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Labor Code)
Feb 15, 2011 by Victorino Abrugar at Labor Laws, Law & Government, Philippine Laws
How to compute separation pay in the Philippines according to the Labor Code? Separation,
especially when employer-employee relationships are already well-established within the
workplace, is one happening that can be heartbreaking. But as the old saying says, the only
permanent thing in this world is change. People change; people reach the point that they need to
take new steps and directions. For this kind of situation, what we can only do is to hope for the
best and do the things that are necessary. Thus, employers should take responsibilities and
obligations, and give what is lawfully due to their terminated employees. On the other hand,
employees, who are terminated or have decided to resign, should know their rights and
understand how to exercise them. The following are guidelines on the computation of separation
pay.
Under Section 32(B)(6)(b) of the 1997 Tax Code, any amount received by an official or
employee or by his heirs from the employer as a consequence of separation of such official or
employee from the service of the employer due to death, sickness or other physical disability or
for any cause beyond the control of the said official or employee is exempt from taxes regardless
of age or length of service. The phrase for any cause beyond the control of the said official or
employee in effect connotes involuntariness on the part of the official or employee. The
separation from the service of the official or employee must not be of his own making. (Sec 4(f).
Revenue Regulations No 1-68; Sec 2(b)(2), Rev. Regs. No 6-82, as amended). Therefore,
separation pay under the foregoing ruling shall not be subject to income tax and consequently to
withholding tax.