annual Performance Bonus Earned Before Separation

Employee completed the performance year, achieved all targets, and was terminated for redundancy before the scheduled payout date. The bonus plan allows pro-rated or earned payout.

The employee may claim the bonus as part of final pay. Whether it increases separation pay depends on the severance formula.

Scenario 5: Illegal Dismissal

Employee was illegally dismissed and historically received a guaranteed annual bonus.

The employee may claim that the bonus should be included in the monetary award as a benefit lost due to illegal dismissal, particularly if it was regular and demandable.

XXII. Employer Best Practices

Employers should clearly define bonus and severance terms in writing.

Important drafting points include:

State whether a bonus is discretionary or guaranteed;
State the conditions for eligibility;
State whether active employment on payout date is required;
State whether employees separated due to authorized causes are eligible for pro-rated payout;
Define the severance pay base;
Specify whether “salary” means basic salary only;
Identify excluded items, such as bonuses, commissions, allowances, stock awards, and incentives;
Avoid inconsistent practices;
Reserve discretion clearly if discretion is intended;
Ensure compliance with statutory minimum benefits;
Avoid discriminatory or bad-faith application;
Document business reasons for withholding discretionary bonuses;
Align payroll, HR policy, offer letters, and separation agreements.

A common source of disputes is the mismatch between the employment contract, handbook, bonus plan, and actual payroll practice.

XXIII. Employee Best Practices

Employees reviewing a separation package should examine:

Employment contract;
Offer letter;
Bonus plan;
Employee handbook;
CBA, if applicable;
Retirement plan;
Past payslips;
Bonus letters;
Company announcements;
Historical bonus payments;
Separation agreement;
Final pay computation;
Tax treatment;
Quitclaim terms.

Employees should distinguish between three different claims:

The bonus should be included in the separation pay base;
The bonus is separately payable as earned compensation;
The bonus is part of backwages or damages due to illegal dismissal.

These are related but legally distinct.

XXIV. Quitclaims and Waivers

Employees are often asked to sign quitclaims upon receipt of final pay. A quitclaim may be valid if:

It is voluntarily executed;
The employee understands its terms;
The consideration is reasonable;
There is no fraud, intimidation, mistake, or undue pressure;
The waiver does not defeat labor standards or public policy.

If the quitclaim broadly waives bonus claims, the employee may have difficulty later claiming unpaid bonuses, unless the waiver is invalid or the amount paid is unconscionably low.

Employees should review whether the quitclaim specifically covers:

Separation pay;
Bonuses;
Incentives;
Commissions;
Retirement benefits;
Stock or equity awards;
Tax refunds;
Claims for illegal dismissal;
Future or unknown claims.

XXV. Common Legal Issues

A. Can an Employer Exclude Bonuses from Statutory Separation Pay?

Yes, generally, if the bonus is discretionary, contingent, or not part of regular salary.

B. Can an Employer Exclude a Guaranteed Bonus?

The employer may exclude it from the statutory separation pay base if the law, contract, CBA, or policy uses basic salary as the base. But the employer may still have to pay the guaranteed bonus separately if earned or vested.

C. Can a Bonus Become Demandable?

Yes. A bonus can become demandable if it is contractually promised or has become company practice.

D. Does Past Payment Automatically Make a Bonus Demandable?

Not always. The employee must show that the payment was consistent, deliberate, and not merely discretionary or conditional.

E. Are Bonuses Included in Backwages?

They may be included if they are regular, demandable benefits the employee would have received but for the illegal dismissal.

F. Are Bonuses Included in Retirement Pay?

Not automatically. The retirement plan, CBA, contract, company policy, or statutory formula controls.

G. Is a Bonus the Same as 13th Month Pay?

No. The 13th month pay is a statutory benefit, while a bonus is generally contractual, discretionary, or policy-based.

H. Does Tax Treatment Decide Labor Treatment?

No. Tax treatment and labor entitlement are related but distinct.

XXVI. Analytical Framework

To determine whether a bonus should be included in severance or separation pay computation, ask the following:

1. What type of separation payment is involved?

Statutory separation pay?
Contractual severance?
CBA benefit?
Retirement pay?
Backwages?
Final pay?
Settlement amount?

2. What is the legal basis?

Labor Code?
Employment contract?
Bonus plan?
CBA?
Company policy?
Retirement plan?
Company practice?
Settlement agreement?

3. What is the computation base?

Basic salary?
Monthly salary?
Gross pay?
Total compensation?
Average earnings?
Annual compensation?
Wages?

4. What is the nature of the bonus?

Discretionary?
Guaranteed?
Performance-based?
Profit-based?
Regular and fixed?
Contractual?
Vested?
Subject to active employment condition?

5. Has the bonus become demandable?

Paid consistently?
Paid over a long period?
Paid without reservation?
Uniformly granted?
Relied upon by employees?

6. Was the bonus already earned?

Were targets met?
Was the performance period completed?
Did the employee satisfy eligibility requirements?
Was approval merely ministerial or genuinely discretionary?

7. Is there a waiver?

Did the employee sign a quitclaim?
Was the waiver valid?
Did it specifically cover bonuses?

XXVII. Suggested Drafting Language

A. Employer-Friendly Exclusion

“Separation pay, where applicable, shall be computed based solely on the employee’s latest basic monthly salary. Bonuses, commissions, incentives, allowances, equity awards, and other non-basic compensation shall not form part of the computation base unless expressly required by law or a written agreement signed by the Company.”

B. Employee-Friendly Inclusion

“Severance pay shall be computed based on the employee’s gross monthly compensation, including basic salary, fixed allowances, guaranteed bonuses, and other regular compensation received by the employee.”

C. Discretionary Bonus Clause

“Any bonus granted by the Company is discretionary, non-recurring, and subject to management approval, company performance, individual performance, and such other conditions as the Company may determine. No bonus shall be deemed earned or vested unless expressly approved and paid.”

D. Pro-Rated Bonus Clause

“An employee separated due to redundancy, retrenchment, closure not due to serious losses, disease, retirement, or other authorized cause shall be entitled to a pro-rated annual bonus for the completed portion of the performance year, subject to achievement of applicable performance conditions.”

XXVIII. Conclusion

In the Philippine context, bonuses are not automatically included in severance or separation pay computation. The default approach is that statutory separation pay is computed based on regular salary or wage, not on discretionary, contingent, or occasional bonuses.

However, bonuses may affect the employee’s separation package where they are guaranteed, vested, regularly given as company practice, treated as part of wages, included by contract or CBA, or expressly covered by a severance policy or settlement agreement.

The decisive factors are the source of the right, the nature of the bonus, the wording of the applicable document, and the actual practice of the employer.

A careful legal analysis should separate four issues:

Whether the bonus is included in the separation pay base;
Whether the bonus is separately payable as part of final pay;
Whether the bonus forms part of backwages or monetary awards in an illegal dismissal case;
Whether the employee validly waived the bonus claim.

The safest summary is this:

A discretionary bonus is generally excluded. A guaranteed, vested, regular, or wage-like bonus may be recoverable, and may be included in severance computation if the governing contract, policy, CBA, company practice, or settlement formula supports inclusion.