What Severance Pay Rules Must Employers Follow in The Philippines?

Which Employees Qualify for Severance Pay?

Employees in the Philippines qualify for severance pay if they are terminated due to authorized causes. This includes:

• Employees laid off due to installation of labor-saving devices.
• Employees affected by redundancy (when a position is no longer necessary).
• Employees terminated due to retrenchment to prevent business losses.
• Employees dismissed due to closure or cessation of operations, provided it is not due to serious misconduct or employer negligence.
• Employees separated due to illness that prevents continued work, certified by a public health authority.

Note: Employees terminated for just causes such as serious misconduct, fraud, or gross neglect are not entitled to severance pay.

What Are the Legal Timelines for Paying Severance?

Under DOLE guidelines, employers must pay separation pay immediately upon termination or within a reasonable period not exceeding 30 days. This payment should be made in full, along with other final pay components such as accrued leave and 13th-month pay, if applicable.

The separation pay must be settled in cash or equivalent form, and employers are expected to issue a written computation and proof of payment. Failure to do so within the prescribed period can result in labor complaints filed by the employee before the DOLE or the National Labor Relations Commission (NLRC).

What Penalties Apply if Severance Is Not Paid Correctly?

Employers who fail to pay severance correctly or on time may face several legal consequences under the Philippine Labor Code and DOLE enforcement rules, including:

• Labor claims and lawsuits before the NLRC or DOLE.
• Payment of arrears plus interest, as determined by the authorities.
• Administrative fines or sanctions for non-compliance.
• Reputational and legal risk, especially for foreign employers or contractors operating under Philippine labor laws.

These penalties can quickly escalate if non-payment affects multiple employees or is found to be willful.

Does Outsourcing Employment via an EOR Change Severance Liability?

Yes, when a company uses an Employer of Record (EOR) in the Philippines, the EOR becomes the legal employer of record and is responsible for managing employment relationships, including severance pay. This means the EOR handles severance calculations, compliance, and payment in line with local labor laws.

For the client company, this arrangement significantly reduces legal exposure and administrative burden. However, employers should ensure their EOR partner is fully compliant with DOLE regulations and transparent about termination processes to avoid indirect liability or disputes.

Be 100% Compliant in Offering Severance with Playroll

Navigating severance rules in the Philippines can be complex, from determining the right cause for termination to calculating accurate pay and meeting DOLE deadlines. Playroll makes this process seamless.

Our platform ensures accurate severance calculations, timely disbursements, and strict compliance with Philippine labor law. Whether you’re hiring directly or through an EOR arrangement, Playroll ensures every step meets local requirements, protecting your company from costly penalties and keeping your employer brand strong.

With Playroll, you never have to guess if your team’s severance payments are legally compliant. We handle the details, so you can focus on running your business with confidence.